Opinion
No. 69697/2013.
02-16-2017
J.A.R., Plaintiff, v. R.L.R., Defendant.
Johnson & Cohen, LLP, White Plains, attorneys for plaintiff. Berman Frucco Gouz Mitchel & Schub, P.C., White Plains, attorneys for defendant.
Johnson & Cohen, LLP, White Plains, attorneys for plaintiff.
Berman Frucco Gouz Mitchel & Schub, P.C., White Plains, attorneys for defendant.
JOHN P. COLANGELO, J.
The Court considered the following papers submitted by counsel:
| Plaintiff's Post–Trial Submission Regarding Credits and Expenses with Exhibits: | 1–342 |
| Defendant's Post–Trial Memorandum Regarding Expenses With Exhibits: | 343–594 |
| Affirmation of Ronnie Gouz, Esq. and Affidavit of Gary M. Karlitz, CPA re: Defendant's Counsel Fee and Expert Fee Application, with Exhibits: | 595–865 |
| Affidavit of J.A.R. in Opposition re: Counsel Fees and Expert Fees, with Exhibits: | 866–1227 |
Procedural Background
This matrimonial action was commenced on December 5, 2013 (the "Date of Commencement" or "DOC"). The parties, plaintiff J.A.R. ("Plaintiff") and defendant R.L.R. ("Defendant") are each 57 years old, and were married for over 24 years. The case was tried in late Winter and early Spring of 2016, and the Court rendered its post-trial decision on December 14, 2016 (the "December Decision" or the "Decision"). However, the Court reserved decision on two issues: (1) Whether and to what extent Plaintiff should be reimbursed for expenses incurred by him after the Date of Commencement with respect to two pieces of marital real property located at 703 Yonkers Avenue, Yonkers, New York (the "Yonkers Avenue Property") and 101 Stevens Avenue, Mount Vernon, New York (the "Stevens Avenue Property") (collectively the "Properties"); and (2) The parties' respective applications for counsel fees and expert fees.
The parties were afforded thirty days from the date of the Decision to submit papers with respect to these issues, which they have done. Based upon such submissions as well as the testimony and exhibits adduced at trial, the Court has the following decision with respect to the two residual issues.
Expenses Relating to 703 Yonkers Avenue and 101 Stevens Avenue.
Background
Toward the conclusion of trial, the parties sold the Yonkers Avenue Property and the Stevens Avenue Property (collectively the "Properties"). Each party has received $50,000 from the net proceeds of the sale of 703 Yonkers Ave; the remaining net proceeds from the sale of that Property and all the net proceeds from the sale of the Stevens Avenue Property are being held in escrow by the real estate closings' attorneys, DeAngelis & Hafiz, pending further order of the Court. On March 29, 2016, shortly before the closing on the Yonkers Avenue Property, the parties agreed that they would reserve their respective rights with respect to any claim for post-commencement expenses incurred, at least with respect to the Yonkers Avenue Property. Plaintiff contends that such stipulation extended to the Stevens Avenue Property, which Defendant disputes. In light of the Court's decision as explained below, Defendant's contention is of no moment.
On the last day of the trial, Plaintiff sought to introduce evidence of post-commencement expenses incurred by him for the maintenance of both Properties, to which Defendant objected. The Court then directed the parties to submit any evidence or argument regarding such expenses, or lack thereof, with their post-trial submissions. (See April 26, 2016 Trial Tr. ("Tr.") at 2284). When Plaintiff did so on June 30, 2016—the date that the parties' post-trial submissions were due—Defendant objected by letter dated July 27, 2016, to which Plaintiff responded on the same date. Rather than delay the Court's decision on the host of other issues in the case, the Court elected to treat Plaintiff's submission as an application that certain post-commencement expenses allegedly incurred by him with respect to the Properties be deducted from the net proceeds of the sales before such proceeds are distributed to the parties, and afforded Defendant the opportunity to interpose any further objection or opposition to Plaintiff's claim within 30 days of the Court's December Decision. (Decision at pp. 38–39).
