The Mesh Between Federal Procedural Principles And NJ Uniform Fraudulent Transfer Act: Part III

The Mesh Between Federal Procedural Principles And NJ Uniform Fraudulent Transfer Act: Part III

Banco Popular N. Am. v. Gandi, 184 N.J. 161 (2005) recognized that the residual principles of law and equity, including the law merchant, and the law relating to fraud and misrepresentation, were preserved by N.J.S.A. 25:2 32. However, the UFTA did not create new species of tort recognized in other jurisdictions as "creditor fraud". Merely being present at the scene of the crime or being associated with the fraudulent transferor is insufficient to rain liability down upon innocent bystanders. The attorney of a fraudulent transferor, or his associates, incurs liability to his creditors only when they have knowingly engaged in a civil conspiracy, which requires "an agreement between the parties to inflict a wrong or injury upon another, and an overt act that results in damage." 184 N.J. at 174, quoting Morgan v. Union County Board of Chosen Freeholders, 268 N.J. super 337, 364 (App. Div. 1993), certif denied 135 N.J. 468 (1994). Absent such a conspiracy, or aiding and abetting, mere representation of a debtor who attempts a fraudulent transfer does not create liability in the absence of additional inculpating factors. Returning to Ford Motor Credit, Judge Irenas held that the allegations obviously created a claim for relief under the UFTA. 3. FED. R. CIV. PROC. 12(b)(1)--Ripeness Judge Irenas then resolved an interesting interplay between New Jersey substantive law and the ripeness doctrine. The 2006 action had not yet been resolved. That case sought to establish the monetary liability for some of the claims which were the subject of the 2007 fraudulent conveyance action. The defendants asserted that the claims set forth in the 2007 complaint were therefore premature and did not meet the "cases and controversies" requirement justiciability requirement of Article III of the U.S. Constitution. See Medimmune, Inc. v. Genetech, Inc., 127 S.Ct. 764, 771 (2007). Unlike common law, the UFTA defines disputed and unliquidated debts as "claims" entitled to the protection of the Act. But does a UFTA action based upon a disputed claim lack the necessary concreteness and definiteness to be justiciable in federall court? The district court enabled the claims, and opted to follow the substantive state law in this diversity case. Judge Irenas set forth multiple grounds for this decision, which may indicate some uncertainly on his part. 4. FED. R. CIV. PROC. 12(b)(1) -- Entire Controversy Doctrine Finally, the defendants argued that the 2007 action was barred by the entire controversy doctrine, codified in R. 4:30(A), which states that "non-joinder of claims required to be joined by [this rule] shall result in preclusion of the omitted claims .... " Thus, under New Jersey procedural rules, "a party cannot withhold part of a controversy for separate later litigation even when the withheld component is a separate and independently cognizable cause of action." Ford Motor Credit Co. at 14, quoting Paramount Aviation Corp. v. Augusta, 178 F.3d 132, 137 (3d Cir. 1999)[cert. denied 528 U.S. 878]. The preclusive effect of a judgment is determined by the law of the issuing court. Paramount, 178 F.3d at 135. In Re Kaplan, 143 F.3d 807, 814 15 (3d Cir. 1997) held "that federal law governs the preclusive effect of a prior diversity judgment on a subsequent federal question case." This same result should apply to successive diversity actions. Ford Motor Credit at 15 quoting Paramount, 143 F.3d at 146. Judge Irenas, in denying the defendant's application to apply the entire controversy doctrine to the 2007 action, noted that "if state law were to apply simply because the basis of jurisdiction in a case were diversity, such application of state law [as to the preclusive effect of prior litigation] would destroy the basic principles of the Federal Rules of Civil Procedure." Were the second (UFTA) matter brought in a New Jersey court, after the previous matter (monetary judgment) had been resolved in federal court, it is arguable that the entire controversy doctrine would have barred FMCC's claim for relief. 4. Conclusion This case provides not only an occasion to consider the expanded scope of claims which are entitled to protection under fraudulent conveyance law (now the New Jersey UFTA), as well as the procedural consequences of this expansion, including the interplay between federal jurisdictional and procedural doctrines with state substantive law in UFTA diversity actions.This article is for informational purposes only and does not constitute legal advice. For your specific situation, consult an attorney licensed in your jurisdiction.

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