Opinion
No. 12/11476.
02-03-2017
Carla L. PICCARRETO, Plaintiff, v. David J. MURA and Ann Marie Mura, Defendants.
Maureen A. Pineau, Esq., Rochester, for Plaintiff. Philip B. Abramowitz, Esq., Williamsville, for Defendant David J. Mura. Frank A. Aloi, Esq. Robert J. Lunn, Esq. Rochester, for Defendant Ann Marie Mura.
Maureen A. Pineau, Esq., Rochester, for Plaintiff.
Philip B. Abramowitz, Esq., Williamsville, for Defendant David J. Mura.
Frank A. Aloi, Esq. Robert J. Lunn, Esq. Rochester, for Defendant Ann Marie Mura.
RICHARD A. DOLLINGER, J.
In this case, an often-litigated action reaches its final terminal. But, before the battered parties arrive at their final destination, the court must resolve whether the results a collateral legal malpractice action in which the plaintiff was paid a settlement can offset a former spouse's liability for a fraudulent conveyance of real property.
The facts in this case have been often stated. The court has written on this controversy on several occasions. In short hand, a former wife, mother of two, was awarded a judgment for approximately $500,000 in child support against her former husband. When she served notice of legal proceedings to collect this judgment, her former husband became aware of her intention and transferred his marital residence, which he alone owned, to himself and his then current wife as tenants by the entirety. After the transaction was complete but before the judgment was entered, the husband and his second wife sold the property and the second wife received half of the net proceeds. When the former wife found out about the transfer, she commenced a fraudulent conveyance action against the second wife, seeking to recoup the second wife's share of the sale proceeds. The first wife claimed that the transfer from her former husband to the second wife was fraudulent because of the impending judgment against her former husband. The claim for fraudulent conveyance was ultimately granted by this court and the court further ordered that the second wife's share of the proceeds be returned to the former wife. The Court issued a judgment for an amount in excess of $100,000, representing the second wife's share of the proceeds from the sale.
Meanwhile, further developments occurred in the legal landscape for the former spouse. When she was unable to enforce the judgment against her former husband's entire property, she commenced a malpractice action against her—then attorney. She claimed that the attorney had failed to exercise reasonable care in securing the judgment for the child support and preventing her former husband from transferring the half of the property—and the proceeds from the sale—to his second wife. After this malpractice action was commenced, the lawyer eventually settled the case and paid the former wife $25,000 as a settlement.
When the second wife learned of the former wife's settlement with her attorney, she moved for a declaratory judgment from this court to have the $25,000 malpractice settlement offset the amount of the former wife's recovery on the fraudulent conveyance section. In sum, the second wife seeks to reduce the amount of the fraudulent conveyance judgment, granted in favor of the first wife against the second wife, by the $25,000 paid to the first wife from her attorney.
First, this Court cannot find any common law right to offset in these circumstances. The second wife cannot point to such a rule in New York and this Court, despite ample research, cannot find such a rule either. There is a common-law collateral source rule but it runs contrary to the entire theory of the second wife's claim. The common-law collateral source rule held that "a personal injury award may not be reduced or offset by the amount of compensation that the injured person may receive from a source other than the tortfeasor." Oden v. Chemung County Indus. Dev. Agency, 87 N.Y.2d 81, 85, (1995) ; 515 Ave. I Corp. v. 515 Ave. I Tenants Corp., 29 Misc.3d 1228(A)(Sup. Ct. Kings Cty 2010).
Searching for a legal justification to implement an offset under these facts, the second wife turns to a statute. To deal with the notion that no one should benefit twice from certain types of lawsuits, the Legislature enacted CPLR 4545(c) which contains an exception to the common law ban on collateral source offsets. However, in examining the question before this Court, it is readily apparent that the statute, by its exact terms, it does not apply to fraud actions, such as the underlying action in this matter. The statute only applies to "personal injury, injury to property or wrongful death, where the plaintiff seeks to recover for the cost of medical care, dental care, custodial care or rehabilitation services, loss of earnings or other economic loss." CPLR 4545(c). The statute also provides that any offset will only apply to "past or future costs or expenses." Under these circumstances, CPLR 4545(c) does not expressly support offsetting the fraudulent conveyance against the second wife by the amount of the malpractice settlement paid by the attorneys to the first wife.