Defendant took advantage of the opportunity and submitted additional papers in opposition to Plaintiff's request for reimbursement for post-DOC expenses with respect to the Properties. In her papers, Defendant does not dispute that Plaintiff incurred post-commencement expenses in maintaining the Properties. Nor does Defendant, in the main, take issue with the nature of such expenses, the predominant majority of which—such as utility bills, water bills and tax payments—can be characterized as necessities. Rather, Defendant argues, with some force, that she should not be compelled to, in effect, throw good money after bad by contributing, post facto, to investments which she either did not approve in advance or had virtually nothing to do with from the time of purchase to the time of sale, when both investments turned out to be losing propositions. (Deft.'s Memorandum Regarding Expenses at pp. 2–5).
The Stevens Avenue Property was purchased for $790,000 and sold for approximately $260,000 (Tr. at 1279–1282); the Yonkers Avenue Property was purchased for $575,000 and sold for $432,000 (Tr. at 1293–1294). Plaintiff concedes that Defendant had no say whatsoever in the decision to purchase the Stevens Avenue Property (Tr. 1283). With respect to the Yonkers Avenue Property, while Plaintiff did discuss the purchase with Defendant, he failed to discover before such purchase that the intended use of that Property by his law firm, J.A. R., P.C. (The "Firm"), would run afoul of the Yonkers Zoning Law, an omission that led to an extensive renovation of the premises—all with marital funds—and the inability of the Firm to occupy the building for a two year period. (Tr. at 1602–1625). Plaintiff nonetheless contends that since the Properties were marital assets, purchased during the marriage, both sides should share in the expenses and losses of them just as, had the investments flourished, the parties would presumably have jointly basked in the gains.
Discussion and Conclusions
It is undisputed—in fact, Plaintiff proclaims—that Defendant had nothing to do with the decision to purchase the Property that suffered the greatest loss—Stevens Avenue—or with the ongoing maintenance of either Property. Such decisions were made by Plaintiff, albeit actuated with marital funds. (Tr. at 1279–1294). Unfortunately, the investment in these Properties did not end happily. Whether such losses are ascribed to a misunderstanding of the local zoning law, as appears to be the case with the Yonkers Avenue Property (Tr. at 1602–1625, 1687), or a misreading of the local real estate market tea leaves, as with the Stevens Avenue Property, the cold facts and figures are that as a result of Plaintiff's investment choices, several hundreds of thousands of dollars in marital funds were lost.
Despite these undisputed facts, Plaintiff maintains that the parties should nonetheless equally bear the post-commencement burden of maintaining the Properties since they were martial assets whose value needed protection, and that the decision to purchase them, however wrongheaded, should not now be reexamined. The Court disagrees with Plaintiff's position as far as the instant Properties are concerned. The Properties were, to put it charitably, a misguided investment by any objective standard; they were purchased for a collective price of approximately $1,365,000 and sold for approximately $692,000. Despite this grim financial reality, Defendant did not seek at trial and Defendant is not now seeking to undo these transactions; instead she is saying, in effect, that enough is enough.
While the general rule of equitable distribution—that, in most cases, the parties' equally share in the division of marital losses as well as gains, as applied by the Court of Appeals in Mahoney–Buntzman v. Buntzman, 12 NY3d 415 (2009) —suggests that while Plaintiff's position may have some merit as a technical matter, the equitable imperative underlying its application dictates otherwise in the instant case.
Mahoney–Buntzman stands for the proposition that absent unusual circumstances—such as fraud upon or concealment from the innocent spouse—courts should be loathe to second guess economic decisions made during the course of the marriage, however negative the ultimate consequence to one or both of the parties. In the instant context, the letter of Mahoney–Buntzman is not in play; after all Defendant is not seeking to undo the purchase of either of the Properties and obtain a credit for her share of the money that the parties lost on these, as it turned out, ill-conceived transactions. To the extent that the result sought here by Defendant—to be free from some, if not all, responsibility for post-commencement expenses incurred in maintaining these investments—wars with Mahoney–Buntzman's spirit, the equities militate in favor of so doing. Defendant had little or no input with respect to the purchase or maintenance of these Properties, and scant if any say as to whether or how they should be sold. Plaintiff controlled those imperatives.
