Opinion
Index No. XXXXXX/2021
02-07-2023
L.F., Plaintiff, v. M.F., Defendant.
Attorney for Plaintiff: MULHERN & KLEIN Address: 3366 Park Avenue Suite 200, Wantagh, NY 11793 Phone: (516) 783-0380 Service E-mail: jklein@mulhern-klein.com Attorney for Defendant: GASSMAN BAIAMONTE GRUNER, P.C. Address: 666 Old Country Rd, Ste 801, Garden City, NY 11530 Phone: (516) 228-9181 Service E-mail: bchou@gbgmatlaw.com
Attorney for Plaintiff: MULHERN & KLEIN Address: 3366 Park Avenue Suite 200, Wantagh, NY 11793 Phone: (516) 783-0380 Service E-mail: jklein@mulhern-klein.com
Attorney for Defendant: GASSMAN BAIAMONTE GRUNER, P.C. Address: 666 Old Country Rd, Ste 801, Garden City, NY 11530 Phone: (516) 228-9181 Service E-mail: bchou@gbgmatlaw.com
Edmund M. Dane, J. These motions are consolidated by this Court for a single determination, sua sponte , as an exercise of discretion and in order to make "such other orders concerning proceedings therein, as may tend to avoid unnecessary costs or delay." See CPLR § 602(a).
PRELIMINARY STATEMENT
The Plaintiff moves by Order to Show Cause dated October 26, 2022 (Motion Sequence No.: 001) seeking an Order: (1) That plaintiff's interest in XXX LLC is and be declared to be her separate property for purposes of this action; and (2) That defendant has no claim in the appreciation of plaintiff's separate property, inasmuch as plaintiff has made no contribution towards it.
The non-party XXX LLC (hereinafter referred to as "XXX") moves by Notice of Motion dated November 8, 2022 (Motion Sequence No.: 002) seeking an Order to reimburse XXX for its production expenses pursuant to Rule 3122(d) of the New York Civil Practice Law and Rules ("CPLR").
The Defendant moves by Notice of Cross-Motion dated November 22, 2022 (Motion Sequence No.: 003) seeking an Order: (1) That Plaintiff's interest in XXX LLC is and be declared marital property for purposes of this action; or, in the alternative (2) That Defendant has a valid claim of marital appreciation of the value of Plaintiff's interest in XXX LLC; and (3) Directing an appraisal of the Plaintiff's interest in XXX LLC to ascertain the value of said interest and/or the appreciation in value of said interest during the parties’ marriage, as the case may be; and (4) Denying all of the relief request in the Plaintiff's Order to Show Cause; and (5) Such other and different relief as may appear just and proper to this Court.
BACKGROUND
The parties were married on XXX XX, 2013. This action for divorce and ancillary relief was commenced by the filing of a Summons and with Notice on February 8, 2021 with the Nassau County Clerk's Office (see NYSCEF Document No.: 01). At that time, the Plaintiff was represented by the Law Office of Barbara Gervase, P.C. On March 29, 2021, the Defendant appeared by and through counsel, Samuelson Hause & Samuelson, LLP. The Plaintiff interposed a Verified Complaint on May 12, 2021. The parties, and counsel, appeared before the undersigned Justice on May 25, 2021 for a Preliminary Conference. On said date, the parties executed, and this Court so ordered , the Preliminary Conference Stipulation & Order. This matter was thereafter transferred to the Hon. Sarika Kapoor, A.J.S.C.
On September 14, 2021, the Plaintiff executed a Consent to Change Attorney form, substituting Mulhern & Klein in place and stead of the Law Office of Barbara Gervase, P.C. On January 20, 2022, the parties executed a Custody & Parenting Time Stipulation (hereinafter referred to as the "Custody Stipulation"). On January 20, 2022, the parties executed a Pendente Lite Stipulation (hereinafter referred to the "Pendente Lite Stipulation") resolving the issues of pendente lite support. The Pendente Lite Stipulation was so ordered by Justice Kapoor. Additionally, the Custody Stipulation was so ordered by Justice Kapoor, resolving the issues of custody and parental access in this matrimonial action. On March 16, 2022, the Defendant executed a Consent to Change Attorney form, substituting Gassman Baiamonte Gruner, P.C. in place and stead of Samuelson Hause & Samuelson, LLP. On June 16, 2022, this Court signed a Certification Order. On October 13, 2022, the Plaintiff filed a Note of Issue & Certificate of Readiness for Trial. This matter was then transferred back to the undersigned Justice. Counsel for the parties appeared for a conference before on January 26, 2023, at which time these motions were marked fully submitted.
THE PARTIES’ CONTENTIONS
Motion Sequence Nos.: 001 & 003: Plaintiff's Contentions:
The Plaintiff argues she received an interest in XXX from her father as a gift. She argues that in March 2015, her father presented her with an agreement he drafted concerning a company he created and funded, and that this was a "mechanism" to benefit herself and her siblings. She sets forth that she did not question her father about the details of the company. She sets forth that after formation, she would receive an annual distribution from XXX in a different amount each year. She states she has little understanding of how the amount of the calculations are determined, and she assumed that as the distributions increased, the company was "doing better". She sets forth that as recently as her deposition, she was unaware that she was listed as an officer of XXX. She argues that there is nothing about her education, training or work experience that would permit her to operate, manage, control or make decisions regarding XXX. She then sets forth her educational background and employment experience. She sets forth that she has played no role in, nor made contributions to, XXX's operation or growth. She sets forth that her lack of knowledge and involvement in XXX is demonstrated by her deposition transcript. She argues that her "family meetings" were not meetings concerning XXX. She argues, in effect, that the Defendant is already receiving the benefit of her interest in XXX because the income derived therefrom is making her not make a claim to spousal maintenance.
