Policy of Broad Pretrial Disclosure Regarding Corporate Interests
In Jaffe v Jaffe, --- N.Y.S.2d ----, 2011 WL 4089440 (N.Y.A.D. 1 Dept.) defendant served 37 nonparty subpoenas on the business office maintained by plaintiff's father. Each subpoena was addressed to a different entity closely held by, or affiliated with, plaintiff's family, which had many real estate holdings. Plaintiff acknowledged that, before the marriage, she had minority interests in many of the entities and that during the marriage she transferred the interests in those companies to a single holding company in exchange for a 25% interest in the holding company. Unlike two of her siblings, plaintiff was given no current or future managerial authority in the holding company. Defendant also addressed subpoenas to SC Management, the company that managed the real estate holdings of the various LLC's. Plaintiff claimed to have no interest in SC Management or six other entities that received subpoenas. In addition to the entities affiliated with plaintiff's family, defendant served a subpoena on Bank of New York Mellon, seeking documents related to accounts maintained there by all of the entities in which plaintiff held an interest, as well as SC Management and the six other entities in which plaintiff denied having any interest. The subpoenas addressed to the entities in which plaintiff had transferred her interest to the holding company differed from each other in some respects, but they uniformally sought financial statements; tax returns; detailed fixed asset registers and depreciation schedules for all assets held; building permits filed between 1996 and 2000; rent rolls identifying all tenants, their apartment numbers, their leases, the square footage of their apartment, and a calculation of their rent per square foot; documents reflecting "in kind" payments or barter transactions with any entity owned by the Hakim Organization, or with any employee, partner or shareholder of such entity; board meeting or other entity meeting minutes; business plans and projections; 1099's with copies of cancelled checks; ownership, operating, management, or subscription agreements; agreements of understanding signed by plaintiff; ownership schedules and stock transfer ledgers, including copies of front and back of all shares issued; copies of credit applications made to a bank or to other creditors; and outside accountants' working paper files and business evaluations or real estate appraisals conducted during the marriage.
Plaintiff moved to quash the subpoenas. She argued that the subpoenas were duplicative of discovery demands defendant had served on her directly (to which she also objected), and that they were intended solely to harass her parents. Plaintiff asserted, the subpoenas were served on the eve of Rosh Hashanah and immediately after defendant threatened to establish that plaintiff's parents were tax evaders. She further contended that, to the extent she had interests in the entities to which the subpoenas were addressed, it was separate property and had no bearing on the distribution of the parties' marital assets. She claimed to have no active role in the companies that would have caused any appreciation in their value to become marital property. In opposition to the motion, defendant argued that the documents and information sought by the subpoenas were necessary to determine whether a portion of plaintiff's family assets is marital property and because the documents bear on maintenance and child support. Pointing to documents he had already discovered during the litigation, defendant submitted that "[m]onies flow[ed] freely" among the subpoenaed entities and that plaintiff was active in the management and development of her family's real estate holdings. Defendant further asserted that the subpoenaed entities regularly made loans to various management companies controlled by the family, particularly SC Management, and used the management companies to pay for family members' personal expenses. Defendant stated that the discovery he sought was relevant to the issue whether plaintiff's actions caused appreciation to the separate property which should then be included in the marital estate. He also argued that, even if plaintiff's interests in the entities were non-marital, they were still relevant under Domestic Relations Law s 236(5)(d)(9), which requires the court, in determining equitable distribution, to consider "the probable future financial circumstances of each party ." The court granted the motion in part and denied it in part. It held that nonparty discovery was appropriate as to those entities in which plaintiff conceded having interest. However, it quashed the subpoenas for all companies in which plaintiff claimed to have no ownership interest, except for SC Management. The court found that there was evidence, such as checks payable to plaintiff, that "raise[d] the possibility" that plaintiff received compensation for work she performed for that company. The court did not expressly address the subpoena served on Bank of New York.