As the cases hold, the principle of equitable distribution does not demand an equal distribution; a court may examine all the surrounding facts and circumstances and conclude that an other than equal division of marital assets or liabilities is in order. See Arvantides v. Arvantides, 64 N.Y.2d 1033 (1985) ; Sutka v. Sutka, 299 A.D.2d 540 (2d Dept.2002) (husband denied any award for an interest in the wife's consulting business when he made no financial contributions to it and any indirect contributions he made were di minimis ); Granade–Bastuch v. Bastuch, 249 A.D.2d 444 (2d Dept.1998) ; Scheinkman, NY Law of Domestic Relations, Vol. 11 at 800 ("Equitable means what is fair, just and right in consideration of the facts and circumstances of each individual case."). Moreover, there is no requirement that the same distribution percentage be applied to all of the marital assets; some may be divided equally and others not. (Scheinkman, Vol. 11 at 803).
The same principles obtain when responsibility for debts as opposed to assets is determined. The equities of the peculiar situation before the court may well dictate an unequal debt distribution. See Costello v. Costello, 304 A.D.2d 517 (2d Dept.2003) (husband ordered to pay all interest, taxes and penalties due to his failure to file tax return when he made all financial decisions).
Under the history and circumstances that obtain here, equity demands that Defendant's financial bleeding with respect to these Properties be staunched by requiring Plaintiff to, in some small measure, bind up the economic wounds that he inflicted. Accordingly, the Court holds that Plaintiff should alone bear the post-date of commencement costs and expenses with respect to the Properties. The DeAngelis & Hafriz firm, which is holding the sales proceeds of the Properties in escrow, is hereby ordered to release such proceeds and disburse them equally to Plaintiff and Defendant. Such payments to the parties shall be effectuated within twenty days of the date of this Decision and Order.
Attorneys Fees and Expert Fees
In its December Decision, the Court permitted each party to submit an application for attorneys fees and expert fees by no later than thirty days thereafter. (Decision at pp. 39–40). Defendant submitted such an application, supported by the Affirmation of her attorney Ronnie Gouz, Esq. dated January 6, 2017 (The "Gouz Affirmation") and the Affidavit of Defendant's trial expert, Gary Karlitz, CPA sworn to on January 5, 2017 (the "Karlitz Affid."). Plaintiff chose not to seek attorney or expert fees himself, but did submit an affidavit opposing the award of any fees, counsel or expert, to Defendant (Affidavit of J.A. R., sworn to January 10, 2017 (the "J.A. R. Affid.").
Section 237(d) lists several factors that the Court should consider in determining whether to make a fee award:
"1. The nature of the marital property involved;
2. The difficulties involved, if any, in identifying and evaluating the marital property;
3. The services rendered and an estimate of the time involved; and
4. The applicant's financial status."
As her papers reflect, Defendant's principal focus is an the fourth listed factor—the financial status of the applicant, particularly in relation to the financial status of the opposing party, Plaintiff. Defendant argues, in essence, that since she is the "less-monied" spouse, DRL 237(a) demands that Plaintiff reimburse her for the hundreds of thousands of dollars she expended for counsel fees and related expert fees. As the Gouz Affirmation shows, the amount of attorney fees billed to Defendant since the commencement of this action exceeded $674,000, and expert fees amounted to over $172,000. (Gouz Affirm. ¶¶ 69, 73).
Plaintiff counters that Defendant is not the typical less-monied spouse for whom counsel fee relief is routinely granted; rather, Defendant is quite financially well endowed. Plaintiff points out that as a result of the Decision, Defendant has received or will soon receive over several million dollars in liquid assets, including a distributive award exceeding $1.5 million, representing her share of the value of the Firm. Moreover, during the course of the litigation, on consent of both parties, Defendant drew $8,000 per month from marital funds, thereby ensuing that she was ably represented. Such periodic payments amounted to $248,000 in total, all of which were transmitted to Defendant's counsel. (Gouz Affirm. ¶ 67). However, as the evidence adduced at trial revealed, Defendant's future earning capacity is limited, particularly when compared to Plaintiff's (See Decision at pp. 21–29).
Upon review of the facts and circumstances of the instant case, including, most notably, the ample resources but limited future income available to Defendant, the Court has determined that Defendant should be awarded counsel fees and expert fees, but not in the full amount that she seeks.