The Court takes judicial notice of any orders issued, including the so ordered Pendente Lite Stipulation, which is an Order of the Court. The Court notes that the parties’ resolved the issues of pendente lite maintenance and child support pursuant to the Pendente Lite Stipulation, but that resolution was specifically without prejudice to either party's position at trial.
Defendant's Contentions:
The Defendant contends that the Plaintiff's interest in XXX was acquired during the parties’ seven-and-a-half year marriage, and that she demonstrated active involvement and exerted management efforts with respect to her interest in XXX. He sets forth and argues that she attended regular board meetings, took notes of discussions, held an officer position, received income and distributions which were reported on the parties’ jointly filed tax returns, discussed and conferred on business matters regularly, and has access to and control of sensitive company documentation and authority to act on behalf of the company. He argues that on or about March 1, 2015, the Plaintiff became a member and officer of XXX. He argues that the Limited Liability Agreement of XXX (hereinafter referred to as the "XXX LLC Agreement") provides that the Defendant retained a 30% interest in and to XXX, that she is entitled to distributions and return on capital contributions, that she is vested with the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of XXX. He argues that the XXX LLC Agreement provides that she can make all decisions affecting the company affairs, that she is an officer, and that as an officer, she is to be responsible for the day-to-day administration of the business of XXX. He argues, in effect, that the Plaintiff's claim that the "meetings" were to prepare the family regarding her father's health are, in effect, inaccurate. He sets forth that XXX is an investment holding entity that invests in various investments, companies and ventures, and thereafter receives income and distributions. Thus, he suggests that this does not require day-to-day oversight. He argues that the Plaintiff's claim of a "gift" is a litigational tactic. He argues that the Plaintiff's father confirms that no gift tax returns were ever filed for the Plaintiff's interest in XXX. He further argues that the Plaintiff's father testified at his deposition that the XXX interest was not a gift (although he is attempting to revise that testimony now). He argues that if the Plaintiff's father intended a gift, given the size of XXX's investment portfolio, he would have been required to file a gift tax return. The Defendant argues that the Plaintiff's K-1's, despite the assertion of a 30% gift, reflect differing percentages of interest from 2015-2020. The Defendant argues that the Plaintiff's work history is germane to XXX's investments. Finally, the Defendant argues that even if the Plaintiff's interest in XXX is separate, the Plaintiff's father confirms there is marital appreciation.
Plaintiff's Opposition & Reply:
The Plaintiff concedes that she became a member and officer of XXX during the marriage. She sets forth that she and her siblings receive a varying amount of annual income from their interests and she believes that her 30% interest is "substantial". She sets forth that she did not purchase her interest (only contributing $1.00) and that she acquired it as a gift. She argues that the Defendant's claims that there are no records or gift tax returns does not negate the fact that her interest was a gift. She denies any active involvement in XXX and denies exerting managerial efforts. She argues that her notes do not suggest that her interest in XXX was not a gift. She concludes by averring that she's had nothing to do with the operation or success of XXX.
Defendant's Reply:
The Defendant maintains that the Plaintiff has not demonstrated by documentation that her interest in XXXis a gift, and, even if it is, XXX's value has increased from $0 in 2015 to $15,576,000 in 2020. He argues that the claim proffered by the Plaintiff's father that Plaintiff was exempt from gift-tax reporting is, in effect, contradicted by XXX's tax returns, and that XXX's tax returns are insufficient to gaining an understanding of the business. He argues that his forensic expert points out by Affidavit that there are reporting and accounting anomalies.
Motion Sequence No.: 002:
Non-Party's Contentions:
XXX seeks reimbursement of costs in responding to a lawfully issued subpoena. XXX contends that it was formed in 2015 by XXX (the Plaintiff's father) as a vehicle to gift assets to his family, including the Plaintiff. XXX sets forth that the LLC was a vehicle to hold investment opportunities. XXX argues that the Affidavit of the Plaintiff's father dated October 11, 2021, provides, in sum and substance, that all contributions to XXX were made by him, all services for XXX were performed by him, and all investment decisions for XXX have been made exclusively by him. XXX sets forth that a subpoena duces tecum was served by the Defendant on June 3, 2022 and that a subpoena for deposition upon oral examination was served and directed at the Plaintiff's father and XXX. XXX sets forth that it served responses and objections and a production of 1,080 pages was made to the Defendant's counsel. XXX then sets forth that on the August 10, 2022 deposition of the Plaintiff's father, the Defendant made further requests for production, which XXX fully responded to in August of 2022. XXX further sets forth that in October of 2022, the Defendant served a "round" of at least fourteen additional third party subpoenas on various entities that XXX has taken an investment interest. XXX's counsel (hereinafter referred to as the "Law Firm") sets forth that it spent 16.50 hours responding to the June 3 subpoenas, and that the hourly rates of the attorneys working on the file range from $575 per hour to $2,050 per hour. XXX sets forth that the amount incurred for responses to the subpoenas was $13,175. XXX sets forth that the Law Firm provided an invoice to the Defendant's counsel on June 24, 2022 in the amount of $17,068.75, and that the Defendant has declined to reimburse XXX.
