Opinion
No. 2013/995.
07-09-2015
Renee Segina MOORE, Plaintiff, v. Robert Allan MOORE, Defendant.
Steven Beckerman, Esq., Rochester, for Plaintiff. Sharon Kelly Sayers, Esq., Rochester, for Defendant.
Steven Beckerman, Esq., Rochester, for Plaintiff.
Sharon Kelly Sayers, Esq., Rochester, for Defendant.
RICHARD A. DOLLINGER, J.
In this application, a former husband seeks to subpoena financial records from his former spouse in order to frame a complaint to challenge a two-year old separation agreement. While the solution appears simple, it is, instead, simply elusive, as a longstanding restrictive common law doctrine in the Domestic Relations Law runs head-on into a more expansive discovery directive in the Civil Practice Law and Rules and an ill-defined further disclosure plank in the couple's separation agreement. When such collisions occur, the court becomes the judicial equivalent of an accident reconstruction expert, trying to figure out which vehicle emerges from the collision to carry the day and drive the court's decision.
In this case, the couple were divorced in 2013, based on an agreement executed in January 2013. The agreement was based on a mediated settlement, in which both parties provided financial disclosure. In the subsequent agreement, the parties each warranted that they had made a "true and complete representation of all current assets ... which he/she owns outright or in which he/she has a part interest." The agreement further provided:
Until the occasion of a divorce or as long as there remains an obligation of either party pursuant to their Agreement, whichever shall come later, each party shall, upon request of the other, be required to produce any and all necessary documentation to properly enforce the provisions of their Agreement.
Art.IV, ¶ C.The agreement was incorporated but not merged into the judgment of divorce. Based on the financial disclosure available at the execution of the agreement, the husband contends that he agreed to divide the cash assets and he paid his wife $243,000 at the time of the divorce. At an unknown time-described by the husband as a time subsequent to the filing of the judgment of divorce-the husband alleges he was told by a credible mutual friend that his wife was bragging that she had hid assets during the marriage and failed to disclose them during the mediation. The husband contends that he could not explain how the wife financed the purchase of a home and further, at some time he examined the couple's joint checking account records and learned that his wife, when they were still married, transferred almost $30,000 before disclosing her intention to seek a divorce and more than $2,000 thereafter. The wife, in her pre-agreement disclosure, never mentioned either transfer and never disclosed an additional bank account, according to the husband. Based on these representations, the husband now seeks a judicial subpoena to obtain copies of the wife's banking records, maintained just prior to the divorce and for a period thereafter.
The wife opposes the husband's application, arguing that his purported showing, based on the hearsay comments of the allegedly "credible mutual friend" and his long-delayed review of the couple's marital financial records do not establish a sufficient basis for launching this discovery effort.
The road to resolution follows a somewhat well-trodden path. Judicial sign posts direct that review of separation agreements is to be exercised sparingly, with the goal of encouraging parties to settle their differences by themselves. Petracca v. Petracca, 101 AD3d 695 (2nd Dept.2012), citing Christian v. Christian, 42 N.Y.2d 63, 71–72 (1977). Courts have thrown their "cloak of protection" over postnuptial agreements, "and made it their business, when confronted, to see to it that they are arrived at fairly and equitably, in a manner so as to be free from the taint of fraud and duress, and to set aside or refuse to enforce those born of and subsisting in inequity." Christian v. Christian, 42 N.Y.2d at 72 ; see Santini v. Robinson 68 AD3d 745, 749 (2d Dept 2009]. In view of the fiduciary relationship existing between spouses, separation agreements are more closely scrutinized by the courts than ordinary contracts. Petracca v. Petracca, 101 AD3d at 695. Under these circumstances, courts must both respect the resolution afforded by a separation agreement, but carefully consider the facts that existed at its signing to insure that "fairness" existed at the time of its execution. Concealing assets at the time of execution can constitute a basis for establishing a right to a hearing on the fairness of the agreement. See Kabir v. Kabir, 85 AD3d 1127 (2nd Dept.2011) (concealing of assets sufficient to permit a hearing on validity of two-year old separation agreement); Berkman v. Berkman, 287 A.D.2d 426 (2d Dept 2001)
