Opinion
10-23-2023
Angelic C., Plaintiff, v. George C., Defendant.
KURTZ LAW OFFICE William J. Kurtz, Esq. Counsel for Plaintiff. DORN LAW FIRM, Tricia M. Dorn, Esq. Counsel for Defendant
Unpublished Opinion
KURTZ LAW OFFICE William J. Kurtz, Esq. Counsel for Plaintiff.
DORN LAW FIRM, Tricia M. Dorn, Esq. Counsel for Defendant
HON. KEVIN P. KUEHNER, J.S.C.
Currently before the Court is a post-judgment motion filed by Defendant, George C., seeking an Order granting him the following relief: (1) compelling Plaintiff, Angelic C., to reimburse him the $7,373.74 payment he made towards the parties' marital debt based on an alleged breach of her obligations under their separation agreement; (2) awarding him attorney's fees in the amount incurred for filing and prosecuting the instant motion; and (3) such other and further relief as the Court deems necessary and proper. (NYSCEF Nos. 32-34, 39-40, 42.) Plaintiff has opposed the motion. (NYSCEF Nos. 35-37, 41-42).
This matter was made returnable before the Court on July 24, 2023. At that time, counsel for the respective parties appeared and presented oral arguments on behalf of their clients. After considering those arguments, the Court determined that an evidentiary hearing was necessary to adjudicate the motion and scheduled the hearing for September 21, 2023. On the hearing date, counsel and the respective parties appeared in court but, during a preliminary in-chambers conference, counsel requested that the Court forego the hearing and decide the motion on the papers that were already submitted. Counsel formalized this request through the submission of a joint letter that was filed later the same day. (NYSCEF No. 45.) Given this stipulation, the Court agreed to decide the motion without conducting an evidentiary hearing.
Having carefully considered the parties' respective submissions, including oral argument from counsel during the Court's motion term held on July 24, 2023, Defendant's motion is granted in part and denied in part for the reasons set forth below.
I. RELEVANT BACKGROUND
On or about May 20, 2022, Plaintiff commenced an action to dissolve her marriage to Defendant based on an irretrievable breakdown of their relationship (see D.R.L. § 170[7]). On January 20, 2023, the parties executed a Separation and Opting-Out Agreement ("Separation Agreement") that resolved all issues from their marriage. (NYSCEF No. 21.) The Separation Agreement was incorporated, but not merged, into the parties' Judgment of Divorce dated February 15, 2023. (NYSCEF No. 28.) With respect to the parties' marital debt, the Separation Agreement states as follows:
The Husband has a debt of $750.00 which he owes to the Wife's mother, [REDACTED]. The Wife has debt and/or marital expenses in her name as set forth on the attached Addendum A. All together the marital debt total [ sic ] $14,747.48. The parties shall equally share responsibility for the marital debt, and each shall be responsible for payment of one-half of the debt, which is $7,373.74 as outlined on page 6, Real Property. The Husband's one-half share of the marital debt shall be paid to the Wife at the time of the closing on the sale of the Marital residence out of the net proceeds. The Wife shall pay the creditors for all marital debt in full no later than five (5) days after the closing of the sale of the Marital Residence. In the event thirty (30) days pass after the closing of the sale, and the Wife does not provide the Husband with proof of the debt payment, the Husband shall be reimbursed his contribution to the debt immediately.(NYSCEF No. 21, at p. 11-12 [emphasis added]).
It is undisputed that the marital residence was sold, although Plaintiff contends that the closing of the sale occurred on February 28, 2023 (NYSCEF No. 32, at p.12), while Defendant avers that the closing occurred in March 2023 (id. at p. 5, ¶ 7). Nevertheless, Defendant paid Plaintiff $7,373.74 on March 8, 2023, which represented his one-half share of the marital debt. (Id. at p. 5, ¶ 7.) Pursuant to the above-noted clause in the Separation Agreement, Plaintiff was required to (a) pay off all marital debt no later than 5 days after the closing date, and (b) provide Defendant with proof that the debt had been satisfied within 30 days after closing or she would be required to immediately reimburse Defendant with his one-half contribution to the marital debt.