Defendant's Opposition:
The Defendant argues that since the Plaintiff received her 30% interest in XXX during the marriage, and since she derives income therefrom, the discovery sought was necessary. The Defendant argues that the deposition of the Plaintiff's father shows that the Plaintiff's acquisition of her interest in XXX was not a gift, and that, in effect, the Plaintiff's interest in XXX is marital property. The Defendant also avers that the Plaintiff's refusal to provide basic discovery for the numerous investments of XXX caused the issuance of the subpoena. The Defendant further argues that the Plaintiff's interest in XXX serves as a source of income to her. The Defendant argues that the fee charges of XXX are grossly excessive and unwarranted and that there was nothing complicated about the production called for in the subpoena, and there was no issue of privilege or confidentiality. The Defendant argues there was little difficulty in the task performed by XXX, and of the 16.5 hours expended on this task, 14.0 hours were relegated to a summer associate, or a law student working at the Law Firm. The Defendant argues that all billing was performed within fifteen (15) days, limited documentation was supplied in response to the subpoena, and the Plaintiff's father himself stated in an Affidavit that "neither XXX LLC nor I maintain books and records". The Defendant argues that the production was limited to tax returns, estimates of company value, two LLC agreements, and a certificate of formation. The Defendant argues that a rate of $575 per hour for a law student is excessive. He argues that an hourly rate of $2,050 in this litigation is unheard of in this type of litigation. Not only does the Defendant argue that the fees were excessive, but he questions why the invoice reflected $17,068.75 was reduced to $13,175 after the Defendant declined to satisfy the invoice.
Non-Party's Reply:
XXX argues that the Law Firm's fees are in line with those of other large New York firms, and that they spent 16.5 hours responding to the June 3, 2022 subpoenas at 2.5 hours for partner time and 14 hours for a summer associate's time. XXX argues that the Defendant does not dispute that the reasonable production expenses shall be defrayed, and that reasonable production expenses includes attorney's fees. XXX argues that the fees charged were not excessive. XXX argues that it is not a party to the divorce proceeding, and that it was foreseeable that the Plaintiff's father would turn the subpoenas over to his New York City litigation counsel to handle the response. XXX argues that the fees were reasonable because the subpoenas were broad and lengthy and they needed to prepare a fourteen page objection and response. XXX argues, in fact, that having a summer associate handle this matter was more efficient, and the Defendant could have served a more narrow subpoena. XXX argues that it should not be forced to bear the costs of the Defendant's strategic decisions. XXX argues that the information sought in the subpoena has no relevance to this action, that the father's deposition confirms that the 30% interest was a gift, and that there was really no justification for the dozens of requests in the subpoenas. XXX also argues that the Defendant exacerbated the costs of responding to the subpoena.
DISCUSSION/ANALYSIS
Motion Sequence Nos.: 001 & 003:
PLAINTIFF'S 30% INTEREST IN XXX
DRL § 236(B)(5)(a) provides:
Except where the parties have provided in an agreement for the disposition of their property pursuant to subdivision three of this part, the court, in an action wherein all or part of the relief granted is divorce, or the dissolution, annulment or declaration of the nullity of a marriage, and in proceedings to obtain a distribution of marital property following a foreign judgment of divorce, shall determine the respective rights of the parties in their separate or marital property , and shall provide for the disposition thereof in the final judgment.
This application, in effect, seeks a classification (and, in effect, a summary determination) of the Plaintiff's 30% interest in XXX, and whether or not it should be classified as marital or separate. In addition, if classified as separate, this application seeks, in effect, a summary determination on whether or not the Defendant has any interest in any appreciation. On this record, the Court cannot grant such relief as the Court finds factual disputes and discrepancies (see infra ), and must refer the applications to a hearing.
DRL § 236(B)(1)(c) provides:
c. The term "marital property" shall mean all property
acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held, except as otherwise provided in agreement pursuant to subdivision three of this part. Marital property shall not include separate property as hereinafter defined.
DRL § 236(B)(1)(d) provides that:
d. The term separate property shall mean:
(1) property acquired before marriage or property acquired by bequest, devise, or
descent, or gift from a party other than the spouse;
(2) compensation for personal injuries;
(3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse;
(4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part.
There is a statutory presumption that all property acquired by either spouse during the marriage, unless clearly separate, is marital property, regardless of the form in which title is held (see Domestic Relations Law § 236[B][1][c], [d] ; Fields v. Fields, 15 N.Y.3d 158, 905 N.Y.S.2d 783, 931 N.E.2d 1039 (2010) ). The party seeking to overcome the presumption has the burden of proving that the property in dispute is separate property (see Nadasi v. Nadel-Nadasi, 153 A.D.3d 1346, 1349, 60 N.Y.S.3d 488 (2d Dept. 2017) ; Marshall v. Marshall, 91 A.D.3d 610, 611, 937 N.Y.S.2d 253 (2d Dept. 2012) ). Palazolo v. Palazolo, 200 A.D.3d 700, 160 N.Y.S.3d 63 (2d Dept. 2021). Marital property consists of a wide range of intangible interests which in other contexts might not be recognized as divisible property at all, and the term marital property should be construed broadly in order to give effect to the economic partnership concept of the marriage relationship. Burke v. Burke, 175 A.D.3d 458, 109 N.Y.S.3d 54 (2d Dept. 2019). The law favors the inclusion of property within the marital estate. G.K. v. L.K., 27 Misc.3d 1239(A), 2010 WL 2553886 (Supreme Court Kings County 2010).
