MELINDA D MIDDLEBROOKS v. WALTER BONDAR

 
(NOTE: The status of this decision is Published.)

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

MELINDA D. MIDDLEBROOKS, as

Receiver for Bonpel Builders,

LLC,

Plaintiff-Respondent,

v.

WALTER BONDAR,

Defendant-Appellant,

and

MARY ELLEN BONDAR, MELISSA BONDAR,

BONPEL REAL ESTATE HOLDINGS, LLC,

ARK BUILDERS, LLC,

Defendants.

_________________________________

January 7, 2014

 

Argued: December 18, 2013 Decided:

 

Before Judges Simonelli, Fasciale and Haas.

 

On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. C-128-08.

 

Kenneth D. McPherson, Jr., argued the cause for appellant (Waters, McPherson, McNeill, P.C., attorneys; Mr. McPherson, of counsel and on the briefs).

 

Melinda D. Middlebrooks argued the cause for respondent (Middlebrooks Shapiro, P.C., attorneys; Joseph M. Shapiro, on the brief).

PER CURIAM

Defendant Walter Bondar appeals from the July 30, 2012 final judgment of the Chancery Division entered in favor of plaintiff Melinda Middlebrooks, as receiver for Bonpel Builders, LLC (Bonpel Builders). After reviewing the record in light of the contentions advanced on appeal, we affirm.

The facts of this matter are not in dispute. Defendant conducted a carpentry and construction business through Bonpel Builders, a limited liability company. Defendant was the sole member of Bonpel Builders. In 2002, Bonpel Builders performed carpentry work for the Velocita Corporation (Velocita), a telecommunications company. Velocita paid Bonpel Builders $71,543.64 for the work. On May 30, 2002, less than ninety days after this payment was made, Velocita filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the District of New Jersey.

In 2004, the bankruptcy trustee asserted a preference claim pursuant to 11 U.S.C.A. 547 against Bonpel Builders because it had received the $71,543.64 payment within ninety days of the filing date of Velocita's bankruptcy petition. Bonpel Builders filed an answer to the claim, but it later defaulted. On October 26, 2006, the bankruptcy court entered judgment against Bonpel Builders "for the sum of $71,543.64 plus pre-judgment and post-judgment interest."

The bankruptcy trustee assigned the judgment to a collection agency, SM Financial Services Corporation, which proceeded to attempt to collect the judgment from Bonpel Builders. On August 29, 2007, after considering an order to show cause filed by the trustee, Judge John F. Malone appointed plaintiff as receiver for Bonpel Builders. Plaintiff thereafter served discovery requests upon defendant both as an individual and in his role as the sole member of Bonpel Builders. Defendant responded to the requests, provided all of the records requested, and participated in an interview conducted by plaintiff.

Defendant's business records for Bonpel Builders demonstrated that he used the company's business accounts to pay $864,179 of his personal expenses between 2001 and 2005, rather than paying the amount sought by the bankruptcy trustee. Among other things, defendant made payments from the business accounts for: $32,787 of his daughter's college expenses; $22,432 for family medical expenses; $101,591 in charitable contributions; and $76,537 in cash withdrawals for personal use by himself and his family members. In December 2005, defendant transferred all of Bonpel Builders's assets to Ark Builders, LLC (Ark Builders), another company of which he was the sole member. Defendant stated he transferred the assets in order to "protect himself" from creditors, including the bankruptcy trustee. Ark Builders operated in much the same fashion as Bonpel Builders did.

After completing discovery, plaintiff filed a complaint in the Chancery Division alleging that Bonpel Builders made fraudulent transfers to defendant and his family members and seeking a judgment requiring that defendants return the funds to plaintiff as the receiver for the LLC.1 Defendant filed an answer claiming that all of the payments had been made to compensate him for the services he provided to Bonpel Builders.

The parties thereafter filed cross-motions for summary judgment. In a June 11, 2012 oral decision, Judge Malone granted plaintiff's motion for summary judgment. The judge concluded that the payments defendant made through Bonpel Builders for his own personal expenses were "fraudulent transfers" to an "insider" under N.J.S.A. 25:2-27b. The judge found that defendant was aware of his obligation to pay the Velocita bankruptcy trustee at the time most of the transfers were made and that he made a conscious decision to pay his personal expenses rather than those of "an unrelated creditor." The judge denied defendant's subsequent motion for reconsideration.

