Opinion
Index No. 365394/2021
04-04-2022
C.E., Plaintiff, v. A.E., Defendant.
Counsel for Plaintiff C.E., Cohen Clair Lans Greifer Thorpe & Rottenstreich LLP, 885 Third Avenue, 32nd Floor, New York, New York 10022, By: Shannon Simpson, Esq. Counsel for Defendant A.E., Blank Rome LLP, 1271 Avenue of the Americas, New York, NY 10020, By: Brett S. Ward, Esq.
Counsel for Plaintiff C.E., Cohen Clair Lans Greifer Thorpe & Rottenstreich LLP, 885 Third Avenue, 32nd Floor, New York, New York 10022, By: Shannon Simpson, Esq.
Counsel for Defendant A.E., Blank Rome LLP, 1271 Avenue of the Americas, New York, NY 10020, By: Brett S. Ward, Esq.
Ariel D. Chesler, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 11, 12, 13, 14, 15, 16, 17, 18, 19, 21 were read on this motion to/for DISMISSAL.
In this motion, the plaintiff Wife moves to dismiss the defendant Husband's second, third, and fourth counterclaims for fraud, breach of fiduciary duty, and unjust enrichment.
As alleged in the counterclaims, on December 9, 2020, the Wife asked the Husband for a divorce after thirteen years of marriage. The Wife, however, wanted to leave the marriage not as a renter, but as a property owner. Subsequently, on December 30, 2020, the spouses orally agreed to buy two separate apartments to maintain a consistent standard of living for their two children. In further discussing their agreement, the Husband told his Wife that they could put $1 million towards their future, separate apartments. To clarify, they concluded that they would first put $1 million of marital assets towards the Wife's apartment and finance the remaining amount with a mortgage. Then, once the Wife's $2 million in deferred compensation came in, the spouses would then use part of that amount as a $1 million down payment towards the Husband's apartment.
The parties expected the Wife's deferred compensation to be paid within the next year. As a result, they agreed to remain married for another year until the Husband was able to purchase his own apartment with the Wife's deferred compensation.
After contacting Wells Fargo (the bank) regarding a potential mortgage pricing, the bank preapproved the couple. Shortly after, the Wife bought her apartment for $2.85 million. To complete the purchase, however, the bank required the Wife to open an account and make a deposit of $1 million; she complied but opened the account in her name only. To facilitate his Wife in making the deposit, the Husband "secured a credit line against the parties’ joint UBS account and transferred the entire amount" of $600,000 to the Wife. The Husband also transferred $150,000 of his annual bonus from his personal bank account into the newly created Wells Fargo account. On March 12, 2021, the Wife closed on the apartment which was put in joint names.
On May 28, 2021, the Wife began working as a Chief Marketing Officer for Zeta. As part of her employment agreement, she urged the company to pay her bonus quarterly to ensure she would have as much money available for the Husband's down payment for his apartment. On August 19, 2021, the Wife filed for divorce. The Husband's action followed.
At oral argument, the Wife's counsel noted that the Wife had been terminated from that position and the bonus money "didn't exist."
The Husband alleges that the Wife misrepresented her agreement to remain married and use $1 million of her bonus to make a down payment on the Husband's apartment. He claims she tricked him into using $1 million of marital funds to purchase her apartment and never intended to hold up her end of the agreement to remain married until they both purchased apartments. He would not have taken on a mortgage, credit line or transferred money to the Wife but for her promise. He asserts he was damaged in the amount of $1 million.
On a motion to dismiss, the court must accept the alleged facts as true and give each favorable inference to the opposing party "to determine ‘whether the facts alleged fit within any cognizable legal theory.’ " (see Leon v Martinez , 84 NY2d 83, 87-88 [1994] ).
As a general matter, although the Husband does not assert a breach of contract claim, the Court is concerned that these counterclaims are essentially breach of contract claims recast as other causes of action. Critically, DRL § 236B (3) requires that to be valid, a marital agreement made either before or during the marriage must be (1) in writing, (2) subscribed by the parties, and (3) acknowledged in a way that would allow a deed to be recorded. Were these recast types of claims permitted in matrimonial actions regularly, it would open the floodgates to numerous claims and complaints between spouses based on unenforceable oral agreements. These issues are more appropriately considered as factors in equitable distribution, something the Legislature surely considered. In this Court's view, the Husband's concerns should therefore be made in connection with the equitable distribution award rather than in these counterclaims.