Separate property, on the other hand, is defined as property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse. See Mojdeh M. v. Jamshid A., 36 Misc.3d 1209(A), 2012 WL 2732169 (Supreme Court Kings County 2012). Under the equitable distribution statute, separate property is defined to include an increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse. Shvalb v. Rubinshtein, 204 A.D.3d 1059, 167 N.Y.S.3d 163 (2d Dept. 2022). The term "separate property" is to be narrowly construed. Sieger v. Sieger, 37 A.D.3d 585, 829 N.Y.S.2d 649 (2d Dept. 2007).
It is not disputed that the Plaintiff acquired her 30% interest in XXX in 2015, during the parties’ marriage, as the parties were married in 2013. Therefore, there is a presumption that the Plaintiff's 30% interest in XXX is marital property subject to equitable distribution. The Plaintiff contends that her 30% interest in XXX was a gift from her father. The Plaintiff, therefore, must overcome the presumption that her 30% interest in XXXis marital property. Since she claims that her interest was a gift, she must overcome a heavy burden and must clearly establish every element of a gift (see generally Shusterman v. Shusterman , 2022 WL 17581512, 22 N.Y. Misc. LEXIS 7794 (Supreme Court New York County 2022). The hallmark of a gift is that it is a voluntary transfer of property without consideration or compensation ( 62 NY Jur 2d, Gifts, § 1, at 182-183 ). See Wilcox v. Wilcox, 233 A.D.2d 565, 649 N.Y.S.2d 222 (3d Dept. 1996). The proponent of a gift must prove the elements clear and convincing evidence. Matter of Dorfsman , 2016 WL 6311362, 2016 N.Y. Misc. LEXIS 3904 (Surrogate's Court Nassau County 2016) ; see also Gruen v. Gruen, 68 N.Y.2d 48, 505 N.Y.S.2d 849, 496 N.E.2d 869 (1986). The Court finds there to be many issues of fact, which prevents a determination on these papers alone. In this regard, and for instance, the Court has carefully reviewed the XXX LLC Agreement (see NYSCEF Document No.: 60). The Court notes that while the Plaintiff, her siblings, and the Plaintiff's mother each contributed $1.00 each of cash to the capital of XXX (see Article Two), and while the XXX LLC Agreement provides that "... [a]ll decisions shall be made by [the father-name redacted ] ..." (see Article Three), the Court notes that the LLC Agreement also provides that the "Members" (inclusive of the Plaintiff) "... are hereby vested with the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of the Company and to make all decisions affecting the Company affairs ..." (see Article Three). The Court additionally notes that Article Three of the XXX LLC Agreement, at Paragraph 3.2, provides that the Plaintiff was designated as an "initial officer", and that the officers, at Paragraph 3.3, "... shall be responsible for the day-to-day administration of the business of the Company, subject to the control and direction of the Members ..." (see Article Three). However, the Court has read the deposition transcript of the Plaintiff's father and notes that his testimony creates a factual issue with respect to the aforesaid. In this respect, the Plaintiff's father testified, in sum and substance, that he unilaterally decides what investments to make, that the officers and members are "generally not" informed of his decisions, and that he does not on a periodic basis discuss with the members and/or officers the business affairs of XXX.
Furthermore, the Plaintiff's father also testified, in sum and substance, that the $10,000 initial capital contribution was not a gift to the Plaintiff or any of his other children, although he attempts to clarify that answer on his errata sheet. There, the Plaintiff's father notes that while the $10,000 initial capital contribution was not a gift to the Plaintiff or his other children, "... the 30% residual interest was a gift ..." For the Court on these papers, without observing the demeanor and credibility of the witness, a factual issue is created. The Court additionally notes that, despite the testimony of the Plaintiff's father concerning what, if any, involvement the Plaintiff has in XXX, he conceded that the XXX LLC Agreement was never amended or modified, which the Court finds creates another factual issue. Additionally, and by further example, the Court notes that while it is claimed that the Plaintiff has a 30% interest in XXX, the percentage of the partner's share of profit, loss and capital listed on the Plaintiff's Schedule K-1 forms for years 2015 through 2020 changes from 30% in 2015, 30% in 2016, 10% in 2017, 20% in 2018, 15% in 2019 and 15% in 2020. A satisfactory explanation to free any doubt regarding these discrepancies has not been provided to the Court, which the Court naturally finds to be a factual issue.