Having determined that defendant was required to return the transferred funds to plaintiff as the receiver for Bonpel Builders, the judge conducted a two-day trial on the issue of defendant's liability. After hearing testimony from each party's expert and from defendant, the judge entered judgment in favor of plaintiff in the amount of $78,333.91.2 In a June 14, 2012 written decision, the judge explained that, even after the bankruptcy trustee filed the preference claim in May 2004, defendant still used Bonpel Builders's funds to pay "more than $135,000" of his personal expenses, including "over $70,000 of draw, $23,808 of charitable contributions, medical expenses of $8,799, utilities of $7,303 and auto [expenses] of $13,511. Additional payments for cash, insurance and tuition [brought] the total expenses over $135,000." The judge stated:

There is no doubt that [Bonpel Builders] and later Ark were insolvent companies when the Velocita Trustee preference claim was made. [Defendant] testified that either the Velocita claim or his expenses could be paid from company assets, but not both. [Defendant] as a creditor of the company chose to pay himself first and ignore the Trustee's claim. The preferential treatment of [defendant's] own claims violate [N.J.S.A. 25:2-27b] and are invalid.

 

This appeal followed.

On appeal, defendant argues that the payments made for his personal expenses through Bonpel Builders were for the services he performed for the company and, therefore, they were not improper payments to an "insider." Defendant also argues that he had no intent to defraud the Velocita bankruptcy trustee because he obtained the advice of an accountant as to how the funds should be disbursed and all of the payments were fully documented in Bonpel Builders's business records. He also asserts that, as the sole member of an LLC, he is shielded from personal liability for Bonpel Builders's debts and obligations. These arguments lack merit.

When reviewing an order for summary judgment, we utilize the same standard as the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). When determining whether there is a genuine issue of material fact, the court must consider "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). We review issues of law de novo and accord no deference to the motion judge's conclusions on issues of law. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).

Here, there is no dispute as to the material facts. We therefore turn our attention to the applicable provisions of the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34, upon which plaintiff's claims were based.

"The purpose of the [UFTA] is to prevent a debtor from placing his or her property beyond a creditor's reach." Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 475 (1999) (citation omitted). The underlying policy is to prevent debtors from deliberately cheating creditors by removing their property from "the jaws of execution." Ibid. The plaintiff must demonstrate fraud under the UFTA by clear and convincing evidence. Jecker v. Hidden Valley, Inc., 422 N.J. Super. 155, 164 (App. Div. 2011), certif. denied, 210 N.J. 28 (2012).

The UFTA defines "transfer" as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance." N.J.S.A. 25:2-22. A transfer of assets may be fraudulent under the UFTA if the transaction was completed (1) with the actual intent to defraud the creditor, or (2) through constructive fraud, where the debtor had no actual intent to commit fraud. State Dep't of Envtl. Prot. v. Caldeira, 171 N.J. 404, 409 (2002) (citing Nat'l Westminster Bank N.J. v. Anders eng'g. Inc., 289 N.J. Super. 602, 609 (App. Div. 1996).

N.J.S.A. 25:2-25 applies to present and future creditors and requires actual intent to defraud. This statute states:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

 

a. With actual intent to hinder, delay, or defraud any creditor of the debtor; or

 

b. Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

 

(1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

 

(2) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they become due.

 

In this case, however, plaintiff alleges that the transfers were fraudulent under N.J.S.A. 25:2-27b, which does not require an actual intent to defraud the creditor. See Anders, supra, 289 N.J. Super. at 605-06. This statutory provision is "designed to protect creditors whose claims arose before the time of a transfer by a debtor ('present creditors')." Flood v. Caro Corp., 272 N.J. Super. 398, 404 (App. Div. 1994). N.J.S.A. 25:2-27b provides:

A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

 

The UFTA's definition of the term "insider" includes transfers made to "[a] managing agent of the debtor." N.J.S.A. 25:2-22e.

If a transfer is determined to be fraudulent within the meaning of the UFTA, the creditor's remedies include (1) avoidance of the transfer; (2) invocation of a provisional remedy; (3) an injunction; (4) appointment of a receiver; or (5) "[a]ny other relief the circumstances may require." N.J.S.A. 25:2-29a. However, the UFTA does not impose strict liability, because pursuant to N.J.S.A. 25:2-30, transferees are accorded several affirmative defenses, for which they bear the burden of proof.