Under the Domestic Relations Law—one of the two chassises in this analysis-financial disclosure in support of a claim to overturn a separation agreement is inappropriate until the existing separation agreement is set aside. Fakiris v. Fakiris, 177 A.D.2d 540 (2nd Dept.1991) ; Potvin v. Potvin, 92 A.D.2d 562 (2nd Dept.1983). The only exception to this rule requires the moving party to establish a "legitimate factual predicate" for setting aside the existing agreement. Picciano v. Picciano, 134 A.D.2d 418, 419 (2nd Dept.1987) ; Oberstein v. Oberstein, 93 A.D.2d 374 (1st Dept.1983) ; Gilsten v. Gilsten, 137 A.D.2d 411, 414 (1st Dept .1988) (real and legitimate presentation needed as a predicate to disclosure). The spouse seeking discovery about the other spouse's finances—after the execution of an agreement—must "adduce sufficient factual support constituting a legitimate basis to warrant modification or vacatur of the support provisions of the separation agreement." Markovitz v. Markovitz, 29 AD3d 460 (1st Dept.2006). The Fourth Department has adopted this requirement for a "legitimate factual predicate" before allowing discovery by a party to overturn a separation agreement. Panaggio v. Panaggio, 256 A.D.2d 1115 (4th Dept.1998) (plaintiff failed to establish "the requisite ‘legitimate factual predicate’ for the discovery sought and there is no basis to depart from the general rule that financial disclosure is inappropriate unless and until the existing separation agreement is set aside')"; Rupert v. Rupert, 190 A.D.2d 1027 (4th Dept.1993).
When a judge looks under the hood of this rule, a pattern emerges. The driving force in this analysis is the First Department decision in Oberstein v. Oberstein, 93 AD374 (1st Dep't.1983). In that case-almost universally cited by all the above cases-the First Department, shortly after the enactment of the Equitable Distribution Law in 1980, considered whether pre-equitable distribution case law governed applications for disclosure of a couple's finances after a separation agreement was signed and, in referencing the prior cases, noted:
where the support obligations of the parties are fixed by a subsisting separation agreement, disclosure as to finances may not be obtained in a subsequent conversion action for divorce, since support is not in issue unless and until the separation agreement is declared invalid and set aside. The basic issue is whether that long-standing principle applies in matrimonial actions commenced after July 19, 1980, the effective date of the Equitable Distribution Law (Domestic Relations Law, § 236, part B ).
93 A.D.2d at 374–375. In evaluating the newly minted provisions of the Equitable Distribution Law, the First Department in Oberstein v. Oberstein noted that the new law required that any agreement "be fair and reasonable at the time of the making of the agreement." Id at 378 In seeking to ignite a spark to that provision, the court concluded that it "may be necessary to consider the relative financial positions of the parties to determine whether, under the circumstances, the agreement was fair when made," but the court quickly added,
This is not to state that in every equitable distribution case, the statute permits the parties now to conduct a wholesale fishing expedition into the financial affairs of the other spouse solely based upon bare, conclusory assertions that the terms of the agreement were unfair.
Id. The court directed that when considering an after-the-fact challenge to a separation agreement:
it is necessary to review the factual predicate which has been set forth to ascertain whether, in fact, the underlying circumstances establish a proper basis to modify the agreement. In general, our law is laced with the proposition that conclusory allegations are insufficient for this purpose. For example, CPLR 3016 (subd [b] ), requires particularity in the allegations as to fraud, mistake, breach of trust or undue influence and "the circumstances constituting the wrong shall be stated in detail" (emphasis added).
Id at 380. After borrowing this stricter pleading standard from CPLR 3016, the First Department concluded that the wife's simple claims that the agreement was unfair, unjust and inequitable lacked the specificity to meet the pleading requirements of CPLR 3016. Upon this logic, the First Department denied the wife any disclosure designed to overturn the agreement. With the road paved by the First Department in Oberstein, innumerable court decisions—including all those cited above—have driven down this path to the same conclusion.
The court concluded:
there are no factual allegations to support the naked claim that the agreement was unfair when made or is unconscionable now. General charges of unfair dealing or overreaching will not suffice. Before a party takes steps to undo a separation agreement and obtain disclosure of the spouse's finances, it is incumbent upon that party to adduce sufficient factual support constituting a legitimate basis to warrant modification or vacatur of the support provisions of the separation agreement.