The Appellate Division observed that in a divorce action, "[b]road pretrial disclosure which enables both spouses to obtain necessary information regarding the value and nature of the marital assets is critical if the trial court is to properly distribute the marital assets" (Kaye v. Kaye, 102 A.D.2d 682, 686  ). In Kaye, the court denied the husband's motion for a protective order preventing discovery into four closely held family corporations in which he held minority interests, observing, "[I]t has been held that both parties in a matrimonial action governed by the Equitable Distribution Law are now entitled to: a searching exploration of each other's assets and dealings at the time of and during the marriage, so as to delineate the extent of marital property, distinguish it from separate property, uncover hidden assets of marital property, discover possible waste of marital property, and in general gain any information which may bear on the issue of equitable distribution, as well as maintenance and child support. The entire financial history of the marriage must be open for inspection by both parties". Pursuant to this rule of liberal discovery in matrimonial litigation, defendant was entitled to records of the entities in which plaintiff had an interest, so that he may determine whether her interests have a bearing on the distribution of the marital estate as well as support obligations. However, it found that find that defendant had failed to establish that plaintiff had any interest in SC management, so the subpoena served on that entity should have been quashed. Further, to the extent the subpoena served on Bank of New York Mellon sought records related to El-Kam Realty, Aval Company, Old Salem Farm Acquisition Corporation and Affiliates, Enterprise Products Partners, LP Nantucket Campfire, LLC, and Bedford Entities, the bank need not comply. Defendant also failed to demonstrate any affiliation between plaintiff and those entities. The bank was required, however, to divulge information related to the companies in which plaintiff had conceded having an interest. While the entities were not immune from discovery in this action, the Appellae Division held that the subpoenas were overbroad in many respects. For example, the subpoenas included a demand to provide the names and addresses of all commercial and residential tenants, with copies of every lease, and all building permits filed for any building, including construction and renovations for every building plaintiff's family owned, over a 15-year period of time. This information appeared to be of dubious relevance. Accordingly, it remitted the matter and held that the motion court must reconsider plaintiff's motion to determine whether the particular demands annexed to the subpoenas were sufficiently tailored to the financial issues in the action, and whether it would be unduly burdensome for the entities to respond.
Father Did Not Implicitly Consent Referee by Merely Participating in Custody Proceeding. Referee Had No Jurisdiction.
In Gale v Gale, --- N.Y.S.2d ----, 2011 WL 4090031 (N.Y.A.D. 2 Dept.) the Appellate Divison reversed on the law and remitted for a new hearing, an order of the Family Court which, after a hearing, granted the mother's petition to modify the custody provisions of a judgment of divorce so as to award her sole custody of the parties' children, and denied the fathers petitions for sole custody of the children. It pointed out that a referee derives authority from an order of reference by the court (see CPLR 4311), which can be made only upon the consent of the parties, except in limited circumstances not applicable here. It found that the parties did not stipulate to a reference in the manner prescribed by CPLR 2104. In any event, there was no indication that there was an order of reference designating the referee who heard and determined the petitions at issue here. It observed that that contrary to the mother's contention, the father did not implicitly consent to the reference merely by participating in the proceeding without expressing his desire to have the matter tried before a judge (see McCormack v. McCormack, 174 A.D.2d at 613). The Court held that “...to the extent that certain dicta in Chalu v. Tov-Le Realty Corp. (220 A.D.2d 552, 553) may suggest a different conclusion, it is not to be followed.” Furthermore, a stipulation consenting to a reference to a specified referee, executed by the parties in connection with the father's previous petition to modify the visitation schedule, expired upon completion of that matter and did not remain in effect for this matter. Accordingly, the referee had no jurisdiction to consider the father's petitions related to custody and visitation and the mother's petition to modify custody, and the referee's order determining those petitions had to be reversed.
Mootness Doctrine Explained in Opinion Dismissing Visitation Appeal as Academic
In Matter of Cissee v Graham, --- N.Y.S.2d ----, 2011 WL 4090037 (N.Y.A.D. 2 Dept.), the mother, who was Muslim, and the father, who was Roman Catholic, had one child together, a daughter born on March 24, 2001. In an order dated June 30, 2004 Family Court awarded custody of the child to the mother and visitation to the father, with such visitation to occur pursuant to a stipulation signed by the parties. In a separate order, also dated June 30, 2004, made pursuant to the aforementioned stipulation, the Family Court provided, among other things, that the child was "to be exposed to the Catholic traditions and Muslim traditions." In an order dated August 31, 2005, the parties stipulated to the father having additional visitation time in 2005. Subsequently, the mother filed a petition, in effect, to modify the visitation provisions of the aforementioned orders and the father filed a petition to modify the custody order by awarding him custody of the child. During the pendency of those proceedings, the Family Court issued an order dated August 7, 2009, which modified the June 30, 2004, order made upon the parties' stipulation by directing that "either or both parents may enroll the child in religious instruction in their faith." When the parties appeared before the Family Court on March 15, 2010, for a continued hearing on the petitions, the father, through counsel, requested a temporary change in the visitation schedule to allow the child, in May 2010, to attend rehearsal for her first communion, the ceremony for her first communion at the father's Roman Catholic church, and any associated celebrations. Despite the mother's objection, in an order dated March 18, 2010, the Family Court granted the father's application. The Appellate Division dismissed the mothers appeal as academic. It observed that it is a fundamental principle of our jurisprudence that the power of a court to declare the law only arises out of, and is limited to, determining the rights of persons which are actually controverted in a particular case pending before the tribunal (Matter of Hearst Corp. v. Clyne, 50 N.Y.2d 707, 713). In general an appeal will be considered moot unless the rights of the parties will be directly affected by the determination of the appeal and the interest of the parties is an immediate consequence of the judgment. Contrary to the opinion of the dissent, the rights of the parties would not be directly affected by a determination of this appeal because the events associated with the temporary modification of the father's visitation schedule had already occurred, as conceded by the mother in her brief. Accordingly, the appeal was moot and could not properly be decided by the Court unless the exception to the mootness doctrine applied. The exception to the mootness doctrine occurs where the controversy or issue involved is "likely to recur, typically evades review, and raises a substantial and novel question" (Saratoga County Chamber of Commerce v. Pataki, 100 N.Y.2d 801, 811). Here, no exception to the mootness doctrine was argued or present, and the courts are prohibited from rendering purely advisory opinions absent an exception to the mootness doctrine. Justice Hall dissented and voted to decide the appeal on the merits.
