Opinion
Index No. XXXXX
11-28-2022
V.K., Plaintiff, v. J.K, Defendant.
For Plaintiff: Cohen Clair Lans Greifer Thorpe & Rottenstreich LLP by Dan Rottenstreich, Alexandra Newman White For Defendant: Boies Schiller Flexner, LLP by Adam Turbowitz, Daniel Mark Lipschutz, Carly Wheaton
Unpublished Opinion
For Plaintiff: Cohen Clair Lans Greifer Thorpe & Rottenstreich LLP by Dan Rottenstreich, Alexandra Newman White
For Defendant: Boies Schiller Flexner, LLP by Adam Turbowitz, Daniel Mark Lipschutz, Carly Wheaton
DOUGLAS E. HOFFMAN, J.S.C.
In this matrimonial action, the court must decide whether a plaintiff spouse, who alleges that the defendant spouse engaged in domestic violence against her, resulting in police intervention and plaintiff having to go the hospital, and who filed for divorce shortly thereafter, has any remedy when: (1) the defendant spouse secretly removed all of their marital assets from their joint accounts after the incident and prior to the wife filing for divorce, (2) these actions deprived the wife of all marital assets to which she would have been entitled after the divorce, (3) as the parties' prenuptial agreement stated that each spouse would receive half of only those assets titled in both spouses' names as of the date of commencement of the divorce action; and (4) any asset in only one of the spouse's names at the date of commencement becomes the separate property of that titled spouse pursuant to the prenuptial agreement, effectively leaving the wife herein with no assets from the marriage's joint accounts.
In this matrimonial action, defendant husband J.K. ("Defendant", "Husband") filed the instant pre-answer motion for an order: (a)Pursuant to CPLR § 3211(a)(7), dismissing the Second, Third, Fourth, Fifth and Sixth Causes of Action contained in Plaintiff's Amended Verified Complaint, dated November 10, 2021 (annexed hereto as Exhibit A) (the "Amended Complaint"); (b) In accordance with the terms of the parties' Prenuptial Agreement, dated August 18,2000 (Exhibit B), awarding Defendant the counsel fees he incurred in connection with this motion; and (c) Awarding Defendant such other, further and different relief as to the Court seems just and proper.
The parties married on [redacted]2000, having executed a prenuptial agreement (the "Agreement") one month before, on August 18, 2000. Plaintiff wife V.K. ("Plaintiff", "Wife") commenced this action on [redacted] 2021. On [redacted] 2021, Wife filed a Verified Amended Complaint (the "Amended Complaint") that included, in addition to the originally pled cause of action for divorce, five other causes of action, based upon tort and quasi contract theories. The new causes of action include claims for (1) conversion, (2) breach of the covenant of good faith and fair dealing, (3) breach of fiduciary duty, (4) unjust enrichment, and (5) promissory estoppel (the "Non-Divorce Counts"). The Amended Complaint also seeks to enforce the Prenuptial Agreement.
Each Non-Divorce Count was predicated upon Husband's purported transfer of funds from "the parties' joint bank account(s) to an account or accounts titled solely in [Husband's] name" between the [date of the alleged domestic violence incident] and the date of commencement less than two months later. Complaint ¶ 14. The Prenuptial Agreement sets forth a "title controls" regime for the parties' property, such that distribution is controlled by title to property as it is held on the date of commencement. Under the Agreement, marital property is defined in pertinent part as property held on the date of commencement, that is (a) titled in joint names; and (b) designated as marital property in the Prenuptial Agreement or in a signed and acknowledged writing (of which there are none). Agreement., p. 2, ¶ 2(a). Pursuant to the Agreement, both parties to the marriage waived any claim for a distributive award, and each party was required to accept one-half of the marital property as defined therein.