The Court notes that while the parties, and the Plaintiff's father, have been deposed at an examination before trial, this Court has not had the ability to observe the credibility, demeanor and sincerity of the Plaintiff, the Defendant, and/or the Plaintiff's father, or any other witnesses. It is well established that the trial court, which had the opportunity to view the demeanor of the witnesses, is in the best position to gauge their credibility ( Massirman v. Massirman, 78 A.D.3d 1021, 911 N.Y.S.2d 462 (2d Dept. 2010), quoting Peritore v. Peritore , 66 A.D.3d 750, 888 N.Y.S.2d 72 (2d Dept. 2009) ). In a nonjury trial, evaluating the credibility of the respective witnesses and determining which of the proffered items of evidence are most credible are matters committed to the trial court's sound discretion ( Ivani v. Ivani, 303 A.D.2d 639, 757 N.Y.S.2d 89 (2d Dept. 2003) ). The trial court's assessment of the credibility of witnesses and evidence is afforded great weight on appeal (see Alper v. Alper, 77 A.D.3d 694, 909 N.Y.S.2d 131 (2d Dept. 2010) ). L.B. v. C.C.B. , 77 Misc.3d 429, 175 N.Y.S.3d 705 (Supreme Court Kings County 2022). The Court simply cannot resolve this application - which seeks summary classification of an asset which, by the Plaintiff's own admission, is substantial - on papers, without hearing from and examining the credibility and demeanor of critical and necessary witnesses.
Accordingly, in light of all of the aforesaid, it is hereby:
ORDERED, that Branches (1) and (2) of the Plaintiff's Order to Show Cause dated October 26, 2022, and Branches (1), (2) and (4) of the Defendant's Notice of Cross-Motion dated November 22, 2022 be and are all hereby REFERRED TO A HEARING. The Court will select an expeditious hearing date at the next scheduled conference.
APPOINTMENT OF FORENSIC ACCOUNTANT
On these papers, this Court cannot determine whether or not the Plaintiff's interest in XXX was a gift or not and, therefore, whether or not to classify the Plaintiff's interest in XXX as either marital or separate. Additionally, in light of the aforesaid, a determination of whether or not the Defendant has any interest in the appreciation of the marital component of XXX (if the Plaintiff's interest in XXX is classified as separate property) is impossible at this time. Therefore, the Court cannot ascertain at this time the forensic's scope and/or purpose, or if one is even necessary. Accordingly, it is hereby:
ORDERED, that Branch (3) of the Defendant's Notice of Cross-Motion dated November 22, 2022 be and is hereby DENIED WITHOUT PREJUDICE and with leave to renew at the conclusion of the hearing as referenced hereinabove.
Motion Sequence No.: 002:
REIMBURSEMENT OF CPLR § 3122(d) COSTS
The instant application by the nonparty, XXX, involves the interplay between CPLR § 3122(d) and matrimonial actions. In this regard, the Court is called upon to essentially determine the scope and breadth of CPLR § 3122(d) cabined within the context of a matrimonial action. More pointedly, issue hinges on whether the phrase "reasonable production expenses" as set forth in CPLR § 3122(d) was meant to include reimbursement by a party of attorney's fees incurred by a nonparty relating to document production pursuant to subpoena. The Court, in this vein has, with a careful eye, read the plain language of CPLR § 3122(d) juxtaposed to other statutory provisions found within the CPLR and other statutes, considered the intent and purpose of CPLR § 3122(d), and thereafter, being mindful of the foregoing, analyzed the statute within the context of matrimonial action. For the reasons that follow in this Decision and Order, this Court concludes that CPLR § 3122(d) was not intended to include reimbursement of attorneys fees within the context of a matrimonial action.
*
A. The Plain Language of CPLR § 3122(d)
The Court starts with the plain language of the statute. CPLR § 3122(d) provides as follows:
(d) Unless the subpoena duces tecum directs the production of original documents for inspection and copying at the place where such items are usually
maintained, it shall be sufficient for the custodian or other qualified person to deliver complete and accurate copies of the items to be produced. The reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery.
(emphasis added).
The Defendant and the nonparty are effectively at odds with whether or not the Law Firm's legal fees were reasonable. However, and before this Court reaches, if necessary, the reasonableness of the Law Firm's fees, it must first ascertain whether or not it has the authority to even award attorney's fees to a nonparty in a matrimonial action for responding to a lawfully issued subpoena duces tecum. After a close and fair reading of the plain language of CPLR § 3122(d), this Court does not find that the statute expressly or implicitly authorizes the reimbursement of attorney's fees for a non-party witness responding to a lawfully issued subpoena, especially within the context of a matrimonial action. Nowhere in the plain language of CPLR § 3122(d) are the words "legal fees", "counsel fees", "attorney's fees" or "fees". In other words, while "production costs" are specifically authorized, attorney's fees are not. The Court reaches that conclusion on a simple premise: if the statute intended to provide for reimbursement or defrayal of attorneys fees , the statute would have expressly provided for such recovery.
In arriving at that conclusion, the Court has carefully reviewed other statutory provisions, such as those, inter alia, found within the CPLR, the Domestic Relations Law, the Family Court Act, and the New York Codes, Rules and Regulations, all read juxtaposed to CPLR § 3122(d). In this vein, the Court finds that other statutory provisions - some within the CPLR and some within other statute - explicitly authorize the Court to award attorney's fees. This leads the Court to conclude that "production costs" are not only different, but separate and apart from "attorney's fees". Therefore, a fair reading and interpretation of "production costs" may mean to include, for instance, and without limitation, photocopying costs, the cost of paper, postage, courier fees, and perhaps, under some circumstances, the cost of retrieval of electronically stored information and possible costs relating to the disruption of business activities, if any.