Id at 380.
When analyzed under the Oberstein model alone, allegations in the husband's moving papers in this instance do not withstand the scrutiny required by our Appellate Divisions. The husband's allegations, taken in total, unjustifiably rely on uncorroborated hearsay statements from an allegedly "credible mutual friend." The suggestion by the husband that he could not understand how the wife bought a home ten months after she signed the separation agreement is pure speculation. The statement that husband "had no idea the source of the sums" to purchase the home does not constitute a "legitimate factual predicate" for overturning the agreement. The only tenable evidence of any misrepresentation worthy of consideration by this Court lies in his professed inspection of his banking records—at some point between the time she told him that she would be seeking a divorce and before it became final—and his proffered proof that the wife withdrew sums from the joint marital checking account just prior to commencement of the divorce. The husband claims that the wife never disclosed the depositing of these funds. He supports this conclusion by averring that he has "every reason to believe that his ex-wife has as much as $100,000 "that she wilfully refused to disclose." In addition, the husband, in a claim not denied by the wife, asserts that the wife, in her pre-agreement disclosure, listed only one bank account with M & T Bank, and he now avers that she had two at the time. Surprisingly, the husband, with a seeming nonchalance, never produces the bank accounts statements attesting to the pre-divorce withdrawals or the accounts alleged maintained by his wife at the time of the execution of the agreement. Based on these allegations and applying only the Oberstein v. Oberstein doctrine, this Court would deny the husband the requested disclosure. Fakiris v. Fakiris, 177 A.D.2d at 540 (plaintiff did not establish the requisite legitimate factual predicate for the relief sought because her allegations of fraud and undue influence were not sufficiently "specific or detailed" to warrant such relief); contra, Gilstein v. Gilstein, 137 A.D.2d 411 (1st Dept.1988) (facts, were admitted and raised serious questions of fraud and hence, sufficient to permit disclosure).
But, in citing Oberstein v.Oberstein and applying its provisions to post-agreement disclosure, subsequent courts may have missed two caution signs that dictate a different result. First, the First Department split 3–2 in this decision. The dissent agreed that the Equitable Distribution had changed the rule regarding disclosure after the separation agreement was inked. Describing marriage as an economic partnership, the court added, in then-prescient but now-familiar language:
Now the fairness and reasonableness of the separation agreement with respect to maintenance are, when challenged, critical issues at the outset of any matrimonial action and, although thereto insulated from disclosure unless and until the separation agreement was set aside, appropriate subjects for relevant inquiry. While it is true that, probably due to clerical error (see Scheinkman, Practice [* * *22] Commentary, McKinney's Cons Laws of NY, Book 14, Domestic Relations Law, C236B:5, pp 119–120), the fair and reasonable and not unconscionable standard appears only in the paragraph of section 236 (part B, subd 3 ) which deals with maintenance, and not in the property division and child support clauses of the same subdivision, the latter provisions are, in any event, subject to the traditional challenges of fraud, concealment and overreaching.
The dissent, concluding the objecting spouse had made a sufficient case for disclosure, added:
While we can appreciate the public policy considerations underlying the majority's concern that some degree of finality should be accorded separation agreements, those considerations are valid only if the parties have entered the agreement with full knowledge of all the facts.
The dissent then cited another legislative provision which seemed to provide legislative support for a more expansive disclosure for a spouse challenging a separation agreement. Describing the spouse's request for tax returns, investment and brokerage accounts as "not ... unnecessarily burdensome," the dissent in Oberstein v. Oberstein cited the broad discovery scope of CPLR 3101 to justify the requested document production. In short, from the dissent's view, the requested disclosure in Oberstein v. Obsrstein was at the intersection of two broad policies: assuring the separation agreements were premised on "full knowledge of all facts" and the Legislative command for expansive disclosure when parties are involved in litigation.
This case also highlights one other, seldom cited, legal principle: three judges in the Appellate Division held that no disclosure of finances were permitted,. The trial judge at Special Term and the two dissenters disagreed. In essence on the critical issue, the judiciary split 3–3, but only the last three—the Appellate Division majority—counted.
