| Etzion v Etzion |
| 2009 NY Slip Op 03690 [62 AD3d 646] |
| May 5, 2009 |
| Appellate Division, Second Department |
| Deborah Etzion, Appellant-Respondent, v Rafael Etzion etal., Respondents-Appellants. |
—[*1] Blank Rome LLP, New York, N.Y. (Harris N. Cogan, Jay D. Silverstein, and RachelPasternak of counsel), for respondents-appellants.
In an action, inter alia, for the rescission or reformation of a stipulation of settlement datedJune 8, 2005, which was incorporated, but not merged, into the judgment of divorce referable tothe plaintiff former wife and the defendant former husband Rafael Etzion, dated August 16,2005, the plaintiff appeals from so much of an order of the Supreme Court, Nassau County(Marber, J.), entered January 17, 2008, as denied her motion, among other things, to compel thedefendants to submit to electronic discovery, and for a preliminary injunction prohibiting thedefendants from transferring certain money and assets, and the defendants cross-appeal from somuch of the same order as denied their cross motion to dismiss the complaint pursuant to CPLR3211 (a) (1) and (7), and for an award of an attorney's fee.
Ordered that the order is modified, on the law, (1) by deleting the provision thereof denyingthat branch of the plaintiff's motion which was to compel the defendants to submit to electronicdiscovery and substituting therefor a provision granting that branch of the motion to the extent ofallowing the plaintiff and/or her computer forensic expert access to the defendants'nonprivileged, material, and relevant electronic data regarding any possible sale of certain realproperty up to and including March 22, 2005, (2) by deleting the provisions thereof denyingthose branches of the defendants' cross motion which were pursuant to CPLR 3211 (a) (7) todismiss the causes of action sounding in unconscionability, prima facie tort, and breach offiduciary duty and substituting therefor provisions granting those branches of the cross motion,and (3) by deleting the [*2]provisions thereof denying thosebranches of the defendants' cross motion which were pursuant to CPLR 3211 (a) (1) to dismissthe causes of action sounding in mutual mistake and unilateral mistake and substituting thereforprovisions granting those branches of the cross motion; as so modified, the order is affirmedinsofar as appealed and cross-appealed from, without costs or disbursements, and the matter isremitted to the Supreme Court, Nassau County, for further proceedings in accordance herewith.
The plaintiff Deborah Etzion and the defendant Rafael Etzion (hereinafter the defendant)were married on October 12, 1978. The plaintiff commenced an action for a divorce andancillary relief against the defendant on or about June 13, 2002. On March 22, 2005 the plaintiffand the defendant executed a memorandum agreement memorializing their "binding agreementwith respect to [the plaintiff's] distributive share and a division of all other marital assets." Thisagreement (hereinafter the memorandum agreement) provided, inter alia, that the plaintiff wouldreceive the sum of $6.1 million upon execution of a stipulation of settlement, and "the sum of$3.6 million in a note bearing interest at the rate of 6% per annum." The memorandumagreement further provided, among other things, that the plaintiff would receive "title to themarital residence and all of its contents free and clear of any judgment and/or liens." Thedefendant received title to several business corporations, among them, Variety Accessories, Inc.(hereinafter Variety), a business that sold ornaments. He also received title to Metro Shippingand Warehousing, Inc. (hereinafter Metro Shipping), a corporation that owned and operated thewarehouse that stored Variety's stock and provided a location from which Variety's goods wereshipped, and which owned the real property on the Greenpoint-Williamsburg waterfront inBrooklyn on which the warehouse was erected.
The plaintiff and the defendant subsequently entered into a stipulation of settlement datedJune 8, 2005 (hereinafter the stipulation of settlement), incorporating the terms of thememorandum agreement. In the stipulation of settlement, the defendant represented that, as ofthe date of the execution of the memorandum agreement, he had "no active deals or pendingnegotiations relating to the sale or reorganization of Variety, in part or in whole, or any relatedentity, in part or in whole." According to the plaintiff, the parties premised their settlementnegotiations, inter alia, upon a report prepared by a neutral appraiser regarding the value of thewarehouse located on the Greenpoint-Williamsburg waterfront. The neutral appraiser determinedthat, as of March 27, 2003, the subject property (hereinafter the warehouse property) had amarket value of $6,500,000. The plaintiff and the defendant were divorced pursuant to ajudgment dated August 16, 2005. The judgment incorporated, but did not merge, the stipulationof settlement.
