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Monday, April 16, 2012

Important New Decisions - April 16, 2012

Court of Appeals Rejects Husbands Argument That Intention to Equally Divide Marital Estate Was Frustrated Because Both Parties Operated under "Mistake" or Misconception as to Existence of a Legitimate Madoff Investment Account
In Simkin v Blank, --- N.E.2d ----, 2012 WL 1080295 (N.Y.) Plaintiff Steven Simkin (husband) and defendant Laura Blank (wife) married in 1973 and had two children. The Husband was a partner at a New York law firm and the wife, also an attorney, was employed by a university. After almost 30 years of marriage, the parties separated in 2002 and stipulated in 2004 that the cut-off date for determining the value of marital assets would be September 1, 2004. The parties, represented by counsel, spent two years negotiating a detailed 22-page settlement agreement, executed in June 2006. In August 2006, the settlement agreement was incorporated, but not merged, into the parties' final judgment of divorce. The settlement agreement set forth a comprehensive division of marital property. The Husband agreed to pay the wife $6,250,000 "[a]s and for an equitable distribution of property ... and in satisfaction of the Wife's support and marital property rights."In addition, wife retained title to a Manhattan apartment (subject to a $370,000 mortgage), an automobile, her retirement accounts and any "bank, brokerage and similar financial accounts in her name."Upon receipt of her distributive payment, the wife agreed to convey her interest in the Scarsdale marital residence to husband. The Husband received title to three automobiles and kept his retirement accounts, less $368,000 to equalize the value of the parties' retirement accounts. He also retained "bank, brokerage and similar financial accounts" that were in his name, two of which were specifically referenced-his capital account as a partner at the law firm and a Citibank account. The agreement also contained a number of mutual releases between the parties. Each party waived any interest in the other's law license and released or discharged any debts or further claims against the other. Although the agreement acknowledged that the property division was "fair and reasonable," it did not state that the parties intended an equal distribution or other designated percentage division of the marital estate. The only provision that explicitly contemplated an equal division was the reference to equalizing the values of the parties' retirement accounts. The parties further acknowledged that the settlement constituted: "an agreement between them with respect to any and all funds, assets or properties, both real and personal, including property in which either of them may have an equitable or beneficial interest wherever situated, now owned by the parties or either of them, or standing in their respective names or which may hereafter be acquired by either of them, and all other rights and obligations arising out of the marital relationship."

At the time the parties entered into the settlement, one of husband's unspecified brokerage accounts was maintained by Bernard L. Madoff Investment Securities (the Madoff account). According to husband, the parties believed the account was valued at $5.4 million as of September 1, 2004, the valuation date for marital assets. The Husband withdrew funds from this account to pay a portion of his distributive payment owed wife in 2006, and continued to invest in the account subsequent to the divorce. In December 2008, Bernard Madoff's colossal Ponzi scheme was publicly exposed and Madoff later pleaded guilty to federal securities fraud and related offenses. As a result of the disclosure of Madoff's fraud, in February 2009, about 2 ½ years after the divorce was finalized, the husband commenced an action against wife alleging two causes of action: (1) reformation of the settlement agreement predicated on a mutual mistake and (2) unjust enrichment. The amended complaint asserted that the settlement agreement was intended to accomplish an "approximately equal division of [the couple's] marital assets," including a 50-50 division of the Madoff account. To that end, the amended complaint stated that $2,700,000 of wife's $6,250,000 distributive payment represented her "share" of the Madoff account. The Husband alleged that the parties' intention to equally divide the marital estate was frustrated because both parties operated under the "mistake" or misconception as to the existence of a legitimate investment account with Madoff which, in fact, was revealed to be part of a fraudulent Ponzi scheme. The amended complaint admitted, however, that funds were previously " 'withdrawn' from the 'Account' " by husband and applied to his obligation to pay wife.

In his claim for reformation, the husband requested that the court "determine the couple's true assets with respect to the Madoff account" and alter the settlement terms to reflect an equal division of the actual value of the Madoff account. The second cause of action sought restitution from wife "in an amount to be determined at trial" based on her unjust enrichment arising from husband's payment of what the parties mistakenly believed to be wife's share of the Madoff account. Supreme Court granted the Wife’s motion to dismiss the amended complaint. The Appellate Division, with two Justices dissenting, reversed and reinstated the action ( 80 AD3d 401 [1st Dept 2011] ).