The gist of the non-divorce causes of action is that on or about September 2, 2021 and continuing for a short period thereafter, Husband secretly transferred nearly all of the marital assets, then believed to be approximately four million dollars, to his own name. Wife alleges that "[o]n various dates" following [the incident date], Husband transferred "assets" from the "parties' joint bank account(s)" to "an account or accounts titled solely" in Husband's name, that the total value exceeds "$4 million," that the Husband did so with the intent to "impair" the Wife's rights. Wife asserts that there was no "legitimate business purpose" for Husband's actions and that Husband has been asked to return the assets, but has not done so. Complaint ¶¶ 14-17. Wife's first cause of action seeks a divorce. Id. at ¶¶ 18-21. The second cause of action (Conversion) alleges that Husband "converted" Wife's interest in half of the assets transferred from the jointly titled account. Id. at ¶¶ 22-25.
The third cause of action (Breach of the Covenant of Good Faith and Fair Dealing) asserts that Wife was entitled to half of the jointly held assets based upon the parties' contractual arrangement (the Agreement), and that Husband owed Wife a "covenant of good faith and fair dealing," The complaint alleges further that Husband intended to impair and did impair Wife's rights under the Prenuptial Agreement, thereby breaching his covenant of good faith and fair dealing with Wife. See id. at ¶¶ 26-32.
The fourth cause of action (Breach of Fiduciary Duty) posits that Husband owed Wife a fiduciary duty, but attempted to impair Wife's rights by transferring assets from the parties' joint accounts, thereby breaching his fiduciary duty to Wife. Id. at ¶¶ 33-37. The fifth cause of action (Unjust Enrichment) avers that Husband has been unjustly enriched at Wife's expense and that "[a]llowing Husband] to retain these assets, without Wife] having received consideration for them, would be unjust." Id. at ¶¶ 38-40.
The sixth cause of action (Promissory Estoppel) alleges that with the execution of the Prenuptial Agreement Wife waived rights that she would have been afforded under New York law upon divorce and that she did so in reliance on promises that she would receive "50% of the parties' jointly held property" and that she will now be "deprived of the benefits of her bargain." Id. at ¶¶ 41-43. In her complaint, Plaintiff seeks in relevant part to enforce the Agreement and to compel an equal division of the funds transferred by Defendant between [the incident date] and the date of commencement, with interest.
Defendant filed the instant motion to dismiss pursuant to CPLR § 3211(a)(7), asserting that, even if the court treats all factual allegations as true, as it must at this stage of the litigation, with certain exceptions not applicable herein, the non-divorce causes of action do not constitute a cognizable cause of action. On a motion to dismiss for failure to state a cause of action, the court must treat all allegations in the complaint as true, and give every favorable inference to plaintiffs to determine "whether the facts alleged fit within any cognizable legal theory" Morone v Morone, 50 N.Y.2d 481, 484 [1980]; see also Himmelstein, McConnell, Gribben, Donoghue & Joseph LLP v. Matthew Bender & Co., 37 N.Y.3d 169, 175 [2022] (citations omitted); Lawrence v Miller, 11 N.Y.3d 588 [2009]. The court may also consider facts in the affidavit of the party opposing a motion to dismiss. White Rock Ins. Co. PCC Ltd. v Lloyd's Syndicate 4242, 202 A.D.3d 563, 565 [1st Dept 2022] (citations omitted); see also Leon v. Martinez, 84 N.Y.2d 83 [1994]. The court addresses each of the five contested causes of action.
In her opposition to the instant motion, Wife asserts that she has learned that Husband transferred at least $7,099,825 from the marital accounts just prior to her commencing this action. Without a prenuptial agreement, the court could, after trial, distribute an equitable portion of that amount, 0-100%, to either party, regardless of who formally held title to those assets. DRL § 236B; DeJesus v. DeJesus, 90 N.Y.2d 643, 653 [1st Dept 1997]. Pursuant to the Agreement, however, not only is each party bound by the clause that distributes 50% of the marital assets as defined under the Agreement to each party, but those marital assets would now equal or approach zero under the Agreement after Husband surreptitiously transferred all or nearly all marital assets to his own name just prior to the date of commencement. Not only must the court accept Wife's allegations in her complaint concerning Husband's conduct as true for purposes of this motion, but the essential facts are not disputed by Husband. Thus, for purposes of this motion only, there is no question but that Defendant intentionally deprived Plaintiff of nearly the entire benefit of the bargain as set forth in the Agreement. The question for the court is whether Wife has any remedy and, if so, pursuant to which legal theory or theories.
