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.

In 2009, Plaintiff Carlucci had loaned money to Justin Pisano and his accounting firm, Regency Financial Group, LLC. After Justin and Regency defaulted on the loans, the plaintiff sued and obtained a judgment of $54,782.85. The judgment was later vacated against Justin because he filed a Chapter 7 petition in April 2011. While the lawsuit was pending and before the bankruptcy filing, Justin’s wife formed another corporation, Marion Funding Group, 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 Justin to perform accounting services, and he performed those services to Regency’s former clients, whose identities were stored on one of the computers Marion acquired. Between July 2010 and June 2011, Marion generated $160,000 in gross income, over 25 percent of which was received from Regency’s former clients. 

Plaintiff filed a new action against Justin, his wife and their companies alleging fraudulent conveyance and civil conspiracy and seeking payment of his earlier unpaid judgment. At the bench trial, plaintiff did not have an expert and called Justin 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 Justin was ever directly transferred to Marion and “without expert testimony or a more detailed analysis of the trail of monies paid for services rendered [it could not] assess which money, if any, was fraudulently transferred.” Slip op. at 7. The trial court also rejected the claim that the Regency 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.  But the court found that, even if the customer list was an asset, plaintiff produced no evidence to establish that it had any value or 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.

The same failure of proof doomed plaintiff’s attempt to claim that value of Regency had been fraudulently transferred to Marion. The court held that plaintiff’s reliance on the two companies’ gross incomes 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 support his UFTA claim.

Carlucci shows the substantial risks of relying solely on the trial testimony of the adversary parties, and of proceeding without expert testimony to support the value of the allegedly fraudulent transfers.