On October 6, 2005 the defendant entered into a contract for the sale of the warehouseproperty for the sum of $84,570,000. The closing took place on May 2, 2006. The dramaticincrease in the market value of the warehouse property apparently resulted from the adoption ofa comprehensive municipal land use and waterfront plan for Greenpoint and Williamsburg,which had been announced by the New York City Department of City Planning on June 18, 2003and received coverage in the press throughout the administrative process leading to its approval.The plan provided for, inter alia, the rezoning of the waterfront area to allow for residentialdevelopment. The City formally adopted the rezoning plan on May 11, 2005, two months afterthe parties entered into the memorandum of agreement and one month before they entered intothe stipulation of settlement. The plaintiff commenced the instant action against the defendantVariety, and Metro Shipping (hereinafter collectively the defendants), all of which were involvedin the sale of the warehouse property, seeking, among other things, rescission and/or reformationof the stipulation of settlement. [*3]The plaintiff moved, interalia, to compel the defendants to submit to unfettered electronic discovery of their personal andbusiness computers, as well as for a preliminary injunction prohibiting them from transferringany money or assets under their ownership or control to the extent of the proceeds received fromthe sale of the warehouse property.
The defendants cross-moved to dismiss the complaint pursuant to CPLR 3211 (a) (1) and(7), annexing various documents to their motion papers, including the complaint, thememorandum agreement, the stipulation of settlement, excerpts from the appraisal report, andvarious newspaper articles and press releases. The defendants argued, inter alia, that thecomplaint failed to state a cause of action because information regarding the rezoning plan wasin the public domain, and thus freely accessible to all parties. They further argued, among otherthings, that the plaintiff could have obtained an updated appraisal of the market value of thewarehouse property during the matrimonial settlement negotiations, and that the defendant didnot prevent her from doing so. The Supreme Court denied both the motion and the cross motion.We modify.
In order to prevail on that branch of their cross motion which was to dismiss the complaintpursuant to CPLR 3211 (a) (1), the defendants were required to demonstrate that "thedocumentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing adefense as a matter of law" (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326[2002]). Insofar as the defendants' cross motion was predicated upon CPLR 3211 (a) (7), thecourt is required to "accept the facts as alleged in the complaint as true, accord plaintiffs thebenefit of every possible favorable inference, and determine only whether the facts as alleged fitwithin any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87-88 [1994])."Whether the plaintiff can ultimately establish the allegations 'is not part of the calculus' " (Aberbach v Biomedical Tissue Servs.,Ltd., 48 AD3d 716, 717-718 [2008], quoting EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]).
Under this standard, the complaint in this case is sufficient to state a cause of action torecover damages arising from the defendant's alleged fraudulent misrepresentation that he hadnot engaged in any active deals or pending negotiations relating to the sale or reorganization ofany entity related to Variety. Metro Shipping, which owned and occupied the warehouseproperty on which Variety conducted its operations, is unquestionably a related entity.
Since spouses stand in a fiduciary relationship to each other, agreements between themrequire "the utmost of good faith" (Christian v Christian, 42 NY2d 63, 72 [1977]; see Barchella v Barchella, 44 AD3d696, 697 [2007]). Thus, if the plaintiff is ultimately able to substantiate her claim that thedefendant concealed an existing agreement to sell the warehouse property, she may be able tosucceed on the fraudulent misrepresentation cause of action (see Chapin v Chapin, 12 AD3d 550, 550-551 [2004]; Cruciata v Cruciata, 10 AD3d349, 350 [2004]). Moreover, such allegations are sufficient to state a cause of action forreformation and/or rescission of the stipulation of settlement (see Christian v Christian,42 NY2d 63 [1977]; Brennan-Duffy v Duffy, 22 AD3d 699 [2005]), as well as toimpose a constructive trust on the warehouse property or the proceeds received from the sale ofthat property (see Iwanow v Iwanow,39 AD3d 476, 477 [2007]; Mattera v Mattera, 125 AD2d 555, 556 [1986] ["Aconstructive trust is an equitable remedy which may be imposed whenever necessary to satisfythe demands of justice"]). Thus, the Supreme Court properly denied those branches of thedefendants' cross motion which were to dismiss the first, second, and sixth causes of action.