Discussion and Conclusions
DRL 237 provides that the Court may award attorneys and related fees to the less-monied spouse. As the language of § 237 reflects, the principal concern of the statute is prospective rather than retrospective; that is, the main objective of the statute is to assure that during the course of the litigation, both parties are adequately represented such that one party's superior resources do not work to invidiously tip the scales of justice in his or her favor. As Section 237(a) states, "[i]n any [matrimonial] action or proceeding the court may direct either spouse ... to pay counsel fees and fees and expenses of experts directly to the attorney of the other spouse to enable the other party to carry on or defend the action or proceeding as, in the court's discretion, justice requires, having regard to the circumstances of the case and of the respective parties." (Emphasis added). The cases applying § 237, including those cited by Defendant (Gauz Affirm., ¶¶ 3–7), reflect this emphasis. See, e.g., O'Shea v. O'Shea, 93 N.Y.2d 187, 190 (1999) (DRL 237(a)"is designed to reduce the economic disparity between the monied spouse and the non-monied spouse" so "that the matrimonial scales of justice are not unbalanced by the weight of the wealthier litigant's wallet."); DeCabrera v. Cabrera–Rosette, 70 N.Y.2d 879 (1987) ; Prichep v. Prichep, 52 AD3d 61 (2d Dept.2008).
Such concern—to assure adequate representation of the less-monied spouse—is not in issue here. Defendant was ably represented by attorneys prominent in the matrimonial bar, and as a result of a stipulation entered into at an early stage of the case, was provided with resources to pay them. As Defendant concedes, pursuant to the parties' agreement, Plaintiff paid on Defendant's behalf an initial retainer fee to her attorneys of $15,000 (Gouz Affirm. ¶ 67); thereafter, Defendant was permitted to withdraw up to $8,000 per month from a marital account to pay ongoing counsel fees and expenses during the course of the case, such that from April 2014 through December 2016, Defendant paid her counsel a total of $248,000 from such marital funds (Gouz Affirm. ¶ 67). Defendant also made two post-commencement payments to her counsel totaling $70,000 from her separate funds (Id. ).
Unfortunately, that objectively substantial amount—altogether $333,000—proved insufficient to pay the amounts sought by her attorneys; as the bills submitted with her application show, Defendant still owes $340,894.25 to her counsel (Gouz Affirm. ¶ 66). Defendant seeks to recover from Plaintiff not only that outstanding balance, but also reimbursement for all monies that she has expended for counsel fees—a total of $542,644.25 (Gouz Affirm., ¶ 69)—claiming that she is so entitled as the "less-monied" spouse. The Court agrees, but only to a limited extent in light of the facts and circumstances that obtain herein.
Under the Court's December Decision, Defendant has or will have available to her several million dollars in liquid assets including, standing alone, over $1.5 million as for a distributive award representing her share of the value of Plaintiff's law firm, J.A.R., P.C. (The "Firm"). Defendant thus has more than adequate post-judgment resources to pay her pre-judgment litigation expenses. Plaintiff possesses similar if not superior post-judgment resources as far as available liquid funds are concerned. Under such post-judgment circumstances, courts often require the less-monied, but certainly financially endowed spouse, to pay all or at least a significant portion of his or her incurred litigation expenses. See, e.g., Dunnan v. Dunnan, 261 A.D.2d 195, 196 (1st Dept.1999) (Plaintiff required to pay "75,000 toward payment of defendant's more than $100,000 in attorney fees" despite resources available to defendant); Grumet v. Grumet, 37 AD3d 534 (2d Dept.2007) ; Maloney v. Maloney, 137 A.D.2d 666 (2d Dept.1988) (no fee awarded in view of wife's $679,828 distributive award); Chalif v. Chalif, 298 A.D.2d 348 (2dDept.2002) ; see Scheinkman, NY Law of Dom. Rel., Vol. 12 at pp. 155–156).
However, what Defendant does not have, but Plaintiff does, is a significant means of recouping the dissipation of her assets that payment of all her outstanding attorneys fees would necessarily entail. Plaintiff has a law firm, indeed a highly profitable and successful one, that can presumably be counted on to produce substantial future revenue. As the Court noted in its Decision, the Firm generated gross revenues of over $7.7 million in 2013 alone (Decision, p. 13). On the other hand Defendant has, aside from interest on her investments, only her possible earnings as a future legal employee or sole practitioner—which the Court imputed at $40,000—and her monthly maintenance payments. Those maintenance payments, while substantial—$11,000 per month—are largely spoken for; Defendant bears the responsibility of maintaining the former marital residence for which the monthly mortgage and real estate tax payments alone exceed the periodic maintenance amount. (See Decision at 18–20). Defendant will thus have less of an opportunity to replenish any liquid assets used to fully pay her legal fees owed.