The Court of Appeals observed that on a motion to dismiss under CPLR 3211, the pleading is to be given a liberal construction, the allegations contained within it are assumed to be true and the plaintiff is to be afforded every favorable inference. At the same time, however, "allegations consisting of bare legal conclusions as well as factual claims flatly contradicted by documentary evidence are not entitled to any such consideration" . Moreover, a claim predicated on mutual mistake must be pleaded with the requisite particularity necessitated under CPLR 3016(b). The Court, in an opinion by Judge Graffeo, noted that marital settlement agreements are judicially favored and are not to be easily set aside. Nevertheless, in the proper case, an agreement may be subject to rescission or reformation based on a mutual mistake by the parties. Similarly, a release of claims may be avoided due to mutual mistake. The mutual mistake must exist at the time the contract is entered into and must be substantial". Put differently, the mistake must be "so material that ... it goes to the foundation of the agreement". Court-ordered relief is therefore reserved only for "exceptional situations". The premise underlying the doctrine of mutual mistake is that "the agreement as expressed, in some material respect, does not represent the meeting of the minds of the parties". After reviewing Appellate mutual mistake cases in the context of marital settlement agreements the Court was of the view that the amended complaint failed to adequately state a cause of action based on mutual mistake. As an initial matter, the husband's claim that the alleged mutual mistake undermined the foundation of the settlement agreement, a precondition to relief under the Court’s precedents, was belied by the terms of the agreement itself. The Court pointed out that in True v. True (63 AD3d 1145 [2d Dept 2009] ), the settlement agreement provided that the husband's stock awards from his employer would be "divided 50-50 in kind" and recited that 3,655 shares were available for division between the parties. After the wife redeemed her half of the shares, the husband learned that only 150 shares remained and brought an action to reform the agreement, arguing that the parties mistakenly specified the gross number of shares (3,655) rather than the net number that was actually available for distribution. The Second Department agreed and reformed the agreement to effectuate the parties' intent to divide the shares equally, holding that the husband had established "that the parties' use of 3,655 gross shares was a mutual mistake because it undermined their intent to divide the net shares available for division, 50-50 in kind" (id. at 1148). Unlike the settlement agreement in True that expressly incorporated a "50-50" division of a stated number of stock shares, the settlement agreement here, on its face, did not mention the Madoff account, much less evince an intent to divide the account in equal or other proportionate shares. To the contrary, the agreement provided that the $6,250,000 payment to wife was "in satisfaction of [her] support and marital property rights," along with her release of various claims and inheritance rights. Despite the fact that the agreement permitted husband to retain title to his "bank, brokerage and similar financial accounts" and enumerated two such accounts, his alleged $5.4 million Madoff investment account was neither identified nor valued. Given the extensive and carefully negotiated nature of the settlement agreement, the Court did not believe that this presented one of those "exceptional situations") warranting reformation or rescission of a divorce settlement after all marital assets have been distributed.

Even putting the language of the agreement aside, the core allegation underpinning the husband's mutual mistake claim, that the Madoff account was "nonexistent" when the parties executed their settlement agreement in June 2006, did not amount to a "material" mistake of fact as required by case law. The amended complaint contained an admission that husband was able to withdraw funds from the account in 2006 to partially pay his distributive payment to wife. Given that the mutual mistake must have existed at the time the agreement was executed in 2006 the fact the husband could no longer withdraw funds years later was not determinative. This situation, however sympathetic, was more akin to a marital asset that unexpectedly loses value after dissolution of a marriage; the asset had value at the time of the settlement but the purported value did not remain consistent. The Court found this case analogous to the Appellate Division precedents denying a spouse's attempt to reopen a settlement agreement based on post-divorce changes in asset valuation. The Court held that the husband's unjust enrichment claim likewise failed to state a cause of action. It is well settled that, where the parties executed a valid and enforceable written contract governing a particular subject matter, recovery on a theory of unjust enrichment for events arising out of that subject matter is ordinarily precluded. Accordingly, the order of the Appellate Division was reversed, the order of Supreme Court reinstated, and the certified question answered in the negative.