On May 12, 2023, which was 65 days after Defendant made his payment to Plaintiff on March 8, 2023, Defendant sent Plaintiff a certified letter, return receipt requested, requesting that Plaintiff reimburse him with his contribution to the marital debt because Plaintiff had failed to provide proof that the marital debt had been satisfied as required by their agreement. (NYSCEF No. 32, at p. 9.) By letter dated May 22, 2023, Plaintiff advised Defendant that it was not possible to pay off all the marital debt within 5 days of the closing date because, among other things, she did not receive the sale proceeds until April 10, 2023. (Id. at p. 12.) Plaintiff further advised that she had immediately applied Defendant's monetary contribution towards the marital debt after it was received, and she had been making her own monthly payments to the marital accounts before her receipt of the sale proceeds. (Id.)
In opposition to Defendant's motion, Plaintiff argues, among other things, that the marital debt has been satisfied and "the clear intent of the Agreement is to make sure that the debts were paid[,] not that Defendant received proof that they were paid." (NYSCEF No. 35 at ¶¶ 2, 5.)
II. DISCUSSION
A. Enforcement of the "Debts and Obligations" Provision of the Separation Agreement
As noted above, the subject provision of the Separation Agreement imposed three (3) obligations on Plaintiff which Defendant now seeks to enforce. First, Plaintiff was to pay off all marital debt within five (5) days of the house closing. Second, Plaintiff was to provide proof to Defendant within 30 days that the first obligation was met. Third, in the event of a default of the first two obligations, Plaintiff was to immediately reimburse Defendant his contribution to the marital debt.
Where, as here, a separation agreement is incorporated but not merged into a judgment of divorce, the agreement "is a contract subject to the principles of contract construction and interpretation" (Wheeler v. Wheeler, 174 A.D.3d 1507, 1508 [4th Dept. 2019]). "[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.... Whether a contract is ambiguous is a question of law and extrinsic evidence may not be considered unless the document itself is ambiguous." (Matter of Estate of Panella, 218 A.D.3d 1198 [4th Dept 2023]). "Ambiguity in a contract arises where the contract, read as a whole, fails to disclose its purpose and the parties' intent..., or where specific language is susceptible of two reasonable interpretations." (Dan's Hauling & Demo, Inc. v. GMMM Hickling, LLC, 193 A.D.3d 1404 [4th Dept. 2021]).
Here, the terms of the Separation Agreement at issue are clear and unambiguous and neither party has made an argument to the contrary. Accordingly, Plaintiff was required to fulfill her obligations under the subject clause of the Separation Agreement. Plaintiff argues that she is in compliance and has submitted copies of her bank statements (NYSCEF No. 37) as well as screenshots from her cellular telephone (NYSCEF No. 41), which, taken together, purportedly show that the marital debt has been paid off. Setting aside whether these exhibits constitute evidence in admissible form, the Court has carefully reviewed Plaintiff's exhibits and, while they indicate that several of the accounts listed in Schedule A of the Separation Agreement currently have a $0.00 balance, not all the items are accounted for. For example, the exhibits contain no evidence of the account balances for "K Jordan," "Progressive Auto Ins," "Cicero Animal Clinic PC," "First National," and/or "Continental Finance Co (aka Surge Mastercard)." Similarly, the exhibits do not establish when each of the account balances were paid off.
Plaintiff further argues that Defendant's motion "appears to be frivolous" because "the letter I sent [to Defendant] in response to [his] certified letter... stated that the bills were paid." (NYSCEF No. 35, at ¶¶ 2, 5). Importantly, Plaintiff's letter to Defendant dated May 22, 2023, does not in fact state that all of the accounts were satisfied. Rather, the letter states that Plaintiff "started to make payments in full" on April 13, 2023, after she received the proceeds from the house sale and was otherwise "making monthly payments towards the marital debt." (NYSCEF No. 32, at p. 12.) In other words, Plaintiff was not in compliance with the terms of the Separation Agreement when she responded to Defendant's letter.
