Jugan v. FriedmanJugan v. Friedman
In September 1984, plaintiff John Jugan commenced an action against defendant Stuart Friedman, M.D., to recover damages for personal injuries which resulted from medical malpractice committed by Dr. Friedman in the fall of 1982. In March 1988, the jury awarded Mr. Jugan compensatory damages of $10,000 and punitive damages of $150,000. No appeal was taken from the judgment entered on that verdict, and Dr. Friedman has not attempted to impugn its validity. The present suit deals with plaintiff‘s attempt to collect on his judgment.
The trial record in this suit does not disclose the facts on which the verdict for medical malpractice was based. However, a published decision rendered by this court in a related case, Jugan v. Pollen, 253 N.J. Super. 123, 127, 601 A.2d 235 (App.Div. 1992), summarizes the facts as follows:
Mr. Jugan was put in traction, operated upon unnecessarily by both defendant Dr. Pollen and then-defendant Stuart Friedman, M.D., for a laminectomy (disc removal and spinal fusion surgery). He was then post-operatively mistreated. Not only did the mistreatment cause severe pain, but Dr. Friedman, an addict, appropriated for himself the pain medication (Demerol) intended for the patient, leaving Mr. Jugan to suffer with little or no pain medication following the back surgery....
The history of Dr. Friedman‘s drug abuse and the consequent criminal convictions, disciplinary proceedings, and malpractice actions forms the background of the present suit. His medical license was suspended from November 1976 to July 1977 as the result of his arrest for unlawful possession and use of a controlled
Mr. Jugan and his wife filed their malpractice action against Dr. Friedman on September 28, 1984. Dr. Friedman‘s malpractice coverage was canceled on October 1, 1984. Six other malpractice actions were filed against him between June 27, 1983, and September 24, 1987.
Dr. Friedman‘s malpractice insurer paid the compensatory damages awarded to Mr. Jugan, but not the punitive damages. Efforts to collect the punitive damages disclosed that there were no assets in Dr. Friedman‘s name except for disability policies and a Florida marital residence which, the parties agree, are immune from levy.
The present suit is an effort to recover the punitive damages awarded in the prior action and the expense of collecting them. Mr. Jugan‘s complaint alleges that Dr. Friedman has conveyed all of his assets to his wife, Dorothy Friedman, and to his adult sons, Seth, Sander, and Stephen Friedman, “for the purpose of defrauding
After numerous discovery motions and extensive discovery, the case was tried to the court for ten days. The evidence introduced at trial identified two principal assets, besides a Florida residence and Dr. Friedman‘s disability insurance policies, into which he had converted his accumulated capital. These assets are a $1,600,000 life insurance policy on Dr. Friedman‘s life issued by Pacific Mutual Life Insurance Company and a $500,000, twenty-year, purchase money, second mortgage representing part of the price received from the 1985 sale of property known as 799 Inman Avenue, Woodbridge, New Jersey.
As of August 1992, the Pacific Mutual Life Insurance Company policy had a cash surrender value of $542,316.39. Mrs. Friedman is its sole primary beneficiary and its nominal owner. The trial court found that Dr. Friedman was the source of the assets used to acquire the life insurance policy and that he had fraudulently transferred those assets to his wife.
The 799 Inman Avenue property had been purchased in Mrs. Friedman‘s name and she was the mortgagee. The court found that Mr. Jugan did not disprove defendants’ claim that Mrs. Friedman had purchased the 799 Inman Avenue property principally with her own funds.
The court determined that, beginning some time during the 1980‘s, Dr. Friedman had transferred his assets to his wife and children with a “fraudulent intent.” According to the court‘s findings, “at least one of the motivating factors” for those transfers was Dr. Friedman‘s concern that punitive damages from which he was not protected by malpractice insurance would be awarded against him in threatened or pending medical malpractice
The trial judge‘s findings as to Dr. Friedman‘s intent were based in part on the trial testimony of a former investigator for the Department of Law and Safety, Consumer Affairs, Enforcement Bureau. He told the court that his report to the State Medical Board quoted Dr. Friedman as having stated that
as a result of a former Enforcement Bureau investigation there are five lawsuits now pending against him. He remarked that he does not care about this because he cannot obtain and does not presently have any malpractice insurance and that even if he should kill a patient on the operating table, plaintiffs would get nothing from him as he has transferred all of his possessions to his wife‘s name.