QDRO Based on a Stipulation Can Convey Only Those Rights to Which the Parties Stipulated as a Basis for the Judgment
In Gursky v Gursky, --- N.Y.S.2d ----, 2012 WL 1033543 (N.Y.A.D. 3 Dept.) after plaintiff commenced an action for divorce, the parties entered into a partial written stipulation in which they agreed upon the total present value of the marital portion of the defined benefits component of plaintiff's pension. They did not reach any agreement as to the division of this asset. Instead, they specifically reserved their rights with respect to its equitable distribution. When they appeared for trial, they entered into an oral stipulation in which they agreed that the pension "will be divided pursuant to the Majauskas [f]ormula" (Majauskas v. Majauskas, 61 N.Y.2d 481 [1984] ). The stipulation was incorporated but not merged into the judgment of divorce, and defendant then moved for an order directing entry of his proposed qualified domestic relations order. Plaintiff objected, arguing that the proposed order exceeded the terms of the parties' stipulation because it created a separate pension interest for defendant by providing that he could elect to receive payment from the pension plan when plaintiff reached the plan's early retirement age of 55, regardless of whether she had yet retired. Supreme Court rejected plaintiff's objections and granted the motion. The Appellate Division reversed and denied the motion. It observed that a qualified domestic relations order based on a stipulation "can convey only those rights to which the parties stipulated as a basis for the judgment" ( McCoy v. Feinman, 99 N.Y.2d 295, 304 [2002]). Where the language of the stipulation is unambiguous, the intent of the parties must be ascertained from within its four corners and the Court will not add language that the parties did not include. Here, there was no ambiguity. The parties agreed to divide the pension by applying the Majauskas formula. To interpret that agreement, Supreme Court was required to look to Majauskas, where the formula entitled the nonemployee spouse to receive a proportionate share of one half of each pension check received by the employee spouse, with the denominator of the fraction based on the length of the employee spouse's employment prior to his or her retirement. By invoking the Majauskas formula, without more, the parties stipulated that distribution of the pension would take effect upon plaintiff's retirement, as in Majauskas, resulting in a shared payment. Thus, Supreme Court's distribution of a separate pension interest to defendant prior to plaintiff's retirement improperly expanded the terms of the parties' stipulation.

Wife Did Not Waive Right to Challenge Husband's Claims Regarding Income Because She Signed Joint Tax Returns That Listed His Annual Income.
In Harrington v Harrington, --- N.Y.S.2d ----, 2012 WL 1033451 (N.Y.A.D. 3 Dept.) Plaintiff (husband) and defendant (wife) were married in 1991 and had two children (born in 1989 and 1991). The husband was a self-employed contractor who operated his own construction business while the wife, who was permanently disabled, devoted herself to the care of the parties' children and was not otherwise employed. The husband commenced this action for a divorce in December 2008. After a trial, Supreme Court granted the wife's counterclaim for divorce, distributed certain marital assets, and directed the husband to pay maintenance for 15 years and approximately $10,000 towards the wife's counsel fees. The Appellate Division affirmed. It rejected the husbands challenge to Supreme Court's decision to impute an additional $30,000 to the income he claimed to earn each year. The Appellate Division held that Supreme Court is not bound by representations made by a party in a matrimonial action regarding his or her annual income and may increase that figure where the record establishes, as it did here, that a party routinely paid "personal expenses from business accounts" and had access to other income to offset such expenses. In support of his claim regarding his annual income, the husband submitted tax returns for a four-year period beginning in 2005 in which he claimed annual adjusted gross income between $13,802 and $33,689. Supreme Court found, and the record established, that despite the husband's claims regarding his limited income, he paid, in addition to other expenses, $559 per month in child support and $2,000 each month to his girlfriend to live at her residence and for bookkeeping services she provided his contracting business. Also, the husband admitted using the business checking account for personal expenses and paying for numerous vacations he had taken with his girlfriend, plus $950 a month in rent for a residence in which he did not reside. This evidence provided ample support for Supreme Court's determination that additional income should be imputed to the husband to reflect an annual income of $60,000 per year. Supreme Court was not bound by a determination previously rendered by Family Court in a child support proceeding that his annual income was $30,000. Here, evidence was presented that the husband's claims in this regard were not accurate or credible, and provided a rational basis for Supreme Court's decision placing his annual income at $60,000. In addition, the wife did not waive her right to challenge the husband's claims regarding his annual income simply because she had previously signed joint tax returns that listed his annual income as $30,000.