Proper to Direct Disclosure Pertaining to the Retirement Benefits and Stock Options Obtained from Alleged New Business Acquired after the Marriage And/or from New Employment Entered into after the Marriage.
In Manditch v Manditch, --- N.Y.S.2d ----, 2011 WL 4090214 (N.Y.A.D. 2 Dept.) in an order dated April 15, 2010, the Supreme Court granted defendant's cross motion to compel the plaintiff to comply with discovery demands to the extent of directing the plaintiff to provide disclosure regarding an alleged new business acquired after the marriage. After receiving a request from the defendant's attorney to clarify the scope of the required disclosure and conducting a conference with the attorneys for both parties, the Supreme Court issued an amended order on June 2, 2010. The amended order clarified that the defendant was entitled to disclosure relating to the alleged new business acquired by the plaintiff after the marriage and/or to new employment entered into after the marriage, as well as retirement benefits and stock options arising out of such new business or new employment, since these retirement benefits and stock options could potentially be marital property under the terms of the parties' prenuptial agreement. The plaintiff subsequently moved to vacate so much of the amended order as directed him to disclose information relating to the retirement benefits and stock options obtained by him from the alleged new business and/or from new employment. Supreme Court denied the plaintiff's motion, and the Appellate Division affirmed. It held that Supreme Court providently exercised its discretion in issuing an amended order to clarify the scope of disclosure intended by its prior order dated April 15, 2010. Supreme Court properly directed the plaintiff to provide disclosure pertaining to the retirement benefits and stock options obtained by him from the alleged new business acquired after the marriage and/or from new employment entered into after the marriage. Broad pretrial disclosure enabling both spouses to obtain necessary information regarding the value and nature of the martial assets is deemed critical if the trial court is to properly distribute the marital assets. Moreover, the disclosure sought by the defendant was "material and necessary".
Liability for the Payment of Marital Debt May Be Distributed in Accordance with the Equitable Distribution Factors
In DiFiore v DiFiore,--- N.Y.S.2d ----, 2011 WL 4090241 (N.Y.A.D. 2 Dept.) the Appellate Division observed that the Supreme Court has broad discretion in allocating marital debt. In addition, "liability for the payment of marital debt[ ] need not be equally apportioned but may be distributed in accordance with the [equitable distribution] factors set forth in Domestic Relations Law 236(B)(5)(d)" (Lewis v. Lewis, 6 AD3d 837, 839-840). It agreed with the husband's contention that the remaining balance of a loan from his father to the parties toward the purchase of an apartment building should be repaid out of the wife's share of the proceeds of the sale of the apartment building in the principal amount of $48,388.99, plus 5% monthly interest from April 1, 2008, to the date of payment. Pursuant to the pendente lite order dated April 2, 2004, the wife was to receive the rental income from the apartment building, and pay the loan from these proceeds. She failed to do so. The prior decision and order of the Court dated June 7, 2011 (DiFiore v DiFiore, 85 AD3d 714), was recalled and vacated.
Dismissal of Counterclaims for Partition and Recoupment Warranted Pursuant to Cplr 3211(a)(4) Because There Was Already an Action Pending Between the Parties That Sought, in Essence, the Same Relief.
In L.L. v B.H.,--- N.Y.S.2d ----, 2011 WL 4007741 (N.Y.Sup.) the parties and their son resided together at XXX Ascan Road, Franklin Square, New York. The residence was purchased for $178,000.00 on November 13, 1991, thirty (30) days prior to the parties marriage. Title was in the names of the husband and wife, as joint tenants with rights of survivorship. There appeared to be no mortgages on the residence. The wife moved to dismiss the husbands counterclaims for partition and recoupment. In support of the motion, counsel for the wife alleged, among other things, that because disposition of the marital residence was an issue to be decided in the matrimonial action as part of equitable distribution, actions for partition and recoupment were improper as they sought to divest the court of its right to determine equitable distribution of the assets and obligations of the parties and exclusive occupancy of said residence. Counsel for the wife argued that this matrimonial action is regulated by Domestic Relations Law (DRL) 236(B)(5), and not Real Property Actions and Proceedings Law (RPAPL) 901 which permits partition, and that partition and recoupment are not cognizable legal theories in the context of a division of property between divorcing parties. In opposition to the motion, counsel for the husband alleged, among other thing, that the counterclaims for partition and recoupment statef legally cognizable causes of action and that the existence of a matrimonial action did not bar the husband from commencing an action for partition and recoupment.