The Court then undertook an analysis of other statutory provisions. For instance, CPLR § 8601, provides, in relevant part, that "... [i]n addition to costs, disbursements and additional allowances awarded ... a court shall award to a prevailing party, other than the state, fees and other expenses incurred by such party in any civil action brought against the state ..." (see CPLR § 8601(a) ) and "... [a] party seeking an award of fees and other expenses shall ... submit to the court an application which sets forth ... (3) an itemized statement from every attorney or expert witness for whom fees or expenses are sought stating the actual time expended and the rate at which such fees and other expenses are claimed ..." (see CPLR § 8601(b) ). Moreover, CPLR § 909, provides that: "... [i]f a judgment in an action maintained as a class action is rendered in favor of the class, the court in its discretion may award attorneys’ fees ... " (see CPLR § 909 ). Those statutory provisions all authorize fees to be awarded; CPLR § 3122(d) contains no such authority.
The Court looks to the New York Codes, Rules and Regulations. 22 NYCRR § 130-1.1(a) provides that, "... [t]he court, in its discretion, may award to any party or attorney in any civil action or proceeding before the court, except where prohibited by law, costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees ... " (see 22 NYCRR § 130-1.1(a) (emphasis added)). That statutory provision authorizes an award of attorney's fees; CPLR § 3122(d) contains no such authority. Turning to the Family Court Act, Family Court Act § 438 provides, inter alia, that "... [i]n any proceeding under this article ... the court may allow counsel fees at any stage of the proceeding, to the attorney representing the spouse, former spouse or person on behalf of children ..." (see FCA § 438(a) (emphasis added)). In addition, Family Court Act § 842 provides that in a proceeding involving the application for an order of protection, the Court may require the petitioner or the respondent to "... (f) to pay the reasonable counsel fees and disbursements involved in obtaining or enforcing the order of the person who is protected by such order if such order is issued or enforced ..." (see FCA § 842(f) (emphasis added)). Those provisions all authorize payment of counsel fees and disbursements; CPLR § 3122(d) contains no such authority.
Finally, turning to the Domestic Relations Law, DRL § 237 provides, inter alia, that "... [i]n any action or proceeding brought (1) to annul a marriage or to declare the nullity of a void marriage ... the court may direct either spouse ... to pay counsel fees and fees and expenses of experts directly to the attorney of the other spouse ..." (see DRL § 237(a) (emphasis added)). Again, a provision providing for the payment of counsel fees; and again, CPLR § 3122(d) contains no such authority
Since the statute in question, to wit: CPLR § 3122(d), specifically elides any reference to "attorney's fees", "fees", "legal fees" or "counsel fees", this Court is not prepared to expand or amplify the definition of "production costs" to include attorney's fees incident to producing documents within the confines of a matrimonial action. Buttressing this conclusion, the Court notes other courts have specifically noted that "... [t]here is no specific reference to attorney's fees in the statute (see Matter of Khagan (Elghanayan), 66 Misc.3d 335, 114 N.Y.S.3d 824 (Surrogate's Court Queens County 2019) ). Because there is no specific reference to attorney's fees in the statute, the Court cannot construe the statute as reasonably interpreted, within the context of a matrimonial action, to include reimbursement of attorney's fees.
*
B. Decisional Authority
The Court has analyzed decisional authority on this issue. In Matter of Khagan (Elghanayan) , that court awarded, inter alia, $40,000 as and for reimbursement of reasonable legal fees and expenses in connection with a subpoena. Matter of Khagan, 66 Misc.3d at 342, 114 N.Y.S.3d 824. That Court outlined it's rationale therein: "... a nonparty should not be burdened with shouldering the costs of litigation to which the nonparty is unrelated ..." Id. at 338, 114 N.Y.S.3d 824. This Court distinguishes Matter of Khagan . That case was not a matrimonial action, and the nonparty is sufficiently tethered to this litigation. Indisputably, the Plaintiff acquired her interest in XXX during the parties’ marriage. In this respect, the Defendant's income derived therefrom is relevant to any claims in and to spousal maintenance (see DRL § 236(B)(5-a)(b)(4) and see DRL § 236(B)(6)(b)(3) ), equitable distribution (see DRL § 236(B)(5)(d)(1) ), and to any claims to reimbursement of counsel fees (see DRL § 237(a) ).
Additionally, the cases of Finkelman v. Klaus, 17 Misc.3d 1138(A), 2007 WL 4303538 (Supreme Court Nassau County 2007), Parklex Assoc. v. Parklex Assoc., Inc., 33 Misc.3d 1216(A), 2011 WL 5142042 (Supreme Court New York County 2011), Peters v. Peters, 2016 N.Y. Misc. LEXIS 2453 (Supreme Court New York County 2016), Mayer v. Marron , 2018 WL 878613, 2018 N.Y. Misc. LEXIS 490 (Supreme Court New York County 2018), and Walt Disney Co. v. Peerenboom , 2019 WL 295234, 2019 N.Y. Misc. LEXIS 337 (Supreme Court New York County 2019) are all distinguishable from this action. None of those cases were decided within the context of a matrimonial actions. While Finkelman suggested that attorney's fees may be recoverable when representation by an attorney is needed ... ", here, the Court cannot come to the conclusion that separate counsel was needed or was an indispensable necessity to produce the documents that were produced. Parklex only mentioned the possible recovery of attorney's fees in dicta and in a footnote. Peters is distinguishable inasmuch as the documents produced here were not unduly prolix or beyond the normal parameters of broad financial disclosure. Mayer only referred the issue of attorney's fees to a special referee. Walt Disney Co. did not adopt a hard and fast rule that the production costs shall include attorney's fees and only mentioned that production costs may include attorney's fees. In Tener v. Cremer, 89 A.D.3d 75, 931 N.Y.S.2d 552 (1st Dept. 2011), the First Department took their "first opportunity" to address the obligation of a nonparty to produce electronically stored information (ESI) deleted through normal business operations. Tener, 89 A.D.3d at 76, 931 N.Y.S.2d 552. The First Department, inter alia, wrote:
"... it is worth mentioning that CPLR 3111 and 3122 (d) require the requesting party to defray the "reasonable production expenses" of a nonparty. Accordingly, if the court finds after the hearing that NYU
has the ability to produce the data, the court should allocate the costs of this production to plaintiff and should consider whether to include in that allocation the cost of disruption to NYU's normal business operations. In this latter consideration, the court should also take into account that plaintiff waited one year before sending the subpoena and preservation letter ..."
