In Del Mastro v. Grimado, Docket No. A-1433-11T4, Superior Court of New Jersey, Appellate Division, September 5, 2013, the Appellate Division reversed a trial court's dismissal of an action seeking to set aside and void the transfer of a business interest under the provisions of New Jersey's Uniform Fraudulent Transfer Act ("UFTA"), N.J.S.A. 25:2-20, et seq. Del Mastro had previously obtained a $531,000 judgment against Grimado in connection with an action for intentional infliction of emotional distress and invasion of privacy from distribution of explicit photos of Del Mastro.
Grimado was the 100% owner of a subchapter S corporation, ICI. ICI was a broker for the purchase and resale of electric motors used in medical equipment. During the trial in the underlying action, ICI was valued at between $250,000 and $750,000. Grimado claimed to have closed ICI because he could not handle the stress of working for himself. Shortly thereafter Grimado joined PDA. PDA was a single shareholder corporation owned and operated by McKee. McKee had previously worked for a manufacturer of electric motors used in medical equipment. McKee and Grimado had worked together on many transactions with ICI. Del Mastro alleged that the assets of ICI had been fraudulently transferred to PDA in an attempt to thwart Del Mastro's collection efforts against Grimado.
The trial court, sitting without a jury, found that Del Mastro had not proven by clear and convincing evidence that Grimado had fraudulently transferred ICI's assets. While an appellate court generally will not disturb the factual filings of a trial judge, the appellate court determined that the trial judge's ruling was so unsupported or inconsistent with the relevant evidence at trial as to "offend the interests of justice."
The appellate court focused on inconsistencies between Grimado's and McKee's testimony on how they started to work together. In addition, the appellate court noted that although Grimado testified at trial that he had closed ICI four months before the trial of the underlying matter, he presented expert testimony on the valuation of ICI at the underlying trial. When asked why he did not disclose at the underlying trial that ICI had been closed, Grimado responded "no one asked."
The appellate court also criticized Grimado's claim that he had "lost" all records regarding his closure of ICI because of a computer virus and concluded that such a "loss" may constitute spoliation of evidence. The appellate court ruled that a client list applicable to a service business like ICI constitutes an "asset" in accordance with the UFTA. When Grimado joined PDA and started calling on ICI's former clients, he was, in essence, transferring the client list to ICI.
Having rejected most of the trial court's factual and legal conclusions, the appellate court remanded he matter for a new trial with a different judge.