Since there is no valid, written enforceable agreement between the parties here, the Court is wary of and in fact must dismiss claims essentially premised on or duplicative of an insufficient breach of contract claim (see River Glen Assocs., Ltd. v. Merrill Lynch Credit Corp. , 295 AD2d 274, 275 [1st Dept 2002] [a claim for fraud is "properly dismissed in the absence of reasonable reliance upon the claimed representations" and should be dismissed where such a claim is "merely duplicative of [an] insufficient breach of contract cause of action."]; Clifford R. Gray, Inc. v. LeChase Constr. Servs., LLC , 31 AD3d 983, 986 [3rd Dept 2006] ("there can be no viable claim for fraudulent inducement to enter an unenforceable contract"; Fallon v. McKeon , 230 AD2d 629, 629 [1st Dept 1996] [upholding dismissal of breach of fiduciary trust claim as "clearly based on the unenforceable partnership agreement"]; Corsello v. Verizon NY, Inc., 18 NY3d 777, 790 [2012] [dismissing unjust enrichment claim and stating "unjust enrichment is not a catchall cause of action to be used when others fail. It is available only in unusual situations when, though the defendant has not breached a contract nor committed a recognized tort, circumstances create an equitable obligation running from the defendant to the plaintiff ... An unjust enrichment claim is not available where it simply duplicates, or replaces, a conventional contract or tort claim."]).
Further, to the extent the Husband's claimed damages are the Wife's expected post-commencement income, the controlling Statute — DRL 236B [1][c] - clearly dictates that such income is the Wife's separate property, and the Husband cannot get around the statute via these counterclaims. Indeed, the section defines "marital property" as all property acquired during the marriage and before the commencement of a matrimonial action, and the Husband is barred from making claims against the Wife's post-commencement income.
As the practice commentaries note, "[t]he Legislature has chosen to cut off the accumulation of marital property at legally cognizable signs of marital discord--a written separation agreement or the institution of a matrimonial action." (Alan D. Scheinkman, Practice Commentaries, McKinney's Cons Laws of NY, Book 14, DRL 236B:4). Indeed, the "statute permits a spouse to file a summons in a divorce action the day before significant property is to be received and, thereby, preclude that property from becoming marital property" (Id.).
In addition, fatal to each of the counterclaims is the failure to state cognizable damages. Indeed, as will be discussed further, speculative and contingent damages are insufficient to sustain the claims. And, as noted, with regard to the marital estate, including the apartment the Wife purchased, there could be no claimed damages as the Husband will be able to seek an equitable share of all marital property in this action.
Moreover, each of the counterclaims fail to state a claim. First, as to the fraud claim, the Husband claims the Wife defrauded him by not fulfilling their oral agreement to remain married for one year so that he could receive a $1 million payment from her bonus earnings. To make a claim for fraud in New York, a party must prove "(1) a misrepresentation of fact, (2) made with knowledge of its falsity, (3) an intent to deceive, (4) justifiable reliance, and (5) injury." ( Aglira v. Julien & Schlesinger, P.C., 214 AD2d 178, 185 [1st Dept 1995] ). To avoid dismissal, each of these elements must be plead with specificity, including stating the circumstances "in detail" as to the alleged wrong. ( CPLR § 3016[b] ).
Even assuming arguendo that the Wife's intent to deceive could be implied from the circumstances (see Braddock v. Braddock , 60 AD3d 84, 89 [1st Dept 2009] ) and that she misrepresented her intentions, the Husband failed to sufficiently allege justifiable reliance. Indeed, a party cannot claim fraudulent inducement to enter an unenforceable contract and DRL 236B (3) makes oral agreements between spouses unenforceable. In other words, there could be no justifiable reliance here without a written agreement.
In addition, the Husband's own allegations demonstrate that the alleged agreement in this case could not be performed within a year and thus there is no justifiable reliance because the agreement is unenforceable under the Statute of Frauds as it cannot be performed in less than a year (see GOL § 5-701 ). Specifically, in the fraud claim, the Husband alleged that the parties agreed that "plaintiff would move out and purchase an apartment and defendant would remain in their rental for a year and then purchase an apartment of his own."
The Husband contends that the Statute of Frauds does not apply because partial performance could have occurred within a year. However, "[t]he exception to the statute of frauds for part performance applies to General Obligations Law § 5—703, which deals with real estate transactions, but it has not been extended to General Obligations Law § 5—701." (see Stephen Pevner, Inc. v. Ensler , 309 AD2d 722, 723 [1st Dept 2003] )
The Husband has also failed to allege an actual injury or that he sustained damages due to the Wife's failure to comply with the oral agreement (see generally Sager v. Friedman , 270 NY 472, 479 [1936] ; see also Connaughton v. Chipotle Mexican Grill, Inc. , 29 NY3d 137, 142 [2017] ["The true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong."]). As noted, the Husband will have an opportunity to obtain his equitable share of all marital assets, including the apartment the Wife purchased.
To the extent the Husband's claimed damages are the Wife's expected post-commencement income, these are speculative monies he "might have gained" and not an "out of pocket" injury which is required to sustain the claim (see Connaughton v. Chipotle Mexican Grill, Inc., 29 NY3d at 142-43 [Noting that under the "out of pocket" rule, "[d]amages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained.... [T]here can be no recovery of profits which would have been realized in the absence of fraud ... this Court has "consistent[ly] refus[ed] to allow damages for fraud based on the loss of a contractual bargain, the extent, and, indeed, ... the very existence of which is completely undeterminable and speculative"]).