Id. at 82, 931 N.Y.S.2d 552. Notably, in Tener, even in dicta, the First Department said nothing about reimbursement of attorney's fees to the nonparty therein. After distinguishing the aforesaid line of authority, but also considering same, and considering the plain language of CPLR § 3122(d), this Court must now analyze the statute as applied in a matrimonial action (see infra ).
*
C. The Effect of CPLR § 3122(d) in a Matrimonial Action
Matrimonial actions have unique postures. See generally Marcilio v. Hennessy, 46 Misc.3d 1225(A), 2015 WL 1014343 (Supreme Court New York County 2015). In matrimonial actions, for instance, financial disclosure is compulsory pursuant to statute. Unequivocally, DRL § 236(B)(4) provides:
4. Compulsory financial disclosure.
a. In all matrimonial actions and proceedings in which alimony, maintenance or support is in issue, there shall be compulsory disclosure by both parties of their respective financial states. No showing of special circumstances shall be required before such disclosure is ordered.
In addition, the decisional authority is clear: in a matrimonial action, under equitable distribution and Domestic Relations Law § 236(B)(4), broad financial disclosure is necessary and required. De La Roche v. De La Roche, 209 A.D.2d 157, 617 N.Y.S.2d 767 (1st Dept. 1994). In fact, broad financial disclosure is critical in matrimonial actions. Corsel v. Corsel, 133 A.D.2d 604, 519 N.Y.S.2d 710 (2d Dept. 1987) (emphasis added). There should be broad financial disclosure in matrimonial actions to enable the parties to ascertain the nature and value of marital assets as well as to uncover potential hidden assets. Antreasyan v. Antreasyan, 245 A.D.2d 405, 666 N.Y.S.2d 672 (2d Dept. 1997). The entire financial history of the marriage must be open for inspection and may include the financial holdings and resources of the parties over a considerable period of time. Gellman v. Gellman, 160 A.D.2d 265, 553 N.Y.S.2d 705 (1st Dept. 1990) (emphasis added).
In determining whether or not a matrimonial court should require a party to the litigation to pay attorney's fees incident to a lawfully issued subpoena to a nonparty, the Court must also consider the effect of Domestic Relations Law § 237, and decisional authority, concerning the right to - and importance of - awards of interim counsel fees. DRL § 237 provides, in pertinent part, that:
(a) In any action or proceeding brought ... for a divorce ... 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. There shall be a rebuttable presumption that counsel fees shall be awarded to the less monied spouse. In exercising the court's discretion, the court shall seek to assure that each party shall be adequately represented and that where fees and expenses are to be awarded, they shall be awarded on a timely basis, pendente lite, so as to enable adequate representation from the commencement of the proceeding.
In Frankel v. Frankel , the Court of Appeals made clear that "... in matrimonial litigation, counsel fee awards have helped reduce what would otherwise be a substantial advantage to the monied spouse ..." (see Frankel v. Frankel, 2 N.Y.3d 601, 604, 781 N.Y.S.2d 59, 814 N.E.2d 37 (2004) (emphasis added)), and that "... the realities of contentious matrimonial litigation require a regular infusion of funds ..." (see Frankel, 2 N.Y.3d at 607, 781 N.Y.S.2d 59, 814 N.E.2d 37 )). An award of interim counsel fees ensures that the nonmonied spouse will be able to litigate the action , and do so on equal footing with the monied spouse. Kaufman v. Kaufman, 131 A.D.3d 939, 17 N.Y.S.3d 34 (2d Dept. 2015) (emphasis added). Not only that, the Court of Appeals recognized that more frequent interim counsel fee awards would prevent accumulation of bills. Id. at fn. 1. Indeed, there is a rebuttable presumption in matrimonial actions that counsel fees shall be awarded to the non-monied spouse. Joseph M. v. Lauren J., 45 Misc.3d 1211(A), 2014 WL 5420618 (Supreme Court New York County 2014). Among other factors, the Court must consider the relative financial circumstances of the parties, and as the First Department noted:
"This direction is intended not only to permit determination of one side's need and the other's ability to pay; it is also to ensure that a spouse with substantially greater financial resources cannot use
those resources against the less powerful spouse to obtain the outcome he desires. The courts are to see to it that the matrimonial scales of justice are not unbalanced by the weight of the wealthier litigant's wallet."