OVERVIEW OF PLAINTIFF'S CAUSES OF ACTION
Plaintiff's theory of conversion is that under NY Banking Law § 675, as a joint titleholder, Wife owned 50% of the assets in the joint accounts. Husband was without authority to transfer her funds into his bank account. She had a "superior" right to her 50% interest in the account under New York banking law. By taking her money and refusing to return it, he wrongfully deprived her of her property. Pl. Memor. at ¶ 7. These facts underlay plaintiff's causes of action sounding in conversion, unjust enrichment and breach of fiduciary duty.
In support of her claim for a breach of the covenant of good faith and fair dealing, plaintiff cites the New York Banking Laws, and posits: "New York's covenant of good faith and fair dealing-which is read into all contracts governed by New York law, including Prenuptial Agreements-provides the Wife with a separate and independent basis for redress. That covenant precludes the Husband from doing precisely what he did: take actions intended to deny the Wife of the benefit of her bargain. New York law demands that a party to a contract act in good faith and will not allow a party to benefit from bad faith-particularly where, as here, the contract is between a husband and wife who owe one another fiduciary duties which far exceed the duties owed by parties to an arm's-length commercial contract." Pl memor. at ¶¶ 8-9.
CONVERSION
The key elements of conversion are (1) Plaintiff's possessory right or interest in the property and (2) Defendant's dominion over the property or interference with it in derogation of Plaintiff's rights. Pappas v Tzolis, 20 N.Y.3d 228, 234 [2012], citing Colavito v New York Organ Donor Network, Inc., 8 N.Y.3d 43, 827 [2006]. In order to state a cause of action, Wife must establish legal ownership of a specific identifiable piece of property and Husband's exercise over or interference with the property in defiance of plaintiff's rights. Hamlet at Willow Creek Development Co., LLC v Northeast Land Development Corp., 64 A.D.3d 85, 113 [2d Dept], lv. app. den. 13 N.Y.3d 900 [2009] (citations omitted).
Although Wife contends, citing Lenczycki v. Shearson Lehman Hutton, Inc., 238 A.D.2d 248 [1st Dept 1997], that a spouse may maintain a conversion claim when the other spouse transfers away more than half the value of a jointly titled account, as Husband did here, that case and other cases cited by Plaintiff are not matrimonial actions as they concern former spouses taking a clearly identifiable asset from the opposing ex-spouse. The issue for the court in a pending matrimonial action is normally equitable distribution of marital assets. There is no question here that the assets in question were marital prior to Husband's removal of them. However, Wife did not own a clearly identifiable set or piece of those assets as the scope of the marital assets had not been determined prior to the date of commencement of this matrimonial action. Thus, Plaintiff has not established prima facie that she owned an identifiable piece of the marital assets over which Defendant exercised dominion. Although, as discussed, infra, Wife has a clear remedy for Husband's alleged conduct, it is not based upon a cause of action for conversion. Hejailan-Amon v. Amon, 160 A.D.3d 481 [1st Dept. 2018], citing Young v. Young, 50 Misc.3d 1212 (A) [Sup. Ct. Suffolk Co. 2016]. Additionally, conversion of money is rarely available in New York, except for where the allegedly converted funds are held in specific escrow and allegedly misused or misapplied: "Money, if specifically identifiable, may be the subject of a conversion action... [C]onversion occurs when funds designated for a particular purpose are used for an unauthorized purpose." Petrone v. Davidoff Hutcher & Citron, LLP, 150 A.D.3d 776, 777 [2d Dept 2017] (citations omitted) (emphasis added). Thus, the court grants that branch of Defendant's motion dismissing Plaintiff's cause of action for conversion.