Therefore, based on the current record, Plaintiff failed to adhere to the obligations noted above. The Court sympathizes with Plaintiff that forces outside of her control-such as the date she received the proceeds from the sale of the marital residence-may have prevented her from strictly adhering to the subject terms of the Separation Agreement. Nevertheless, absent certain exceptions not applicable here, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms" (Matter of Estate of Panella, 218 A.D.3d 1198 [4th Dept 2023]).
Similarly, Plaintiff's argument that "the clear intent of the Agreement is to make sure that the debts were paid[,] not that Defendant received proof that they were paid," is unavailing because, once again, the agreement is complete, clear and unambiguous. The intent, based on the plain meaning of the language therein, is not subject to varying interpretation and the Court may not consider extrinsic evidence of intent unless the agreement is found to be ambiguous, which it has not.
Having determined that Plaintiff has not complied with the terms of the "Debts and Obligations" provision of the Separation Agreement, the Court must consider whether Defendant is entitled to reimbursement of the $7,373.74 he paid towards the parties' marital debt. Even where a contract is unambiguous, a provision that provides for the payment of a penalty upon default in performance of the agreement is unenforceable. "As a general matter[,] parties are free to agree to a liquidated damages clause provided that the clause is neither unconscionable nor contrary to public policy" (172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528, 536 [2014]). "A contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. If, however, the amount fixed is plainly or grossly disproportionate to the probable loss, the provision calls for a penalty and will not be enforced" (Mid-Atlantic Autec v. Keeler Motor Car Co., 199 A.D.2d 732, 733 [3d Dept. 1993]). This is because a "clause which provides for an amount plainly disproportionate to real damage is not intended to provide fair compensation but to secure performance by compulsion of the very disproportion. A promisor would be compelled, out of fear of economic devastation, to continue performance and his promisee, in the event of default, would reap a windfall well above actual harm sustained" (Truck Rent-A-Ctr. v Puritan Farms, 41 N.Y.2d 420, 424 [1977]). Indeed, "[a]lthough freedom of contract is at the core of contract law, the freedom to contract does not embrace the freedom to punish, even by contract" (CVS Pharm., Inc. v. PressAmerica, Inc., 377 F.Supp.3d 359, 374 [S.D.NY 2019] [applying NY contract law]).
"Whether a contractual provision represents an enforceable liquidated damages provision or an unenforceable penalty is a question of law" (United Title Agency, LLC v. Surfside-3 Marina, Inc., 65 A.D.3d 1134, 1135 [2d Dept. 2009]). "[W]here there is doubt as to whether a provision constitutes an unenforceable penalty or a proper liquidated damage clause, it should be resolved in favor of a construction which holds the provision to be a penalty" (Willner v. Willner, 145 A.D.2d 236, 240-41 [2d Dept. 1989]). "If the clause is rejected as being a penalty, the recovery is limited to actual damages proven" (JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373, 380 [2005]).
After careful review, this Court finds that the provision requiring reimbursement in the event of a breach constitutes an unenforceable penalty because the agreed upon damages are conspicuously disproportionate to Defendant's foreseeable or probable losses. More specifically, the subject provision makes clear that, of the $14,747.48 in marital debt, Defendant was personally responsible for $750.00 and the remaining debt-which, once again, is listed in Schedule A attached to the Separation Agreement-is in Plaintiff's name only. However, because all debt incurred during a marriage is considered marital unless proven otherwise, Defendant was responsible for one-half of the $14,747.48-i.e., $7,373.74-which Defendant paid. Yet, because the marital debt is in Plaintiff's name only, any consequences stemming from Plaintiff's alleged failure to pay off the debt would be borne by Plaintiff alone.
