The Appellate Division’s recent decision in Carucci v. Regency Financial Group LLC, (July 20, 2016) shows how difficult it can be to prove a fraudulent transfer claim, even where the facts on the surface would seem supportive of such a claim.

Plaintiff Carucci (“Plaintiff”) had loaned money to Justin Pisano (“Pisano”) and his accounting firm, Regency Financial Group, LLC (“Regency”). Pisano and Regency defaulted on the loans, and Plaintiff sued and obtained a judgment of $54,782.85. The judgment was later vacated against Pisano because he filed a Chapter 7 petition in April 2011. While the lawsuit was pending and before the bankruptcy filing, Pisano’s wife formed another corporation, Marion Funding Group (“Marion”), which operated out of the same location as Regency, assumed Regency’s lease obligations, and used Regency’s computers, office equipment, and its telephone number. Marion did not pay any consideration to Regency for any of these things. Marion hired Pisano to perform accounting services, and he performed those services for Regency’s former clients, whose identities were stored on one of the computers Marion acquired from Regency. Without having paid any consideration to Regency, between July 2010 and June 2011, Marion generated $160,000 in gross income, over twenty-five percent of which was received from Regency’s former clients.

Plaintiff filed a new action against Pisano, his wife, and their companies, alleging fraudulent conveyance and civil conspiracy and seeking payment of this earlier unpaid judgment. At the bench trial, Plaintiff did not have an expert and called Pisano and his wife as his only witnesses. The trial court dismissed Plaintiff’s claims, finding that Plaintiff had not met his burden of proof. The court found that there was no evidence that money belonging to Regency or Pisano was ever directly transferred to Marion and “[w]ithout expert testimony or a more detailed analysis of the trail of the monies paid for services rendered [it could not] assess which money, if any, was fraudulently transferred.” Slip op. at 7 (brackets in original). The trial court also rejected the claim that the  customer list was an asset under the Uniform Fraudulent Transfer Act, N.J.S.A. 25:2-25 and -26, which generally prevents a debtor from placing his or her property beyond a creditor’s reach. The court found that, even if the customer list was an asset, Plaintiff produced no evidence to establish that the list had  value, and also failed to demonstrate what its value was.

On appeal, the Appellate Division affirmed but disagreed that the client list was not an asset of Regency. “In a services business, a company’s accounts and intangibles, such as a list of customers, are assets as contemplated by the UFTA[,] . . . because a service company must obtain its customers ‘at the cost of time, trouble and expense in soliciting and obtaining them as customers.’” Slip op. at 13-14. Proving the fair market value of the client list, however, generally requires expert testimony, which plaintiff chose not to present. Absent anything to show the value of the customer list, the plaintiff had failed to carry his burden on an essential element of the UFTA claim. “[W]here a purported asset has no monetary worth,” there cannot be a UFTA claim “because technically no asset of value has been transferred.” Slip op. at 13. (internal quotations omitted).

The same failure of proof doomed Plaintiff’s attempt to claim that the business value of Regency had been fraudulently transferred to Marion. The court held that Plaintiff’s reliance on the two companies’ gross income alone did not establish the fair market value of any business asset, and without evidence identifying specific funds he claimed were improperly transferred or their amounts, he could not support his UFTA claim.

Carucci shows the substantial risks of relying solely on the trial testimony of the adversary parties, and proceeding without expert testimony to support the value of the alleged fraudulently transferred assets.

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