In short, the issue is not whether Defendant has the resources to pay the amount her attorneys seek; she does. After all, Defendant has several million dollars in liquid assets available to her. Rather, the pertinent question is to what extent should Defendant be compelled to expend those assets when she—in contrast to Plaintiff—lacks the same ability to replenish them. Defendant is receiving maintenance to assist in meeting her expenses, but has scant earning potential when compared to Plaintiff. In similar situations, courts have provided such monied, but comparatively less monied spouse, with at least some counsel fee relief.
For example, in the First Department case of Charpie v. Charpie, 271 A.D.2d 169, 173 (1st Dept.2000), the Court held the extreme disparity in the parties' income, rather than the concedely adequate resources of the wife, dispositive in granting counsel fees to her. As the First Department stated,
"Given the large discrepancy in the parties' respective incomes and the assets at their disposal, as well as the nature of the issues in dispute, concerning child support and custody, we conclude that it was an improvident exercise of discretion to deny the plaintiff wife's application for an award of interim counsel fees on the ground that she is financially able to meet that cost herself."
See also Weinstein v. Weinstein, 18 AD3d 246, 247 (1st Dept.2005) ("The fact that plaintiff received a substantial distributive award does not preclude her award of counsel fees where she has been forced to use much of the distribution toward legal expenses."); Dunnan v. Dunnan, 261 A.D.2d 195 (1st Dept.1999) ("[D]efendant, who is unable to work should not be required to deplete her assets to the extent necessary to pay all of her attorneys' fees. Accordingly, plaintiff should be directed to contribute $75,000 toward payment of defendant's more than $100,000 in attorneys' fees.").
In short, the fact that a party has received a substantial distributive award does not mandate a denial of any counsel fee award where, as here, the prospective circumstances are such that any attempt to replenish distributive assets spent on legal fees may prove quixotic. This is not to suggest, however, that under the circumstances that obtain herein, Defendant should pay nothing toward her defense. After all, Defendant did receive a distributive award of over $1.5 million, and Plaintiff managed to mount his prosecution of the action while spending $365,000—over $300,000 less than Plaintiff—in counsel fees. (See J.A.R. Affid. ¶ 11 and Gouz Affirm. ¶ 65). Accordingly, a significant contribution by Defendant herself to her attorneys' fees is plainly in order here. In similar situations, courts have compelled such a sharing of the attorneys fee burden for a less monied, albeit monied, spouse.
For example, in Grumet v. Grumet, 37 AD3d 534 (2d Dept.2007), the court denied plaintiff wife's application for a full reimbursement of counsel fees she expended, and instead granted her one-half the amount sought in view of the large distributive award that she received. As the Court held,
"The trial court improvidently exercised its discretion in awarding the wife the total sum of $260,636.48 in attorney and expert fees, which was the full amount of such expenses allegedly incurred by the wife. An appropriate award of attorney's fees should take into account the parties' ability to pay, the nature and extent of the services rendered, the complexity of the issues involved, and the reasonableness of the fees under all of the circumstances (see Matter of Musarra v. Musarra, 28 AD3d 668, 669. 814 N.Y.S.2d 657 [2006] ; Matter of Israel v. Israel, 273 A.D.2d 385, 710 N.Y.S.2d 903 [2000] ). The record reveals that the wife will receive a large distributive award and that she possesses substantial assets which are sufficient to enable her to pay a significant portion of her litigation expenses. Since the wife has more than sufficient resources to pay one half of the litigation expenses, we reduce the award to the total sum of $130,318.24. " (Emphasis added).
See also Chalif v. Chalif, 298 A.D.2d 348, 349 (2d Dept.2002) ("The award of $25,000 for counsel and expert fees were reasonable in light of the financial circumstances of both parties, including the substantial distributive award to the plaintiff, which was significant to enable her to pay the litigation expenses, and the Supreme Court's determination that the counsel fees were excessive.").