Accordingly, when this particular agreement was made, Defendant had no foreseeable or probable losses in the event of a breach but, rather, everything to gain (i.e., reimbursement of his payment) and nothing to lose (because none of the debt is in his name). In other words, the damages provision is a penalty designed to coerce Plaintiff's compliance and punish her in the event of her default (see Byzfunder NY LLC v. Holy City Collision LLC, 80 Misc.3d 1208 [A], at *2 [Sup. Ct. Ontario Cnty. Sept. 5, 2023] ["As this liquidated damages provision is a mere penalty and bears no relation to measuring the actual loss suffered by the [Defendant], it will not be enforced"]).
To be sure, at the time the Separation Agreement was executed, both parties were represented by experienced counsel and another Justice of this Court found the terms to be fair, reasonable, and not unconscionable (NYSCEF No. 28, at p. 2; see Res Exhibit Servs., LLC v. Genesis Vision, Inc., 155 A.D.3d 1515, 1520 [4th Dept. 2017] ["Where, as here, the parties to the agreement were sophisticated business [entities], and the terms of the agreement were mutually negotiated, with each party represented by experienced counsel, a liquidated damages provision which is reached at arm's length is entitled to deference"]). Further, the Court cannot, based on the record before it, discern the reason the parties negotiated these particular terms, and it is not the Court's role to revisit an agreement that is otherwise clear, unambiguous, and was mutually negotiated by represented parties. However, it is clear that the provision requiring Plaintiff to reimburse Defendant cannot be enforced under well settled law (see Chumsky v. Chumsky, 64 A.D.3d 1156 [4th Dept. 2009] [order granting wife's motion to enforce part of a post-judgment was reversed where the "stipulation provides for an amount to be paid as a consequence of a breach that is plainly or grossly disproportionate to the probable loss"]; Willner v. Willner, 145 A.D.2d 236 [2d Dept. 1989] [holding that a single default could trigger a "liquidated damages" payment of $54,750, which was clearly out of proportion to the actual damages caused by husband's breach]; Weiss v. Weiss, 206 A.D.2d 741 [3d Dept. 1994] [enforcement of the interest clause in parties' agreement would result in husband's payment of an additional amount in excess of $8,000, a sum clearly disproportionate to the actual loss sustained by the wife]; Fitzpatrick v. Fitzpatrick, 139 A.D.3d 1002 [2d Dept. 2016] [provision in parties' separation agreement held to be an unenforceable penalty where it required husband to be in compliance with all terms of the agreement or his child support payment would increase almost fourfold]; Zervakis v. Kyreakedes, 257 A.D.2d 619, 620 [2d Dept. 1999] ["the default provision of the stipulation, which required the defendants to pay more than twice the $40,000 agreed upon, despite the fact that they timely tendered payment of 90% of the amount due, is so disproportionate to the actual damages caused by the delay in payment that it constitutes an unenforceable penalty"]).
B. Counsel Fees
Having determined that the Plaintiff is in default of her obligations under the Separation Agreement but also that the damages provision of the contract is unenforceable, the Court now must turn to the portion of Defendant's motion seeking counsel fees. Defendant's counsel has supported this application with an affidavit and copies of her recent billing invoices, which show a total amount of $3,372.00 in attorneys' fees. (NYSCEF Nos. 39-40, 46.) Under a clause entitled "Attorneys' Fee on Default," the parties' Separation Agreement states as follows:
Should either party default in performing any obligation which he/she is liable to perform hereunder, and should default continue for fifteen (15) days after written notice of the default is sent to the defaulting party, then, in any action commenced in which it is judicially determined that the defaulting party has indeed failed to perform such obligation, the defaulting party shall pay to the aggrieved party or the aggrieved party's counsel the counsel fees reasonably incurred by the aggrieved party in connection with such action.(NYSCEF No. 21, at p. 16-17.)