Here, as in Connaughton , the Husband's pleading is fatally deficient because he did not assert compensable damages resulting from the Wife's alleged fraud. Indeed, he alleged no out of pocket damages of any kind. Defendant claims that he was entitled to the benefit of Plaintiff's performing her part of the alleged agreement, to wit, waiting to divorce and earning additional money for the marital estate. But, these are "benefit of the bargain damages" that cannot be recovered on a fraud claim. The claimed damages are also insufficient because they are speculative and contingent, as they implicate future income that the Wife has not yet earned and may never earn.
The Husband also claims the Wife breached her fiduciary duty by not fulfilling the oral agreement. A person making a successful fiduciary duty claim must allege that (1) the opposing party owed them a fiduciary duty, (2) the opposing party committed misconduct, and (3) damages were suffered as a result ( Burry v. Madison Park Owner LLC , 84 AD3d 699, 699 (1st Dept 2011).
There is no question that spouses owe each other a fiduciary duty. The Husband's claim, however, is based on an alleged unenforceable contract and thus must be dismissed (see Fallon v. McKeon , 230 AD2d 629, 629 [1st Dept 1996] [upholding dismissal of breach of fiduciary trust claim as "clearly based on the unenforceable partnership agreement"]). Indeed, to survive, the Husband's breach of fiduciary duty claim must allege violation of a duty "different" from a contractual obligation (see Batas v Prudential Ins. Co. of Am. , 281 AD2d 260, 264 [1st Dept 2001] ). Yet, the Husband has failed to allege a claim unrelated to the unenforceable oral agreement.
Nor is the breach of fiduciary duty claim one that stands on its own. In this regard, the Husband's reliance on Anonymous v. Anonymous (136 AD3d 506 [1st Dept 2016] ) is misplaced. In that case, the breach of fiduciary duty claim was sustained because it was based on allegations of the wasting of marital assets and not on the breach of an unenforceable oral agreement. Nor is the Husband aided by reference to KS v. ES (39 Misc 3d 1219(A) [Sup Ct, NY Co. 2013] ). In KS , the claims of fraud and breach of fiduciary duty were sustained because the defendant forged his wife's signature on an agreement and concealed it from her and made specific, material lies to her about the family's financial situation and dealings, which he controlled. In contrast, no particularized allegations of misconduct have been stated here, and certainly none that are unrelated to an unenforceable oral agreement.
In any event, as with the fraud claim, the breach of fiduciary duty claim fails to plead sufficient damages or any actual damages (see McSpedon v. Levine , 158 AD3d 618, 622 [2nd Dept 2018] [dismissing fiduciary duty claim where plaintiff "failed to allege facts sufficient to establish that he sustained pecuniary damages as a result of [defendants’] alleged breaches of their fiduciary duties"]).
Lastly, the Husband has alleged that the Wife was unjustly enriched at his expense. To successfully make a claim for unjust enrichment in New York, a person must prove 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 NY3d 173, 182 [2011] ).
New York courts have made it clear that an unjust enrichment claim based on marital assets (or debts) that will eventually be equitably distributed between spouses cannot be sustained under an unjust enrichment claim (see KS v. ES , 39 Misc 3d 1219(A) [Sup Ct, NY Co. 2013] ). More specifically, as the Wife's apartment was bought with marital assets and placed under the spouses’ joint names, the Wife has not been enriched any more than the Husband has. The apartment is just as much his as it is hers. As a result, the apartment will be subject to distribution upon the culmination of the divorce proceedings. In other words, vis a vis marital property the Husband asserts no facts suggesting that the Wife is in possession of money or property belonging to him (see Clifford R. Gray, Inc. v. LeChase Const. Services, LLC , 31 AD3d 983, 988 [3d Dept 2006] ).
As for the Husband's claimed damages of $1 million of the Wife's expected future income, such potential income would not be part of the marital estate and, according to the controlling statute, the Husband cannot claim the Wife was unjustly enriched by post-commencement income she will earn or may earn. These claimed damages are speculative and contingent, and in fact the Wife, who was terminated, may never receive that income. Further, the alleged promise to include such income in the marital estate is unenforceable and cannot be the basis for an unjust enrichment claim.
Unjust enrichment is not meant to be used as a catchall claim when others fail, nor should it be pleaded in place of a failed breach of contract claim (see Corsello v. Verizon NY, Inc., 18 NY3d 777, 790 [2012] ). Because the Legislature has provided a clear cut-off date for marital property, this Court concludes that in these circumstances, i.e. without an enforceable written agreement, it would not be "against equity and good conscience" to permit the Wife to retain any post-commencement income.
Accordingly, it is hereby ORDERED that the Husband's second, third, and fourth counterclaims for fraud, breach of fiduciary duty, and unjust enrichment are dismissed.