A second yellow light casts further doubt on the lingering impact of Oberstein v.Oberstein and its application here. Despite the broad discussion of the impact of the Equitable Distribution Law on post-agreement disclosure, both the majority and dissent in Oberstien, missed one other, equally compelling, legislative command enshrined in CPLR 3102(c), which permits pre-complaint disclosure to "aid in bringing an action." CPLR 3102(c). No judge in Oberstein v. Oberstein mentioned 3102(c) and, surprisingly from this court's view, not one of the cases cited above—or any other case involving disclosure to challenge a separation agreement—has referenced the seemingly broad scope of pre-action disclosure envisioned by CPLR 3102(c). The broad thoroughfare for disclosure under CPLR 3102(c) —which contains no preconditions to pre-complaint disclosure—seems to obviate the need to have an already vacated the separation agreement as a predicate to disclosure. Instead, as interpreted by the New York courts, CPLR 3012(c) simply requires a party seeking such disclosure to articulate the elements of a cause of action. In re Woodbridge Structured Funding, LLC, Petitioner–Appellant, v. Pissed Consumer and PissedConsumer.com, 125 AD3d 508 (1st Dept.2015) (petitioner must demonstrate that it has a meritorious cause of action as required to obtain pre-action discovery under CPLR 3102[c] ); Sandals Resorts Intl. Ltd. v. Google, Inc., 86 AD3d 32, 38, 925 N.Y.S.2d 407 (1st Dept.2011]; Matter of Walker v. Sandberg & Sikorski Corp., 125 AD3d 480 (1st Dept.2015) (because petitioners already possess sufficient information to file a complaint asserting defamation, they are not entitled to further pre-action discovery under CPLR 3102(c) Matter of Liaros v. Ted's Jumbo Red Hots, Inc., 96 AD3d 1464 (4th Dept.2012). In Bishop v. Stevenson Commons Assocs., L.P., 74 AD3d 640 (1st Dept.2010), the court, driving over a road paved by prior decisions, intoned that:
pre-action discovery "is not permissible as a fishing expedition to ascertain whether a cause of action exists" and is only available where a petitioner demonstrates that he or she has a meritorious cause of action and that the information sought is material and necessary to the actionable wrong. Generally, the determination of whether a party has demonstrated merit lies in the sound discretion of the trial court.
Id at 641 (citations omitted ). See also Matter of Peters v. Sotheby's Inc., 34 AD3d 29, lv denied 8 NY3d 809 (2007). The First Department in Bishop v. Stevenson Commons Assocs., L.P., added that when considering a pre-action discovery request, "a sensitive balance must be struck between the intrusiveness of the discovery device as against the merits, or lack thereof, of the claim." 74 AD3d at 641. While commonly attempted in commercial matters, pre-action disclosure pursuant to CPLR 3012(c) —never invoked in the long road of cases which require an invalidated separation agreement as a predicate for pre-action disclosure—has seldom been invoked in other family and matrimonial matters. See e.g., Weisz v. Weisz, 42 Misc.3d 391 (Su. Ct. Kings Cty.2013) (discovery in arbitration proceeding because extraordinary circumstances existed in calculating child support); Berg v. Berg, 20 Misc.3d 1142(A) (Sup. Ct,. Kings Cty.2008) ; Nicholson v. Nicholson, 2 Misc.3d 1002(A) (Sup.Ct. Kings Cty.2003) (application for release of certain family court records held analogous to CPLR 3102(c) application). Nonetheless, the heart of CPLR 3102(c) suggests that even in a potential challenge to the validity of a separation agreement, pre-action discovery should only be granted when the petitioner demonstrates that he or she has a meritorious cause of action and that the information sought is material and necessary to an "actionable wrong."