To avoid what she argues is a harsh result, the second wife in this instance argues that the Court of Appeals in Oden v. Chemung County Industrial Dev. Agency gave a broad reading to the CPLR provision, arguing that the following specific comment in that decision suggests the principles in the statute extend to this case:
The statute's dual reference to "any" cost or expense and "any" collateral source was evidently a legislative effort to establish that, apart from the express statutory reservations, there are to be no limitations on the types of economic losses or the types of collateral benefits that the offset is intended to reach (cf., CPLR 4545[b] ).
87 N.Y.2d at 86. But, the invocation of "no limitations on the types of economic losses" language in the statute this statute does little to aid the former wife because Legislature confined the statute to actions "brought to recover damages for personal injury, injury to property or wrongful death." CPLR 4545(c). There is no statutory suggestion that CPLR 4545 would apply to reduce or offset the damages in a fraudulent conveyance action. The Court of Appeals made it clear in Oden v. Chemung County Industrial Dev. Agency that lower courts should be careful before expanding the reach of CPLR 4545 beyond that envisioned by the Legislature.
CPLR 4545(c) is a statute enacted in derogation of the common law and, as such, is to be strictly construed ... Further, it is to be construed in the narrowest sense that its words and underlying purposes permit, since the "rules of the common law must be held no further abrogated than the clear import of the language used in the statute absolutely requires"
Id. Citations Omitted. See also Johnson v. New York City Tr. Auth., 88 AD3d 321 (1st Dept 2011) (because CPLR 4545(a) is in derogation of the common law, its provisions must be strictly construed and the defendant has the burden of establishing entitlement to a collateral source offset by clear and convincing evidence).
The second wife spends substantial time and effort to link the malpractice action to the fraudulent conveyance action under a theory, derived from its expansive reading of CPLR 4545(c), that if there is a "direct correspondence" between the two actions, an offset is permitted. See Gardner v. State of New York, 43 Misc.3d 211 (ct. Claims 2013) (offset permitted if collateral sources have a "direct correspondence" with "the item of loss"); Fisher v. Qualico Contr. Corp., 98 N.Y.2d 534 (2002). But, the statue's opening phrases-enunciated earlier-rebut this effort. Even if there were a nexus-the malpractice action were directly related to the same impending judgment against the real property that justified the fraudulent conveyancer action-the claim against the wife, for which the offset is sought, does not involve "personal injury, injury to property or wrongful death."
In addition, any offsetting in this instance would violate even the spirit of CPLR 4545(c), which is designed to eliminate "duplicative recoveries." Oden v. Chemung County Industrial Dev. Agency, 87 N.Y.2d at 88. Here, the first wife was owed more than $400,000 in unpaid child support and she had given notice, by serving her former husband, of her impending claim. If the malpractice recovery, the remaining recovery against the husband from his share of the proceeds and the entire fraudulent conveyance judgement is paid to the first wife, her total recovery will be substantially less than what she is owed by her former husband. Even if she recovers all these payments, she will still be owed more than $200,000 in unpaid child support. The first wife has not even been paid, in full, once for her loss and there is no danger, even if she collects the entire proceeds from the fraudulent conveyance from the second wife, that she will be paid twice. In short, there is no "duplicative recovery" even if the entire proceeds from the fraudulent conveyance action are paid to the first wife.
In this Court's view, the former wife throughout this process was seeking to recover a judgment for unpaid child support in amount in excess of $400,000. As this Court has repeatedly stated, New York strongly favors payment of child support.The malpractice settlement totaling $25,000 put a small dent in the substantial unpaid child support owed by the former husband to his former wife. When the husband became aware of the potential judgment and knew it would be sizable, as this Court previously held, he engaged in a fraudulent conveyance of half of his interest in the property to his second wife. The husband and his second wife engaged in a scheme to defraud the first wife of her claim and thwart her recovery of the unpaid child support. This Court will not allow a party who defrauded another to use an unmoored and amorphous theory of a collateral source offset to reduce the obligations created by her fraud. There is no statute that allows it and equity, even in broadest sense, would not permit the defrauding party to use other sources to reduce the consequences of its own fraud.
The second wife's request for a declaration of her rights to an offset of the recovery from the fraudulent conveyance action by the proceeds from the settled malpractice action is answered with a declaration that she is not entitled to any offset as a result of the settlement of the malpractice action and the first wife may enforce the entirety of the judgment against her.