UNJUST ENRICHMENT
The elements of an unjust enrichment claim are "that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered." Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182 [2011] (internal quotation marks and citation omitted); see also Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511, 516 [2012]. "'The essential inquiry in any action for unjust enrichment... is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered.'" Col. Mem. Hosp. v Hinds, 38 N.Y.3d 253 [2022] (internal quotation marks and citation omitted). The essence of an unjust enrichment cause of action "is that the one party is in possession of money or property that rightly belongs to another." Robert M. Schneider M.D. P.C. v. Licciardi, 65 Misc.3d 254 [Sup. Ct. Greene Cty. 2019]. The claim is based on equity, not legal ownership rights. Id. See also Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d at 516 [2012]; Corsello v Verizon NY, Inc., 18 N.Y.3d 777, 790 [2012].
An unjust enrichment claim is quasi-contractual in nature and a complainant may not recover based upon an unjust enrichment claim when they can recover pursuant to a contractual claim. See ClarkFitzpatrick, Inc. v Long Is. R.R. Co., 70 N.Y.2d 382, 388 [1987] ("(t)he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter"); see also Goldman v. Metropolitan Life Ins. Co., 5 N.Y.3d 561, 572 [2005]; Kickertz v. New York Univ., 110 A.D.3d 268, 276-277 [1st Dept 2013]). At bottom, a conclusory claim that a party received benefits, standing alone, is insufficient. As discussed, infra, plaintiff may maintain her causes of action for breach of a fiduciary duty by Husband, and breach of the covenant of good faith and fair dealing, and proceed upon her contractual claims, including her rights pursuant to the prenuptial agreement. Should the court grant judgment for Wife after trial upon these causes of action, it may not grant judgment based upon a quasi-contractual cause of action such as unjust enrichment. At this time, however, as Plaintiff has pleaded facts that, if credited, would establish prima facie that Husband was enriched by his actions at Wife's expense and that it would be against equity and good conscience to permit Husband to retain all of the marital funds, a part of which rightly belonged to Wife, the court will not dismiss the unjust enrichment cause of action unless and until such time as Wife recovers upon a contractual cause of action.
PROMISSORY ESTOPPEL
To establish a viable cause of action for promissory estoppel, a plaintiff must demonstrate (1) an oral promise that is sufficiently clear and unambiguous; (2) reasonable reliance on the promise by a party; and (3) injury caused by the reliance. NYC Health and Hosp. Corp v. St. Barnabas Hosp., 10 A.D.3d 489, 491 [1st Dept 2004]. Promissory estoppel is an extraordinary remedy and it does not apply in cases where there is a contract between the parties. Susman v Commerzbank Capital Mkts. Corp., 95 A.D.3d 589, 590 [1st Dept 2012]. In the absence of a duty independent of the agreement, a claim for promissory estoppel is duplicative of a claim for breach of contract. Celle v. Barclays Bank P.L.C., 48 A.D.3d 301, 303 [1st Dept. 2008]. Where, as in the instant case, there is a written contract between the parties (the Agreement), a claim for promissory estoppel is precluded. Susman, supra at 590. See also Hoeg Corp. v Peebles Corp., 153 A.D.3d 607, 610 [2d Dept 2017]. Thus, the court dismisses Plaintiff's cause of action predicated upon promissory estoppel.