The ultimate question remains: to what extent should Defendant contribute to, and Plaintiff share in, the cost of Defendant's litigation expenses. In making the determination, the Court has also considered the DRL 237 factors other than applicant's financial status in relation to Plaintiff's, all of which, stripped to their essence, relate to whether or not the services performed by the applicant's counsel were reasonable in light of the circumstances of the case. See DRL § 237(d). Given the central issue involved at trial—the valuation of a solely owned but highly profitable and complex law practice—the litigation approach undertaken by Defendant's counsel which included an intense scrutiny and valuation of the Firm, was reasonable. However, the expense incurred in so doing—over $674,000 in counsel fees and over $172,000 in expert fees—seems excessive, particularly in light of the still substantial but comparatively more modest amounts of approximately $365,000 in counsel fees and $107,000 in expert fees incurred by Plaintiff. (J.A.R. Affid., ¶¶ 9–11). Defendant, an attorney herself, surely could have, and perhaps should have, more closely monitored her counsel's litigation expenditures. The fact that she either chose not to do or did so ineffectively should not result in a transfer of all of those litigation costs to Plaintiff, and is a factor that the Court will take into account. To hold otherwise would endorse the unwarranted result of discouraging rather than encouraging the goal of controlling litigation costs in this highly contentious and oftentimes expensive area of the law. See Chalif v. Chalif, 298 A.D.2d 348, 349 (2d Dept.2002).
Despite the parties respective efforts to point the finger of responsibility at the other, the Court will not ascribe blame to one party rather than the other for strategic litigation decisions that prolonged the case. Both are culpable, particularly for their decision to each retain their own experts to value the Firm rather than agree upon a neutral expert. Had they chosen the latter course on this important and contentious issue, hundreds of thousands of dollars expended on three expert reports and several days of trial—not to mention the hours sent by attorneys in expert analysis and trial preparation—could have largely been avoided. For this profligate use of resources, both sides bear responsibility.
Be that as it may, the bottom line as far as an award of counsel fees is as follows: As numerous cases hold, the decision of whether and how much to award a party for counsel and related fees is within the sound discretion of the Court. See Scheinkman, NY Law of Dom. Rel. ¶ 19.1; Morrissey v. Morrissey, 259 A.D.2d 472, 473 (2d Dept.1999). ("The award of reasonable counsel fees is a matter within the sound discretion of the trial court."). In light of all the surrounding facts and circumstances of the case, including the evident complexity of the matters litigated—particularly with respect to the Firm's valuation—the post-divorce financial status of the parties, including their relative ability to pay such fees and to recoup any amounts expended from future income, and the elevated nature of some fee expenditures, the Court concludes in its discretion that an award to Defendant of counsel fees in the amount of $100,000 would be appropriate here. Considering the amount of fees incurred by Plaintiff—approximately $365,000—and the amount sought by Defendant—approximately $540,000—such an award would result in an appropriate leveling of the playing field, albeit after the final whistle has blown.
As far as expert fees are concerned, the Court is reluctant to, in effect, provide a subsidy for either party's expert when expert fees could have and should have been shared and a less onerous specialist's burden imposed, as discussed above. Moreover, Defendant's expert spent over $60,000 more than Plaintiff's expert, David Gresen, to produce one report rather than the two written by Mr. Gresen, and examined an area—relating to Sydney Medical Associates—that his client chose not to use, but for which she nonetheless still seeks compensation. However, Mr. Karlitz' burden in ferreting out information from Plaintiff's Firm's often Byzantine accounting and office records was surely heavier than that borne by Mr. Gresen, whose client doubtless made himself readily available to answer his inquiries. In light of these circumstances, and those previously discussed in the context of attorneys' fees, an award to Defendant of $25,000 in expert fees is appropriate.
Accordingly, Plaintiff is responsible to and is directed to pay Defendant a total amount of $125,000, representing $100,000 in counsel fees and disbursements and $25,000 in expert fees. Such payment is to be made by no later than twenty days after the Judgment of Divorce is entered.
Any other relief sought by either party and not addressed herein is denied.
The foregoing constitutes the Decision and Order of this Court.