(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in
the interests of brevity, portions of any opinion may not have been summarized).
Argued October 23, 2000 -- Decided March 1, 2001
ZAZZALI, J., writing for a unanimous Court.
This appeal involves the statute of limitations for filing an action under New Jersey's Uniform Fraudulent
Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34. The main issues are at what point the UFTA's four-year statute of
limitations begins to run and at what point a creditor “could reasonably have ... discovered” the transfer in
circumstances that permit the one-year tolling of the statute of limitations. The parties to this action under the
UFTA are plaintiff, SASCO 1997 NI, LLC (referred to with its predecessors-in-interest as “SASCO”), and
defendants, Arik and Rochelle Zudkewich.
In December 1989, SASCO made a loan of $2.9 million to Gateway 195 (Gateway), a partnership formed
to develop commercial real estate. Arik Zudkewich was one of the nine general partners of Gateway, each of whom
personally guaranteed the loan. On December 6, 1994, Gateway was considered to be in default on the loan and
immediate payment of the loan was demanded. Gateway and eight of the nine partners, including Zudkewich, were
sued. Several months later Gateway declared bankruptcy.
Although most of the Gateway partners entered into a settlement of the litigation, which was coordinated
with the resolution of the bankruptcy, Zudkewich and two other partners failed to settle, so the Law Division suit
proceeded against them. Plaintiff obtained a judgment against Zudkewich in the amount of $1,300,347.50 in
August 1997.
Plaintiff had ordered an investigative search of Zudkewich's assets when it appeared that plaintiff was
about to obtain a default judgment against him. The search revealed that on May 1, 1990, five months after he had
guaranteed the Gateway loan, Zudkewich had transferred to his wife for $1 his interest in the couple's residence.
The deed was recorded on May 8, 1990. The house was sold for $1.2 million in 1992. Title to the next two homes
the couple lived in was in the wife's name only.
On April 23, 1998, SASCO sued Arik and Rochelle Zudkewich, alleging a violation of the UFTA, fraud,
conversion, unjust enrichment, and seeking the imposition of a constructive trust. The court granted defendants'
motion to dismiss the claims, finding the UFTA claims barred by the statute of limitations.
The Appellate Division affirmed the judgment. The Supreme Court granted SASCO's petition for
certification.
HELD: The four-year statute of limitations under the Uniform Fraudulent Transfers Act begins to run when the
subject property is transferred. To obtain the benefits of the one-year tolling provision in actions concerning
transfers made from this time forward, a creditor must undertake an asset search no later than the point at which the
borrower defaults on the loan.
1. By the plain language of N.J.S.A. 25:2-31a, the four-year statute of limitations for bringing an action under the
UFTA runs from the date of property transfer, not from the date of judgment. This accords with the intent of the
Legislature. SASCO's complaint, filed eight years after Arik Zudkewich transferred his interest in the marital
residence to his wife, is untimely under section 31a. (pp. 8-11)
2. Under the UFTA, an action filed after the four-year period will be considered timely if filed “within one year
after the transfer was or could reasonably have been discovered by the claimant.” The inquiry to be made is when a
reasonable commercial creditor would have learned of the transfer, not when SASCO, using reasonable means,
could have discovered the transfer. (pp. 11-14)
3. A reasonable commercial creditor would perform an asset search of a loan's guarantors when a loan goes into
default. Here, the loan was in default by December 1994. An asset search at that time would have disclosed the
property transfer, so SASCO had until December 1995 to file its UFTA complaint. Because SASCO did not file
until December 1998, the complaint was untimely. (pp. 14-18)
4. SASCO's claims of fraud, conversion, unjust enrichment, and for a constructive trust properly were dismissed
and there is no factual issue present that requires a hearing. (pp. 18-19)
5. The tolling-provision issue is one of first impression, and having little guidance in caselaw, SASCO reasonably
relied on a plausible, though incorrect, interpretation of the law. Accordingly, the decision of the Court will apply
purely prospectively, that is, to transfers that occur after the date of the opinion. Pure prospectivity will avoid
penalizing other commercial lenders who have followed the same practice as SASCO. (pp. 19-21)
6. It can fairly be inferred that Zudkewich fraudulently transferred his property. For that reason and because
SASCO in an area of unsettled law reasonably relied on the predominant industry practice of waiting until judgment
to conduct an asset search, it is fair in this case to find the one-year tolling provision to run from judgment and
SASCO's complaint to be timely filed. (pp. 21-23)
The judgment of the Appellate Division is AFFIRMED in part and REVERSED in part, and the matter
is REMANDED to the Law Division to adjudicate SASCO's UFTA claim.
CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, VERNIERO, and LaVECCHIA
join in JUSTICE ZAZZALI's opinion.
SUPREME COURT OF NEW JERSEY
A-
94 September Term 1999
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.
Argued October 23, 2000 -- Decided March 1, 2001
On certification to the Superior Court,
Appellate Division.
Jonathan T.K. Cohen argued the cause for
appellant (Fischbein Badillo Wagner Harding,
attorneys; Mr. Cohen, Jamiee Katz Sussner
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).
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 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.
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 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),See footnote 11 for a nominal fee.
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 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 (2000), and allowed the New Jersey Bankers Association, Summit Bank, and Valley National Bank to appear as amici curiae.
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 (App. Div. 1994). Prior to the UFTA “[s]tatutes of limitations applicable to the avoidance of fraudulent transfers and obligations var[ied] 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 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.
“[W]hen 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 (1995); accord Roig v.
Kelsey,
135 N.J. 500, 515 (1994); Lezniak v. Budzash,
133 N.J. 1,
8 (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 (1998) (citing Strasenburgh v.
Straubmuller,
146 N.J. 527, 539 (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 (1990). In addition to the provision in question, we
also consider the overall legislative scheme. Fiore v.
Consolidated Freightways,
140 N.J. 452, 466 (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.
SASCO's request also conflicts with another portion of the UFTA, N.J.S.A. 25:2-21, which defines a “[c]laim” 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 (Ch. Div. 1997) (citations and footnotes omitted); see Flood v. Caro Corp., supra, 272 N.J. Super. at 405 (“Any creditor, 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, 1 985 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. Id. 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 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, 60 Cal. Rptr.2d 841, 843 (Cal. Ct. App. 1997) (“[W]here 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 decide the issue under the UFTA). Other jurisdictions have concluded differently. See, e.g., Levy v. Markal Sales Corp., 724 N.E 2d 1008, 1014 (Ill. App. Ct. 2000) (“[T]he four-year [UFTA] limitation period . . . commences from the date the transfer is made, and not on the date judgment is entered.”), appeal denied, 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 was made, and the complaint was therefore untimely.
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 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 “[t]here are a whole host of bodies of law on tolling the statute of limitations, and . . . section (a) incorporate[s] 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 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 (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 (App. Div. 1986); Partrick v. Groves, 115 N.J. Eq. 208, 211 (E. & A. 1934); Giehrach v. Rupp, 112 N.J. Eq. 296, 302-03 (E. & A. 1933); Sun Bldg. & Loan Ass'n v. Rashkes, 119 N.J. Eq. 443, 451 (Ch. 1936); Lincoln v. Judd, 49 N.J. Eq. 387, 389 (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 would have known about the transfer, rather than whether SASCO could, using reasonable means, have discovered the transfer. See Freitag v. McGhie, 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 (1967) (“[P]roof 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 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 (App. Div. 1990) (“[P]roof of an industry custom is not conclusive on the issue of reasonableness but merely evidential.”), aff'd, 125 N.J. 491, 516 (1991); cf. Klimko v. Rose, 84 N.J. 496, 506 n.4 (1980) (“[A]n 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 litigation contrary to public policy. See Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 350-51 (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 (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 (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 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 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.See footnote 22 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.
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 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.
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 (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 (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 (1994). We decline to impose a constructive trust based on the facts in this record.
VI.
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 N.J. at 298 (quoting Oxford Consumer Discount Co. v. Stefanelli, 104 N.J. Super. 512, 521 (App. Div. 1969), aff'd, 55 N.J. 489 (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 (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 (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 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, ___ N.J. ___, ___ (2001) (slip op. at 24) 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 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, “[o]ur 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.
CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, VERNIERO and LaVECCHIA join in JUSTICE ZAZZALI's opinion.
NO. A-94 SEPTEMBER TERM 1999
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
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.
DECIDED March 1, 2001
Chief Justice Poritz PRESIDING
OPINION BY Justice Zazzali
CONCURRING OPINION BY
DISSENTING OPINION BY
REVERSE
IN PART CHIEF JUSTICE PORITZ X JUSTICE STEIN X JUSTICE COLEMAN X JUSTICE LONG X JUSTICE VERNIERO X JUSTICE LaVECCHIA X JUSTICE ZAZZALI X
Footnote: 1 1For simplicity, SASCO hereinafter also refers to Midlantic and ALI. Footnote: 2 2We 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.