Supreme Court conducted a hearing at which the wife's counsel testified to the legal services she provided during the course of these proceedings. Given the wife's need for these legal services, and the parties' respective financial conditions, the Appellate Division held that court did not abuse its discretion by directing the husband to contribute $9,816 to the payment of the legal expenses that the wife incurred in these proceedings. While the wife's counsel did not, as required, bill the wife every 60 days for her services, she did provide her with a copy of a retainer agreement, as well as a statement of client's rights and responsibilities pursuant to 22 NYCRR 1400.3. Counsel's failure to bill the wife for these services every 60 days was not a ground upon which the husband can rely to avoid paying a share of her legal expenses. The court noted that the action was commenced prior to the amendment to Domestic Relations Law 237(a) (see L 2010, ch 329, s 1 ).

Error in Failing to Afford Father Opportunity to Make Closing Statement Does Not Require Reversal Where Court Familiar with the Facts of Case and Parties' Arguments
In Matter of Bond v Bond, --- N.Y.S.2d ----, 2012 WL 1033469 (N.Y.A.D. 3 Dept.) Petitioner (father) and respondent (mother) were the parents of six children. The three youngest children, two daughters (born in 1994 and 1995) and a son (born in 2001), were the subject of the proceeding on appeal. In November 2004, the parties stipulated to a custody arrangement by which the mother had sole legal and primary physical custody of the three children, with extended alternate weekend visitation with the father. This agreement was later incorporated into a custody order in January 2005 and the judgment of divorce in March 2007. In April 2010, the father filed a petition for modification seeking joint legal and primary physical custody of the younger daughter and joint legal and shared physical custody of the son. Following trial, Family Court dismissed the petition on the ground that the father had failed to establish a sufficient change in circumstances. The Appellate Division affirmed. It observed that the father's petition alleged that the two younger children wished to spend more time with him, that the mother was verbally and physically abusive, and that the mother disappointed the younger daughter by failing to bring her to an out-of-state award ceremony. As the allegations of abuse were unsubstantiated and the children's preferences standing alone did not establish a sufficient change in circumstances, there was a sound and substantial basis in the record supporting Family Court's determination. The Appellate Division observed that the trial testimony and decision referenced events occurring prior to the existing custody order. As the father argued, relying upon those prior events would be improper in assessing whether there had been a change in circumstances. However, it did not find that the Courts analysis relied upon these extraneous references. It rejected that the father's contention that Family Court's error in failing to afford him the opportunity to make a closing statement required reversal (see CPLR 4016[a] ). At the conclusion of the fact-finding hearing, the father's counsel stated that he wished to make a short closing statement only if the mother did so, and the court indicated that arrangements would be made following the Lincoln hearing. The mother subsequently submitted a written closing statement; the father neither responded to this submission nor requested a further appearance, and more than four weeks passed before the decision was rendered. Considering these circumstances, and that the court was fully familiar with the facts of the case as well as the parties' arguments, no reversible error occurred (See Matter of Saggese v. Steinmetz, 83 A.D.3d 1144, 1145 [2011; Lohmiller v. Lohmiller, 140 A.D.2d 497, 498 [1988] ).