The trial judge refrained from making any express finding whether Dr. Friedman‘s wife and sons shared his intent to defraud creditors. (However, the final judgment recites that “neither Seth Friedman, nor Sander Friedman, nor Stephen Friedman has been demonstrated to have participated in the aforesaid fraudulent transactions of Stuart Friedman, M.D.“) The court concluded that whether Seth, Sander, and Stephen Friedman knew of their father‘s fraudulent purpose in making the transfers was immaterial because they did not claim to have paid consideration for the assets which he put in their names. However, the court went on to say that they should have been aware of the fraud and would be deemed to have been aware of it because they ceded their father full authority over the assets in their names and over their income tax returns, allegedly by executing powers of attorney in his favor. The court found that Mrs. Friedman was probably aware of the fraudulent purpose for her husband‘s transfers.
The trial judge also found that Dr. Friedman had become insolvent by divesting himself of all assets except for his disability insurance and Florida residence, which were beyond the reach of creditors.
On the basis of these findings, the trial judge ruled that Mr. Jugan was entitled to a judgment for the $150,000 of unpaid
The court declined to award interest on the $150,000 punitive damage award for any period before the date of entry of the judgment in the prior action or to award attorneys’ fees on any basis, including
A judgment was entered in accordance with these rulings. The judgment ordered that the prior restraint on the value of the Pacific Mutual Life Insurance Company policy would remain in effect but only to the extent of the judgment entered in favor of Mr. Jugan. Mr. Jugan‘s motion for a stay of that portion of the judgment which vacated the prior restraints except to the extent necessary to satisfy the judgment was denied. The judgment has now been fully paid from the cash surrender value of the Pacific Mutual Life Insurance Company policy. On Mr. Jugan‘s application, this court enjoined the Friedmans, pending our determination of this appeal, from disposing of any part of the remaining value of that policy.
Mr. Jugan has appealed. He contends that the trial court erred in finding that he failed to prove that Seth, Sander, and Stephen knowingly participated in Dr. Friedman‘s fraudulent transfers and that the 799 Inman Avenue mortgage was fraudulently transferred
Dr. Friedman has cross-appealed. He contends that there is no evidence in the record to support the trial court‘s finding that he intended to defraud Mr. Jugan and that the Pacific Mutual Life Insurance Company policy is owned by Mrs. Friedman and is exempt from levy. He also claims that Mr. Jugan‘s reasonable expenses for attending the trial were not properly included in taxed costs.
The evidentiary basis of Mr. Jugan‘s claim that the $500,000 purchase money mortgage from the sale of 799 Inman Avenue was fraudulently transferred to Mrs. Friedman consists almost entirely of the testimony of Jeffrey Katz, a certified public accountant. Testifying as an expert witness for Mr. Jugan, Mr. Katz expressed the opinion that Dr. Friedman must have provided all or most of the approximately $300,000 cash which was paid for Mrs. Friedman‘s July 1984 acquisition of 799 Inman Avenue because she did not have adequate resources of her own. However, Mr. Katz‘s testimony on this issue was flawed by two critical errors. The first was an arithmetical error and the second was an error of fact.
Mrs. Friedman testified that between 1974 and 1984 she had earned income of her own. To account for that income, Mr. Katz told the court that even if Mrs. Friedman had earned $20,000 a year after taxes during that ten-year period and had deposited it in an account which paid interest at an eight percent annual rate, the total amount accumulated would have been $155,000. That is obviously incorrect. The aggregate principal amount alone would have equaled $200,000. With interest at eight percent a year, compounded annually, a deposit of $20,000 a year at the end of each year for ten years would produce a total of $289,731.23.
Mr. Katz‘s expert report, which Mr. Jugan‘s attorney exhibited to the judge during the witness‘s testimony, states:
Dorothy Friedman‘s inheritance from Hortense Zager was used to purchase the property at 799 Inman Avenue. When this property was sold[,] Ms. Friedman received a $500,000 mortgage on the property. In essence, the money she received from Hortense Zager was invested in the $500,000 mortgage.1
The evidence thus amply supported the trial judge‘s conclusion that plaintiff failed to prove his claim that the $500,000 purchase money mortgage in Mrs. Friedman‘s name was derived from Dr. Friedman‘s assets which had been fraudulently transferred to her.2 We are bound by that determination, Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484, 323 A.2d 495 (1974). We therefore reject Mr. Jugan‘s contention that the proceeds of that mortgage should be treated as Dr. Friedman‘s property for purposes of levy.
With one exception, the material facts relating to the accumulation and transfers of the funds which ultimately found their way into the Pacific Mutual Life Insurance Company policy are substantially undisputed. The trial begins with Dr. Friedman‘s purchases of bearer bonds in 1973 through Bruce Baumgarten. When Dr. Friedman started doing business with Mr. Baumgarten, Mr. Baumgarten was a salesman at Gibraltar Securities. Mr. Baumgarten moved to Hamilton Cook & Company in 1973. He returned to Gibraltar Securities in 1979 and was employed by that firm when he testified at trial. Dr. Friedman purchased securities through Mr. Baumgarten until approximately 1986.