However, the complaint failed to state a cause of action sounding in prima facie tort.Although the complaint contains an assertion that disinterested malevolence was the solemotivation [*4]for the defendant's conduct, the principalallegations of the complaint indicate otherwise. The complaint clearly demonstrates thatfinancial gain was a motivation on the part of the defendant, as the value of the warehouseproperty was allegedly concealed so as to avoid paying the plaintiff her potential distributiveshare of its actual sales price, an amount that would have exceeded $30,000,000 (see Matterof Entertainment Partners Group v Davis, 198 AD2d 63 [1993]). Moreover, "prima facie tortwas designed to provide a remedy for intentional and malicious actions that cause harm and forwhich no traditional tort provides a remedy, and not to provide a 'catch all' alternative for everycause of action that cannot stand on its legs" (Bassim v Hassett, 184 AD2d 908, 910[1992] [internal quotation marks omitted]). As such, the Supreme Court erred in denying thatbranch of the defendants' cross motion which was to dismiss the seventh cause of action forfailure to state a cause of action.
Contrary to the defendants' further contentions, the complaint sufficiently states a cause ofaction for an award of an attorney's fee pursuant to the terms of the stipulation of settlement. Thestipulation of settlement provides, in pertinent part, that "in the event either party is forced toseek aid of counsel in enforcing any rights pursuant to this Settlement Agreement, and in theevent that party is successful in enforcing such right(s), the other shall reimburse him or her forany reasonable attorneys' fees necessarily incurred in enforcing such right." Accordingly, shouldthe plaintiff ultimately prevail, she will be entitled to an award of a reasonable attorney's feeunder the terms of the stipulation of settlement. Thus, the Supreme Court properly denied thatbranch of the defendants' cross motion which was to dismiss the eighth cause of action.
Moreover, we find no merit to the defendants' contention that the plaintiff failed to set forthsufficient details in her amended complaint to meet the pleading requirements of CPLR 3016 (b),governing claims to recover damages for, inter alia, fraudulent conduct. "While CPLR 3016 (b)requires that a cause of action sounding in fraud must be pleaded with factual detail, thespecificity requirement of the statute is relaxed where, as here, it is alleged that the particularcircumstances of the claimed fraud are exclusively within the defendants' knowledge" (Pericon v Ruck, 56 AD3d 635,636 [2008] [citations omitted]). Thus, given the plaintiff's assertion that the particularcircumstances of the defendant's misrepresentation regarding negotiations for the sale of thewarehouse property were exclusively within his knowledge, the plaintiff pleaded, with sufficientparticularity, that the defendant misrepresented to her that he had not engaged in any active dealsor pending negotiations for the sale of that property at the time they entered into thememorandum agreement in March 2005. She further asserted, with sufficient particularity, thatthe defendant made those misrepresentations for the purpose of inducing her to enter into thememorandum agreement and the subsequent stipulation of settlement (see Caprer v Nussbaum, 36 AD3d176, 202 [2006] ["Although an action to recover damages for fraud may be dismissed, as thedefendants suggest, for failure to plead the claim in sufficient detail to clearly inform them of theincidents complained of the standard is simply whether the allegations are set forth in sufficientdetail to clearly inform a defendant with respect to the incidents complained of and this rule ofpleading must not be interpreted so strictly as to prevent an otherwise valid cause of action insituations where it may be impossible to state in detail the circumstances constituting fraud"][internal quotations marks and citations omitted]).
However, the factual allegations underpinning the third cause of action, sounding in mutualmistake, and the fourth cause of action, sounding in unilateral mistake, were refuted by thedocumentary evidence submitted by the defendants, and should have been dismissed (seeCPLR 3211 [a] [1]). The plaintiff claimed that either she and the defendant mutually relied,or that she unilaterally relied, upon the representation of the market value of the warehouseproperty, as set forth [*5]in the report of the neutral appraiser,and that the reported market value failed to take into account the effect on the property's value ofthe City's proposed plan to rezone, inter alia, the Greenpoint-Williamsburg waterfront to allowfor, among other things, residential development. "To vacate [a] stipulation of settlement on theground of mutual mistake, [a party must] demonstrate that the mistake existed at the time thestipulation was entered into and that it was so substantial that the stipulation failed to represent atrue meeting of the parties' minds" (Hannigan v Hannigan, 50 AD3d 957, 957 [2008]). Since the reportof the neutral appraiser valued the warehouse property as of March 27, 2003, and the New YorkCity Department of City Planning did not formally announce its plan to, inter alia, rezone theGreenpoint-Williamsburg waterfront until June 18, 2003, the appraiser's valuation was not faultyby virtue of its failure to account for the possible adoption of the rezoning plan.