With these straight-forward statutory principles in mind, it is clear that defendant, through Bonpel Builders, made "fraudulent transfers" within the meaning of N.J.S.A. 25:2-27b to himself, the LLC's "managing agent," for his own personal, family expenses even though he owed $71,543.64 on a judgment previously entered in favor of the Velocita bankruptcy trustee. Defendant, and therefore Bonpel Builders, were obviously aware of the judgment at the time the transfers were made and knew that Bonpel Builders was insolvent because it could not afford to pay all of its debts. Under these circumstances, we discern no basis for disturbing Judge Malone's determination that defendant was required to return the monies due to the Velocita bankruptcy trustee to plaintiff, as the receiver for Bonpel Builders, because the transfers were fraudulent under N.J.S.A. 25:2-27b.

Defendant raises an affirmative defense based upon N.J.S.A. 25:2-30f(2), which states that "[a] transfer is not voidable under [N.J.S.A. 25-2-27b if] made in the ordinary course of business or financial affairs of the debtor and the insider[.]" Defendant argues that all of the monies Bonpel Builders transferred to him represented payments for his services to the LLC, regardless of where the funds were directed or the purposes for which they were used. We disagree.

As Judge Malone found,

The fact that a sole member of an LLC is required to pay himself by way of draw from company assets and that he is a creditor of the company for his services rendered [does] not allow the UFTA to be ignored. There is no question that [defendant] performed services for Bonpel [Builders] and Ark. There is also no question that those services had a value to the company. In the ordinary course[] of business[,] payment by the company to [defendant] for those services would have been permitted. However, in this case the payments were made at a time when Bonpel [Builders] and Ark were insolvent and [defendant] knew of the insolvency.

 

As we observed in Flood, the very "premise of [N.J.S.A. 25:2-27b] is that an insolvent debtor should pay debts owed to unrelated creditors before paying debts owed to corporate insiders." Flood, supra, 272 N.J. Super. at 404-05. Here, defendant, the "managing agent" and only member of Bonpel Builders, decided to pay himself rather than use the available funds to pay the Velocita bankruptcy trustee, the "unrelated" creditor. Thus, the judge correctly found that the transfers were fraudulent within the meaning of N.J.S.A. 25:2-27b and had to be returned to plaintiff as the receiver for Bonpel Builders.

Defendant next argues that he had no intent to defraud anyone because he operated Bonpel Builders in accordance with the advice he received from his accountant and never tried to hide any of the payments he made to himself for his personal expenses. However, this argument is inapposite. As already noted, N.J.S.A. 25:2-27b does not require that the creditor establish that the debtor acted with "actual fraud" in making the transfers. Anders, supra, 289 N.J. Super. at 605-06. It is sufficient if, as here, the creditor proves that the debtor made transfers to an "insider" at a time that the debtor was insolvent and the insider knew of the insolvency. Flood, supra, 272 N.J. Super. at 404-05. Moreover, while actual fraud need not be established, we note that the record amply supports the judge's finding that defendant made the transfers, and even moved Bonpel Builders's remaining assets to Ark Builders, because he wanted to avoid making payments to his creditors, including the Velocita bankruptcy trustee.

Finally, defendant argues that because he conducted his business as an LLC, he is immune from liability for the judgment. Again, this argument lacks merit. First, nothing in the UFTA indicates that it does not apply to fraudulent transfers made by LLCs, as opposed to individuals or other forms of business entities. Thus, fraudulent transfers made by an LLC can be recovered from the transferees.

Moreover, defendant's argument neglects the facts of this case. Bonpel Builders made the fraudulent transfers to defendant. Defendant, as the transferee of those funds from Bonpel Builders, is an individual, not a separate LLC. As an individual, defendant certainly has no immunity from liability under the UFTA. All that the judgment requires is that defendant return the fraudulent transfers to plaintiff, as the receiver for Bonpel Builders. Thus, the judgment does not infringe upon any statutory liability protection afforded to Bonpel Builders as an LLC.

Affirmed.

1 In addition to defendant, the complaint also named defendant's wife and daughter as defendants, together with Ark Builders, and another LLC owned by defendant called Bonpel Real Estate Holdings, LLC. Although the record is not clear, it is readily apparent that defendant was the only party who participated in the litigation and he is the only defendant involved in the current appeal.

2 The $78,333.91 judgment was comprised of $71,543.64 due to the Velocita bankruptcy trustee, plus $6,560.27 in pre-judgment interest.