Initially, the account under which Dr. Friedman purchased bonds from Mr. Baumgarten was in Dr. Friedman‘s name, but Dr. Friedman told Mr. Baumgarten he was buying the bonds for his sons. In 1983, accounts were opened in the names of each of Dr. Friedman‘s sons, and Dr. Friedman began to purchase registered securities in their names. Dr. Friedman also opened one account in his wife‘s name.
These investments were liquidated in 1986 and 1987, and, through Carlo Squicciarini, a salesman who was then employed by Nicholas Lawrence, a stock broker, the proceeds were invested in various securities in the names of Mrs. Friedman and the three sons. When Mr. Squicciarini left Nicholas Lawrence for employment as a salesman, first at Dean Witter Reynolds and then at Prudential Bache, Dr. Friedman moved the accounts to follow him. In addition to Dr. Friedman‘s investments through Mr. Squicciarini,
From the various investment accounts which Dr. Friedman maintained in the names of Mrs. Friedman and their three sons, Dr. Friedman purchased four annuity policies from The Equitable Life Assurance Society. One annuity policy was in Mrs. Friedman‘s name and for her benefit, and each one of the other three policies was in the name and for the benefit of one of the sons. All four of the annuities were liquidated in July 1991. The Pacific Mutual Life Insurance Company policy was purchased in 1991 for a total premium of $637,286.99. This entire amount was paid in full by the end of 1992. Dr. Friedman signed the application for the policy in Mrs. Friedman‘s name. Dr. Friedman conceded that the money for payment of the Pacific Mutual Life Insurance Company premium came from liquidation of the annuities.
As we previously mentioned, there is one area of disagreement between plaintiff and defendants about the money trail. Dr. Friedman contends that although there were transfers of assets between his wife and his sons, he did not transfer any assets at times and under circumstances that made those transfers fraudulent. He argues that any transfers from him to his family were accomplished when he purchased bearer bonds for his sons during and prior to 1983. He alleges that he was not insolvent when he made those purchase and he did not intend to avoid creditors. He also asserts that all, or substantially all, of the increase in his family‘s investment securities since that time resulted from income and profits which accrued to those initial investments which he made for his wife‘s and sons’ benefit. Cf. Carluccio v. Winter, 108 N.J. Eq. 174, 177-78, 154 A. 427 (E. & A. 1931) (gifts made by a debtor while solvent cannot be attacked by someone who was not a creditor when the gifts were made).
With adequate basis in the record, the trial court adopted plaintiff‘s view and we accept its findings. Rova Farms, supra, 65 N.J. at 484, 323 A.2d 495.
Dr. Friedman concededly transferred assets to his wife and sons without receiving any material consideration in exchange. See
Alternatively, even if Dr. Friedman did not have the intent or belief required by
There is also another ground upon which we sustain plaintiff‘s right to treat the life insurance policy as Dr. Friedman‘s for purposes of satisfying his judgment. Whatever doubt there may be about Dr. Friedman‘s motives and intent in acquiring and transferring the assets which eventually were liquidated to purchase
These facts demonstrate that Mr. Jugan is entitled to satisfy his claims against Dr. Friedman from the Pacific Mutual Life Insurance Company policy, not only because it was acquired by means of assets which were fraudulently transferred, but because, in reality, it is merely the most recent incarnation of assets belonging to Dr. Friedman which he never transferred at all. He always retained all of an owner‘s prerogatives with respect to his investments and merely attempted to disguise his ownership in order to defraud creditors, including, as the family‘s income tax returns indicate, the United States Government. But
We turn next to the question whether Dr. Friedman‘s fraudulent interference with Mr. Jugan‘s efforts to collect his judgment debt is an independent tort entitling him to damages and, if so, what the measure of those damages is in the present case.
We have held that Dr. Friedman purposely disguised his continuous, absolute control over the investment securities which he purchased in his family members’ names and that, by the fraudulent paper record which he created, he falsely represented to creditors that he was without assets which were subject to levy. We have affirmed the trial court‘s determination that he acted with the purpose of making his assets unavailable to his legitimate creditors. Dr. Friedman‘s false pretenses compelled Mr. Jugan to incur the expense of the present action to establish the falsity of the Friedman family‘s record titles and to set aside the purported transfers.