In considering the impact of CPLR 3102(c) on this application, the court acknowledges the longstanding respect New York courts accord negotiated separation agreements. Rudman v. Rudman, 40 Misc.3d 1204(A) (Sup.Ct. Nassau Cty.2013) (sanctity of the parties' decision to settle their own financial affairs by way of agreement must not be cast aside lightly); see also Rainbow v. Swisher, 72 N.Y.2d 106, (1988). The finality of such agreements is imperative: when struck to resolve matrimonial disputes, these agreements should be seldom uprooted, for fear that reopening disputes, after years of compliance with agreements, will undermine the respect of the parties for their agreements, re-open expensive litigation and add stress and anxiety for already divorced couples. Robinson v. Robinson, 120 A.D.2d 415 (1st Dept.1986) (if such agreements are to be practicable and efficacious to the contracting parties as well as society at large, they must be accorded some degree of finality). But, equally compelling, from this court's perspective, is judicial respect for the process of arriving at such agreements and the need for accurate disclosure of marital assets and liabilities by both parties. New York's rules in matrimonial matters squarely accord with this objective. See Domestic Relations Law § 236(B)(4)(a) ; Family Court Act § 424–a ; 22 NYCRR § 202.16(f)(I) (requiring statement of net worth to be filed with the court); see also Hoffman v. Hoffman, 31 AD3d 1125 (4th Dept.2006). If the disclosure process before negotiation of a separation agreement is flawed or if a party misrepresents their financial status, any respect accorded the resultant agreement by either the parties to the agreement or the courts after its execution will be undermined. Thus, in striking a "sensitive balance" between the "intrusiveness of the disclosure and the merits of any claim"—as higher courts suggest CPLR 3102(c) requires-this court cannot ignore the strong public policy requiring accurate and thorough financial disclosure in the process of resolving matrimonial disputes.
Perhaps, in another surprise, the First Department, in invoking this language in Robinson, cites to Oberstein v. Oberstein. Robinson v. Robinson, 120 A.D.2d at 417.
A final factor steers this Court to permitting disclosure. The parties expressly agreed that further disclosure to enforce the Agreement would be permissible at any time either party had an obligation to the other. This language in the agreement unambiguously requires each party to "produce any and all necessary documentation to properly enforce the provisions of their agreement." Having agreed to broad disclosure in the separation agreement, the wife can not now seek to curtail the husband's contractual right to disclosure of the sort requested here. The permitted discovery under the agreement is far broader that envisioned either the prior case law or CPLR 3102(c). Under the agreement, there is no threshold requirement for "a factual predicate" or "aid in bring a complaint." The only question is whether the disclosure is necessary to enforce the agreement.
Considered in the light of CPLR 3102(c) and the language of the agreement, the husband's claim, stripped down, is simply that the wife misrepresented her financial status at the time of the agreement. Material misrepresentation of assets in a divorce proceeding violates New York's matrimonial disclosure rules and may be sufficient, as a matter of common law, to set aside an agreement. Reiner v. Reiner, 59 AD3d 420 (2nd Dept.2009) ; Berkman v. Berkman, 287 A.D.2d 426 (2d Dep't 2001). The allegations of a misrepresentation of assets required by law and by the agreement to be disclosed prior to the execution of the agreement, standing alone, is sufficient to justify further disclosure under both CPLR 3102(c) and the terms of the agreement.
Furthermore, the arguments of the wife's counsel, in reply to this application, miss the mark. The issue is not whether the husband's would prevail in his claim or even if the bank accounts, finally inspected, give any support to his claim. The only question is whether the disclosure would aid in preparing a complaint or detecting an "actionable wrong"—as CPLR 3102(c) requires—or will aid in enforcing the agreement—as the agreement expressly permits. In reaching this conclusion, this court acknowledges the potential infirmities of the husband's potential claim as highlighted by the wife's counsel. There is no suggestion that the husband, prior to the signing of the agreement, was unable to inspect these same accounts—he was, after all, a joint signer on the account-or was somehow prevented from discovering the withdrawn funds. There is no explanation in his affidavit of the delay in obtaining this information over the last two years. There is insufficient information alleged to predicate a claim of fraud. Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 NY3d 553 (2009) (the elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by a plaintiff, and damages). Gutherz v. Gutherz, 43 Misc.3d 1225(A) (Sup Ct. Kings Cty.2014) (discussion of the proof requirements to establish fraud to vacate a separation agreement). But, under the "sensitive balancing" permitted under CPLR 3102(c) or the broader grounds for disclosure in the agreement, even if this court concludes that the alleged claim for misrepresentation may ultimately be without legal traction, the requested disclosure-subpoenaed bank records from a third-party-is minimally intrusive. The respondent wife is not required to expend any resources in responding to this discovery. In addition, the nub of the husband's claim in his papers is simply misrepresentation and violation of the exacting pre-divorce matrimonial disclosure rules of the New York courts and potentially, breach of the agreement. The husband should be allowed to consider the potential merits of his claim before incurring the costs and personal consequences of re-entering the legal system to overturn the two-year-old separation agreement. In concluding that the sensitive balance of the intrusiveness of the requested discovery when weighed against the nature of the claim makes disclosure permissible, this court is not conducting any pre-screening of the merits of the husband's claim. Any such determination would await the filing of a complaint, an answer and further proceedings. The court notes that the terms of the agreement may provide a complete defense to any attempt by the husband to vacate the agreement, but the mere fact that there may be a valid defense does not preclude this court from permitting pre-complaint disclosure. CPLR 3102(c) does not require a court to litigate a matter before it is brought: it simply requires that the petitioner have a general outline of his claim and proof that the sought materials are necessary to more accurately frame the claim. The terms of the agreement require nothing more.