BREACH OF FIDUCIARY DUTY
To establish a cause of action for breach of fiduciary duty, the claimant must allege: (1) the existence of a fiduciary relationship; (2) misconduct; and (3) that the misconduct directly caused claimant's damages. Daly v Kochanowicz, 67 A.D.3d 78, 95 [2d Dept 2009]. A fiduciary relationship exists between spouses. Christian v. Christian, 42 N.Y.2d 63 [1977] ("Agreements between spouses, unlike ordinary business contracts, involve a fiduciary relationship requiring the utmost of good faith.") (citations omitted). See also Anonymous v Anonymous, 136 A.D.3d 506 [1st Dept 2016]. Here, Husband allegedly transferred Wife's 50% interest from the joint accounts into an account titled in his sole name to deny Wife her interest in the transferred assets. See Braddock v Braddock, 60 A.D.3d 84, 88 [1st Dept 2009], app. withdrawn, 12 N.Y.3d 780 [2009] (given the allegations that the nominal defendant corporation was a closely-held family business co-owned by plaintiff and his father, who is also a defendant, a separate fiduciary duty arises from their status as family members). See also Newman. Newman, 202 A.D.2d 442 [1st Dept 2022]; Venizelos v Oceania Mar. Agency, 268 A.D.2d 291, 292 [1st Dept 2000]. Thus, the court denies that branch of Defendant's motion seeking an order dismissing this cause of action.
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING
Implicit in every contract is an implied covenant of good faith and fair dealing. 25 Bay Terrace Assoc., L.P. v Public Serv. Mut. Ins. Co., 194 A.D.3d 668, 671-672 [2d Dept 2016] (internal quotation marks omitted). See also Matter of Caton, 206 A.D.3d 993, 994 [2d Dept 2022]; Celauro v 4C Foods Corp., 187 A.D.3d 836 [2d Dept 2020], "'The implied covenant of good faith and fair dealing is a pledge that neither party to the contract shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruit of the contract, even if the terms of the contract do not explicitly prohibit such conduct.'" 25 Bay Terrace Assoc., 194 A.D.3d at 672, quoting Gutierrez v Government Empls. Ins. Co., 136 A.D.3d 975, 976 [2d Dept 2016]. Of course, "[n]o obligation may be implied that would be inconsistent with other terms of the contractual relationship." Celauro, 187 A.D.3d at 838.
New York courts have repeatedly affirmed that a party may be in breach of an implied duty of good faith and fair dealing, even if that party is not in breach of its express contractual obligations, when, as alleged in the instant case, that party exercises a contractual right as part of a scheme to realize gains that the contract implicitly denied or to deprive the opposing party of the fruit of its bargain. See Dalton v Educ. Testing Serv., 87 N.Y.2d 384, 389 [1995]; Richbell Info. Servs. Inc. v Jupiter Partners, L.P., 309 A.D.2d 288, 302-303 [1st Dept 2003] (no dismissal of cause of action based upon breach of implied covenant of good faith and fair dealing where plaintiffs alleged that defendant exercised a contractual veto power "for an illegitimate purpose and in bad faith" as part of a scheme to deprive plaintiffs of the benefits of their joint venture).
In Maddaloni Jewelers, Inc. v. Rolex Watch U.S.A., Inc., 41 A.D.3d 269 [1st Dept 2007], the Appellate Division confirmed the principle that a claim for breach of the implied covenant of good faith and fair dealing can in appropriate circumstances stand on its own. One such circumstance is when the alleged offending party exercises a contractual right as part of a scheme to obtain gains that the contract implicitly denied or which deprived the other party of the fruit of its bargain. See Dalton v. Educ. Testing Serv., supra; Richbell Info. Servs., Inc. v Jupiter Partners, L.P., supra. In the instant case, Wife has pleaded facts which, if credited, would establish a breach of the implied covenant of good faith and fair dealing, and the court denies this branch of Defendant's motion to dismiss.
For the reasons stated above, the court grants Defendant's motion solely to the extent of dismissing Plaintiff's causes of action sounding in conversion and promissory estoppel. The motion is denied in all other respects. Defendant shall file his answer within 20 days from the date of this order. The parties are directed to appear for a preliminary conference on [redacted] at 60 Centre Street, Room 321, New York, New York. This constitutes the decision and order of the court.