Justice Falanga framed the issue presented as whether the husband was barred from bringing counterclaims for partition and recoupment when a matrimonial action has been commenced, in which equitable distribution of the marital residence is being sought as well as possible exclusive occupancy of same and a division of all other assets and obligations of the parties. He observed that in the case at bar, the parties acquired title to the property before they were married, as joint tenants with rights of survivorship, and their marriage did not transform the joint tenancy into one by the entirety, which could be created only by a conveyance to a husband and a wife. As such, the marital residence was not "marital property" subject to equitable distribution, as the residence constituted separate property of each of the parties acquired prior to the marriage. In Novak v Novak, 135 Misc.2d 909, 516 N.Y.S.2d 878 [Sup. Dutchess Co.1987] ) the court was faced with the same issue. The Novaks acquired a home as joint tenants ten (10) days before their marriage but they cohabited for only 2 1/2 months before the action for divorce was commenced. The court there rejected the wife's argument that the joint tenancy created an undivided one-half interest in each party and that said interests were not subject to equitable distribution. The court found that the property was not subject to equitable distribution because it was acquired prior to the marriage and because there could be little or no passive appreciation due to the briefness of the marriage, The Novak court allowed a claim for partition to stand because substantial improvements had been made to the residence and the equities of the parties had changed with the contributions that each had made to the improvements. The Novak court found that, within the partition action, it was authorized to adjust all the equities arising out of the parties' relationship with respect to the property to be divided and, found that partition gave the court more flexibility to do equity than DRL 236 (B), given the unique circumstances of that case. In contrast, in the case at bar, the parties had been married and had resided in the subject residence for nearly twenty (20) years and raised their son there since he was born. Case law interpretation of DRL 236(B) had evolved since Novak to take into account the appreciation of separate property from the active contributions of the parties to the marriage, as spouse, parent, wage earner or homemaker.
It was the court's view that, in a matrimonial action, Domestic Relations Law 234 gives to the court broad authority to determine issues that arise between the parties with respect to title and possession of property and, when read in conjunction with DRL 236(B), which authorizes the court to distribute marital and separate property and to adjust debits and credits between the parties as equity would find just and proper given the circumstances of the case, each of the parties have sufficient remedies in the instant matrimonial action so that references to separate causes of action for partition and recoupment were duplicative and unwarranted. Neither party would receive any lesser or greater relief from a separate cause of action for partition or recoupment, when all of the relief that may be had in said actions were within the power of the court in the existing statutory scheme (cf., Chen v. Fischer, 6 N.Y.3d 94, 810 N.Y.S.2d 96, 843 N.E.2d 723 [C.A.2005]; Boronow v. Boronow, 71 N.Y.2d 284, 525 N.Y.S.2d 179, 519 N.E.2d 1375 [C.A.1988] ). The matrimonial forum is a convenient forum for transactions between these parties relating to pre-marital and post-marital property claims and form a convenient trial unit for the purposes of this litigation. (see, Chen v. Fischer, supra.) The court was unconvinced that the husband could obtain any relief in a partition or recoupment action that was different from what the court does in every case involving the equitable disposition and possession of property, some of which may be separate, and the distribution of assets and debts. It was the court's view that dismissal of the counterclaims was warranted, pursuant to CPLR 3211(a)(4), because there was already an action pending between the parties that sought, in essence, the same relief. The court found as a matter of law, that the partition and recoupment action were unwarranted and that the rights and remedies of the parties could be decided and granted in the matrimonial action. (cf. Boronow v. Boronow, supra.) As partition is an equitable remedy, a 50/50 split of the equity in the residence was not mandated, for the court may partition the property unevenly, in accordance with the contributions of the parties. That is the same exact remedy that is available in the matrimonial action and the court found that the issues raised in the counterclaims were subsumed into the matrimonial action where the court is given statutory powers to do equity. The court found the previous lower court cases holding to the contrary to be unpersuasive under the facts of this case. It was the court's view that, even when a property is acquired prior to the marriage and title is in both names of the parties, the matrimonial court has jurisdiction and authority to prevent unjust enrichment to either party. The wife's motion for an order dismissing the husband's counterclaims for partition and recoupment was granted and the counterclaims were dismissed.