When this balance is applied in this instance, the legislative command, inherent in CPLR 3102(c) that pre-complaint disclosure will facilitate early resolution of disputes, drives the resolution. The court will require the husband to sign a confidentiality agreement regarding the disclosure. The records will be subpoenaed to the court, for review under the court's direction. The period of time covered by the subpoena shall be restricted solely to six months before and after the execution of the agreement, a time frame in which the alleged funds were transferred and the alleged misrepresentation occurred.
Having decided that disclosure is permitted, the court concludes that if the disclosure prompts the husband to commence an action to invalidate the agreement incorporated by not merged into a judgment of divorce, he must do so by a plenary action. Marshall v. Marshall, 124 AD3d 1314 (4th Dept.2015) (inasmuch as the stipulation was incorporated, but not merged into the judgment of divorce, defendant cannot challenge the stipulation by way of motion. but rather, must do so by commencement of a plenary action); Lepe v. Rodriguez, 73 AD3d 710 (2nd Dept.2010) ; Barany v. Barany, 71 AD3d 613, 614 (2nd Dept 2010) (the proper vehicle for challenging a separation agreement or stipulation of settlement incorporated, but not merged, into a divorce judgment is by either commencing a separate plenary "action in which such relief is sought in a cause of action" or by motion within the context of an enforcement proceeding); Brody v. Brody, 82 AD3d 812 (2nd Dept.2011) (a challenge to such a stipulation must be made by the commencement of a separate plenary action to set aside the stipulation). The husband, seeking to achieve this attack by simple motion, cites to cases that involve child support and claims that the payments in an agreement violated the Domestic Relations Law. Fasano v. Fasano, 43 AD3d 988 (2d Dep't 2007) ; Barany v. Barany, 71 AD3d 613 (2d Dep't 2010). However, in this challenge the husband does not make any claim that his support obligations violate law: he instead attacks the validity of the underlying agreement as procured by misrepresentation. The child-support-related cases, cited by the husband, go the wrong way and, if his attack to the agreement persists, it must yield to the requirement of a plenary action.
An unasked and heretofore unanswered question is whether the movant in this case may be bring the pre-complaint disclosure request under the index number for the matrimonial action. Having swept every crack in the pavement in this long road, the court can not find any sign posts directing the court to an answer to this question. Without a road map from my peers, current and departed, and without any observable stop signs signs from the state Legislature, I conclude that the application is properly brought under the current index number and may be sustained in this context, even though any subsequent attack on the agreement or judgment must proceed down a different path.
The wife, in a cross-motion, seeks to hold the husband in contempt for filing this application because, under an earlier order of this court, the husband was barred from requesting any of the wife's financial records. This court does not regard the current application as a violation of the still-standing order. The court did not intend-and the language of the prior order does not envision-that the husband would be barred from requesting this court to permit him to subpoena his ex-wife's financial records. Even if this court denied the husband's application, his request before the court is not contemptuous, as he is simply seeking to vindicate his right of access to the courts. Breytman v. Pinnacle Group, 110 AD3d 754 (2nd Dept.2013) (public policy mandates free access to the courts); Strunk v. New York State Bd. of Elections, 126 AD3d 777 (2nd Dept.2015). His application is reasonable and fair. Furthermore the wife's application for attorneys fees is denied because of the absence of a statement of net worth from her application. 22 NYCRR § 202.16(k)(2).
The application for a subpoena is granted, subject to the limitations in this decision. The cross-application for a protective order is denied. The request for a finding of contempt is denied as is the attorneys fees request.