Plaintiff is in default of the marital debt provision of the Separation Agreement for the reasons discussed above. Further, as is required by the "Attorneys' Fee" provision, Defendant sent Plaintiff a letter by certified mail notifying her of her default and requesting that he be reimbursed per the terms of their agreement. (NYSCEF No. 32 at p. 9.) Although the Court has determined that the damages provision that requires Plaintiff to reimburse Defendant his contribution to the marital debt is unenforceable, the remaining terms and obligations of the provision are clear, unambiguous, and enforceable. Importantly, the Attorneys' Fees on Default provision of the Separation Agreement does not make the right to recover counsel fees contingent on a successful recovery for the aggrieved party. The only limitation on the right to recover fees under this agreement is that there must have been a default. Here, for the reasons discussed above, the Court has found Plaintiff defaulted.
The Separation Agreement contains the following provision related to Separability:
"In the event that any term, provision, paragraph or Article of this Agreement is declared illegal, void or unenforceable, the same shall not affect or impair the other terms, provision, paragraphs or Articles of this Agreement. The doctrine of severability shall be applied." (NYSCEF No. 21, at p. 36.)
It bears repeating that the Court must enforce a clear and unambiguous agreement and it is not the Court's role to inquire or understand why these particular terms were negotiated between these two parties. The Court cannot, under these circumstances, read terms into the agreement that are not present. The parties agreed to perform certain obligations and, in the event of a default, each agreed that the defaulting party would be responsible for "counsel fees reasonably incurred by the aggrieved party."
Therefore, the Court finds that Defendant is the aggrieved party and reasonably incurred attorney fees of $3,372.00. It is reasonable to hire an attorney to enforce rights and obligations under a Separation Agreement in the face of a default. Further, the Court finds that, although such a large counsel fee may not be commensurate with the default of the obligation, it is, again, not the Court's role to revisit the reasons these parties agreed to the terms that they did, nor go beyond the clear and unambiguous language of the agreement. It is not, on its face, unreasonable for someone to incur legal fees of three thousand three hundred and seventy-two dollars ($3,372.00) to enforce an agreement.
ACCORDINGLY, it is
ORDERED that Defendant's request that he be reimbursed seven thousand, three hundred seventy-three dollars and seventy-four cents ($7,373.74) pursuant to the terms of the parties' Separation Agreement is DENIED; and it is further
ORDERED that Defendant is awarded three thousand three hundred and seventy-two dollars ($3,372.00) in attorneys' fees, which shall be paid directly to defense counsel no later than sixty (60) days from the date of this Decision and Order; and it is further
ORDERED that all other requests for relief contained in Defendant's motion (NYSCEF No. 32) are DENIED.
This shall constitute the Decision and Order of the Court. The signing of this Decision and Order shall not constitute entry or filing under CPLR § 2220.
Papers Considered:
1. Notice of Motion dated June 21, 2023, with the Affirmation of Attorney Dorn, duly affirmed on June 21, 2023, and accompanying exhibits (collectively filed as NYSCEF No. 32);
2. Retainer Agreement and Client's Rights (NYSCEF No. 33);
3. Affidavit of Plaintiff in Opposition, duly sworn to on July 20, 2023 (NYSCEF No. 35) with Exhibit A (NYSCEF No. 36) and Exhibit B (NYSCEF No. 37);
4. Affirmation of Attorney Dorn in further support, duly affirmed on July 21, 2023 (NYSCEF No. 39) with Exhibit A attached thereto (NYSCEF No. 40);
5. Affidavit of Plaintiff in further Opposition, duly sworn to on August 1, 2023, with exhibits attached thereto (collectively filed as NYSCEF No. 41);
6. Affidavit of Defendant in support, duly sworn to on August 9, 2023 with exhibits attached thereto (collectively filed as NYSCEF No. 42);
7. Letter from counsel consenting to a decision on submission dated September 21, 2023 (NYSCEF No. 45); and
8. Letter from Attorney Dorn enclosing invoices for legal fees dated September 21, 2023 (NYSCEF No. 46).