Charpie v. Charpie, 271 A.D.2d 169, 710 N.Y.S.2d 363 (1st Dept. 2000). Interim legal fees may be necessary so the matrimonial scales of justice are not unbalanced by the weight of the wealthier litigant's wallet. Wechsler v. Wechsler, 8 Misc.3d 328, 797 N.Y.S.2d 844 (Supreme Court New York County 2005) ; see also O'Shea v. O'Shea, 93 N.Y.2d 187, 689 N.Y.S.2d 8, 711 N.E.2d 193 (1999).
Against this backdrop, the Court concludes that requiring a party to a matrimonial litigation to reimburse a nonparty for attorney's fees relating to the production of documents in response to a lawfully issued subpoena would undermine the important public policy provisions of DRL § 237 (see Kaufman, supra ), defeat and undercut the decisional-authority on the issue and importance of interim counsel fees awards, and be at variance with the importance of broad and compulsory financial disclosure. In effect, such an extension of the phrase "reasonable production costs" to include attorney's fees to a nonparty would have the adverse effect of financially punishing a party for seeking disclosure which may very-well be compulsory. While the Court finds that a party seeking such discovery from a nonparty must certainly bear the reasonable production costs (see CPLR § 3122(d) ), this Court will not amplify the definition of "reasonable production costs" to include attorney's fees in a matrimonial action. As to the nonparty's argument that the Defendant does not dispute that CPLR § 3122(d) includes attorneys fees, the Court rejects the argument as unavailing, as it is not for the Plaintiff, the Defendant, or the nonparty to decide whether or not this Court has that authority. Instead, the determination of that authority lies within the purview of this Court.
Requiring a party to a matrimonial litigation to reimburse a nonparty for subpoena compliance is counterintuitive. In this vein, the Court notes that it is often times the case in matrimonial litigation - contentious or not - that spouses are on unequal financial footing, and there is a lack of parity in the financial resources of the parties. Frequently, the nonmonied spouse is at the behest of and reliant upon the monied spouse, not only for support, but also with respect to the possession, control or discovery of critical financial documentation. For a matrimonial court to issue an award fees to a nonmonied spouse, only to then require the nonmonied spouse to defray the attorney's fees of a nonparty for subpoena compliance would, in effect, redistribute and reallocate the very same award that was designed to create parity in the litigation and help abate and redress the economic disparity of the parties. Therefore, this Court cannot reasonably conclude that the ordinary meaning behind CPLR § 3122(d) - as reasonably interpreted - to mean that matrimonial litigants, who are often at times financially disadvantaged to the financially superior spouse, would be required to spend down counsel fee awards (or even invade their share of equitable distribution) to enforce their right to broad and/or compulsory financial disclosure.
To the extent that the Court, in this case, reached the result desired by the nonparty, such result would run afoul from principles of equity. In fact, this Court stands as a court of equity. See generally F.J.O. v. M.I.O., 76 Misc.3d 1207(A), 2022 WL 4005623 (Supreme Court Nassau County 2022). This is especially true whereas, here, the Plaintiff acquired her 30% interest in XXX during the parties’ marriage. Whether or not the Plaintiff inevitably overcomes the presumption of her interest in that asset being classified as marital (see supra ), and even if this Court classifies her interest in XXX as separate property (see supra ), in short, this Court cannot conclude that it is equitable to direct the Defendant herein to reimburse the nonparty (of which the Plaintiff has a 30% interest in) for attorneys fees for seeking documents. The Defendant has an absolute right to his due diligence, and to ascribe to and adopt the logic of the nonparty would be tantamount to abject financial penalization of the Defendant for pursuing right to broad financial disclosure in a matrimonial action.
*
D. Reasonableness of Law Firm's Fees
Because the Court has determined that the reasonable production expenses of a nonparty's response to a subpoena was not intended to include attorneys fees within the context of a matrimonial action, this Court need not reach the issue of the reasonableness of the Law Firm's fees.
* * *
CONCLUSION
This Court concludes that so much of CPLR § 3122(d) which provides for the defrayal of "reasonable production expenses" of a nonparty responding to a subpoena was not intended to include "attorney's fees" within the context of a matrimonial action. This Decision and Order is not intended to opine on whether or not the "reasonable production expenses" of a nonparty includes the costs of attorney's fees in any other type of action, or any other type of litigation. This Court's Decision and Order is circumscribed within the context of a matrimonial action. The Court notes that the Law Firm's billing statements include fees relative to attorney time (at rates ranging from $575 per hour to $2,050 per hour), but does not include entries for the cost of production expenses. The Court therefore denies the application insofar as it seeks reimbursement of attorney's fees, but to the extent that the nonparty seeks reimbursement of the reasonable production costs in responding to the subpoena(s), the Courts is constrained to deny said application without prejudice and with leave to resubmit same with the appropriate documentation substantiating the reasonable production costs incurred in connection therewith.
Accordingly, based upon the reasons set forth in this Decision and Order, it is hereby:
ORDERED, that nonparty XXX's Notice of Motion dated November 8, 2022, to the extent that it seeks reimbursement of attorney's fees, be and is hereby DENIED ; and it is further
ORDERED, that nonparty XXX's Notice of Motion dated November 8, 2022, to the extent that it seeks reimbursement of reasonable production costs, be and is hereby DENIED without prejudice and with leave to renew upon the submission of proper papers.
Any other relief requested not specifically addressed herein is hereby DENIED.
This constitutes the DECISION AND ORDER of this Court.