These actions by Dr. Friedman and the remedial responses reasonably taken by Mr. Jugan are closely analogous to the standard elements of legal fraud. To prove legal fraud, a plaintiff must show that the defendant made an intentionally false representation of past or present fact, intending that the plaintiff rely thereon, and that the plaintiff did rely to his detriment. Jewish Ctr. v. Whale, 86 N.J. 619, 624, 432 A.2d 521 (1981); Ramapo Bank v. Bechtel, 224 N.J. Super. 191, 197, 539 A.2d 1276 (App.Div. 1988). The anatomy of this case differs from that of a run-of-the-mill case of legal fraud only with respect to the defendant‘s reliance. Mr. Jugan did not undertake the present action because he was fooled by Dr. Friedman‘s false representations. He sued to set the purported transfers aside because he knew they were false. Nonetheless, Dr. Friedman‘s conduct was clearly unlawful and it is closely enough analogous to common-law fraud that we have no hesitancy in ruling, as we do, that it was tortious and that Mr. Jugan is therefore entitled to recover for damage of which that tort was the proximate cause. Furthermore, since this claim for damages was alleged in Mr. Jugan‘s complaint, and since it does not rest on any facts which defendants did not anticipate, we conclude that they were not prejudiced by plaintiff‘s failure until his summation to assert that Dr. Friedman‘s fraudulent transfers constituted a tort for which damages should be awarded. Cf. Viviano v. CBS Publications, Inc., 251 N.J. Super. 113, 129, 597 A.2d 543 (App.Div. 1991), certif. denied, 127 N.J. 565, 606 A.2d 375 (1992) (trial court‘s willingness to permit plaintiff to seek compensation for increased expenses two weeks before trial was a determination within the court‘s discretion where defendants failed to show that they were prejudiced by the decision).
We hold that under the circumstances of this case, punitive damages, other than those awarded for the original tort, are not available. Every fraud is reprehensible, but not every fraud or fraudulent transfer warrants punitive damages. Fischer v. Johns-Manville Corp., 103 N.J. 643, 654-55, 512 A.2d 466 (1986) (“Punitive or exemplary damages are sums awarded apart from compensatory damages and are assessed when the wrongdoer‘s conduct is especially egregious.“) (quoting Leimgruber v. Claridge Assocs., 73 N.J. 450, 454, 375 A.2d 652 (1977)). The conduct of the defendants in the present case was not so egregious that it meets those criteria.
Under our current rules of procedure, a plaintiff may litigate in the same suit with both the tortfeasor and the third parties with whom the tortfeasor has caused him to become embroiled because of the tort. For example, in Department of Envtl. Protection v. Ventron, 94 N.J. 473, 468 A.2d 150 (1983), a case in which the owner of real estate defrauded a developer into buying polluted property, the developer‘s damages included his attorneys’ fees for the State‘s claims for the cost of remedying the pollution, although that issue was litigated in the same action as the issue of the owner‘s fraud. Id. at 504-05, 468 A.2d 150. Similarly in the present case, although Mr. Jugan may not recover his litigation expenses for litigating with Dr. Friedman to establish that his transfers were fraudulent, he is entitled to reimbursement for reasonable attorneys’ fees expended in litigating with third parties, including the other defendants, to void or set aside the transfers. Obviously, the total attorneys’ fee incurred cannot be
The trial court rejected plaintiff‘s contention that he is also entitled to attorneys’ fees under the frivolous litigation statute,
We also affirm the trial court‘s discretionary ruling that Mr. Jugan‘s expenses for attending the trial in order to be available as a witness for defendants are includable in the costs that were taxed against defendants.
The trial court refrained from making any definitive ruling on whether the defendants other than Dr. Friedman were co-conspirators with him in attempting to defraud creditors. Since plaintiff has recovered the damages which he has already been awarded and the remaining cash surrender value of the Pacific Mutual Life Insurance Company policy is more than ample to satisfy additional damages, the issue of the extent of the complicity of Mrs. Friedman and their sons is moot. No justifiable purpose would be served by our requiring the trial judge to make a definitive determination of that issue.
The injunction now in effect enjoining any disposition by the defendants of the remaining cash surrender value of the Pacific Mutual Life Insurance Company policy on Dr. Friedman‘s life shall, until dissolved by the trial court, remain in force in order to facilitate collection of any further judgment which may be entered in the course of the remand proceedings.
Notes
The report goes on to say:
The other significant assets which Dorothy Friedman owns and were purchased with funds that originated with Dr. Friedman are the residence in Boca Raton, Florida and the mortgage on the property [known] as 799 Inman Avenue in New Jersey from the Parsons Investment Group. This writer has been advised that the current fair market value of the residence, net of mortgages, is approximately $200,000. The Parsons Investment Mortgage has a balance of approximately $425,000.
This paragraph quoted from the report mistakenly assumes that the Parsons Investment Mortgage is an asset separate from the purchase money mortgage which Mrs. Friedman received to secure an unpaid balance of the purchase price when she sold 799 Inman Avenue to the Parsons Investment Group.