On Motion to Dismiss Family Offense Petition Pursuant to CPLR 3211(a) (7) Court Should Wade Through Allegations and Dismiss Only Those Which Do Not Sufficiently Allege Conduct That Constitutes a Family Offense
In Matter of Pamela N v Neil N, --- N.Y.S.2d ----, 2012 WL 1033487 (N.Y.A.D. 3 Dept.), Petitioner (mother) and respondent (father) were married in 2003 and had twins in 2005. The father was awarded custody by order of August 20, 2010. In December 2010, the mother filed two family offense petitions against the father, and filed a third such petition in February 2011, as well as a modification of custody petition. Family Court granted the father's motions to dismiss the two December 2010 family offense petitions, and also dismissed the custody petition given that a divorce action was then pending in Supreme Court. The court also dismissed the February 2011 family offense petition, on the father's motion, for failure to state a cause of action (CPLR 3211[a][7] ), without a hearing. The Appellate Division observed that presented with a motion to dismiss pursuant to CPLR 3211(a)(7), which is proper here in that family offense proceedings under Family Ct Act article 8 are civil in nature a court may freely consider affidavits submitted by the petitioner to remedy any defects in the petition, and the criterion is whether the proponent of the pleading has a cause of action, not whether he or she has stated one. ( Guggenheimer v. Ginzburg, 43 N.Y.2d at 275). A family offense proceeding is originated by filing a petition alleging that the respondent committed one of the enumerated offenses against, among others, a spouse, former spouse or child. In her pro se February 2011 petition, the mother checked all boxes on the petition form listing those enumerated offenses. Her attached affidavit and handwritten answers contained many conclusory, irrelevant, ambiguous and insufficiently specific allegations, including claims against individuals who were not "members of the same family or household". However, liberally construing the petition and giving it the benefit of every favorable inference (Leon v. Martinez, 84 N.Y.2d at 87-88), the Court found that while it was inartfully drafted, it adequately alleged, at the very least, that the father had stalked and harassed her. For example, the mother alleged in her affidavit that on November 23, 2008, the father came to her house while she had the children and threatened and harassed her, making excuses for his presence; he then called her three times that evening and continued to make excuses for coming to her house, leading her to file a domestic incident report with police the next day. These allegations described the type of conduct required to originate a family offense proceeding (Family Ct Act 821[1] ) in that they adequately allege, so as to survive a motion to dismiss for failure to state a cause of action (CPLR 3211 [a][7] ), that the father, acting with the requisite intent that is inferable from the alleged circumstances, engaged in a course of conduct which alarmed or seriously annoyed the mother, which served no legitimate purpose, thereby committing the offense of harassment in the second degree (Penal Law 240.26 [3]) Additionally, the allegations, if credited, were sufficient to allege that respondent committed the offense of stalking in the fourth degree (Penal Law 120.45[1], [2] ). The Appellate Division agreed with the mother and attorney for the children that Family Court should not have dismissed the petition in its entirety but, rather, should have waded through the myriad allegations and dismissed with specificity only those which did not sufficiently allege conduct that constituted harassment, stalking or any other act listed in Family Ct Act 821(1). The order granting respondent's motion to dismiss the February 18, 2011 petition was reversed, the motion denied and matter remitted to the Family Court for further proceedings not inconsistent with the Court's decision.

Family Court Lacks Subject Matter Jurisdiction to Enforce Purported Modification Agreement Not Incorporated into Judgment
In Hirsch v Schwartz, --- N.Y.S.2d ----, 2012 WL 1033520 (N.Y.A.D. 3 Dept.) Petitioner (mother) and respondent ( father) were divorced in 2009 and had two children from the marriage (born in 2001 and 2003). The parties' 2007 separation agreement, which required the father to pay 96% of all child-care expenses, was incorporated but not merged into their 2009 judgment of divorce. Shortly thereafter, the mother sent the father a letter offer which proposed a reduction of the father's child-care expenses from 96% to 75%. Although the father did not sign and return the letter offer he made at least two full reimbursement payments and several partial payments in the months that followed. The mother subsequently commenced this proceeding seeking to enforce the child support provisions of the judgment of divorce. In response, the father argued that the mother's letter offer served to modify his support obligations and that the terms of this subsequent agreement should be enforced. Following a trial, a Support Magistrate found that the letter offer constituted a valid modification of the parties' separation agreement that reduced the father's child-care expenses to 75%, and ordered arrears in the amount of $2,625.25. Upon the mother's written objections, Family Court concluded that the Support Magistrate lacked the authority to enforce the terms of the purported modification agreement and, therefore, the provisions in the judgment of divorce concerning the father's child-care obligations controlled. The Appellate Division affirmed. It observed that Family Court, as a court of limited jurisdiction, may only enforce or modify child support provisions contained in a valid court order or judgment ( Family Ct Act 422, 461[b][I]; 466; Matter of Johna M.S. v. Russell E.S., 10 NY3d 364, 366 [2008]; Matter of Brescia v. Fitts, 56 N.Y.2d 132, 139 [1982]; Kleila v. Kleila, 50 N.Y.2d 277, 282 [1980] ). Thus, even assuming that the mother's letter offer constituted a valid modification of the parties' separation agreement, Family Court did not have subject matter jurisdiction to enforce the amended agreement which stands as an independent contract between the parties .

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