The Supreme Court also should have granted that branch of the defendants' cross motionwhich was to dismiss the fifth cause of action, sounding in unconscionability, for failure to statea cause of action. Despite the plaintiff's assertions, the memorandum agreement and stipulationof settlement were not so manifestly unfair on their faces as to be unconscionable. Indeed, "anagreement will not be overturned merely because it was improvident, not the most advantageousto the dissatisfied party, or because a party had a change of heart" (Warren v Rabinowitz,228 AD2d 492, 493 [1996]; see Brennan-Duffy v Duffy, 22 AD3d at 700;Middleton v Middleton, 174 AD2d 655, 656 [1991]). Here, the plaintiff was representedby a team of independent counsel, accountants, and forensic experts, and received meaningfulbenefits under the agreement, including, inter alia, liquid assets in the sum of approximately $10million, and the marital home, valued at approximately $3 million (see Morad v Morad, 27 AD3d626, 627 [2006]). Although the defendant here received the warehouse property, whichsubstantially increased in value after the date on which the parties entered into the memorandumagreement, "courts will not set aside an agreement on the ground of unconscionability simplybecause it might have been improvident" (Golfinopoulos v Golfinopoulos, 144 AD2d537, 538 [1988]; see Cosh v Cosh,45 AD3d 798, 800 [2007]; McFarland v McFarland, 70 NY2d 916, 918 [1987];Kazimierski v Weiss, 252 AD2d 481, 482 [1998]; Middleton v Middleton, 174AD2d at 656; Gaton v Gaton, 170 AD2d 576, 577 [1991]).
Additionally, the Supreme Court should have granted that branch of the defendants' crossmotion which was to dismiss the ninth cause of action alleging breach of fiduciary duty,premised on the plaintiff's claim that the defendant concealed information in violation of a dutythat he had at the time of the execution of the stipulation of settlement, namely, to disclose thepossibility that the New York City Council might adopt the proposed rezoning plan, and thepotential impact of that plan on the market value of the warehouse property. While thedefendant, as a party to the underlying matrimonial action, had a duty to make full and completedisclosure of information requested by the plaintiff in proper discovery demands, he did not havea duty arising out of the marital relationship to volunteer information freely available in thepublic domain regarding the possibility that the Greenpoint-Williamsburg waterfront might berezoned for residential development, and that such a rezoning could lead to a possible increase inthe market value of the warehouse property. The plaintiff chose to forgo an updated appraisal ofthe value of the warehouse property in favor of reliance on the neutral appraisal that was twoyears old when the memorandum agreement was negotiated and executed. That she subsequentlydetermined that the defendant sold the warehouse property, after the entry of the judgment ofdivorce, for a sum much greater than the appraised value as of March 2003, and realized that herexecution of the agreement may have been improvident, is not a basis to set aside the agreement(see Paolino v Paolino, 51 AD3d886, 888 [2008]; Cosh v Cosh,45 AD3d 798 [2007]; Cappello v Cappello, 274 AD2d 539 [2000]; Warrenv Rabinowitz, 228 [*6]AD2d 492 [1996]).
Given the viability of, inter alia, the plaintiff's cause of action sounding in fraud, discoveryshould be allowed with respect to any computer-stored data (either held in escrow or in thedefendants' business or personal computers) bearing on the issue of whether the defendantmisrepresented to the plaintiff, in the stipulation of settlement, that, at the time they entered intothe memorandum agreement, the defendant was not engaged in any active deals or pendingnegotiations for the sale of the warehouse property (see CPLR 3101 [a]). However, asthe defendants contend, discovery should be limited to nonprivileged materials that couldprovide evidence of the defendant's alleged misrepresentation, i.e., only those generated throughMarch 22, 2005 (see CPLR 3103 [a]). Additionally, given the defendant's cooperationwith electronic discovery requests in the underlying matrimonial action, resort to use of thesheriff's office to effect discovery is not necessary. We therefore remit the matter to the SupremeCourt, Nassau County, to fashion an appropriate arrangement between the parties to effectuatematerial and necessary electronic discovery (see Etzion v Etzion, 7 Misc 3d 940, 943 [2005]).
The Supreme Court correctly denied that branch of the plaintiff's motion which was for apreliminary injunction prohibiting the defendants from transferring certain money and assets."To prevail on a motion for a preliminary injunction, a movant must establish a likelihood ofsuccess on the merits, irreparable injury in the absence of an injunction, and a balance of equitiesin its favor" (Gerstner v Katz, 38AD3d 835, 835 [2007]; see CPLR 6301). Here, the plaintiff failed to establish alikelihood of success on the merits. Despite her allegation that electronic computer evidenceexists that will establish the defendant's alleged fraudulent misrepresentation, the evidencesubmitted by the parties, including the affidavit of the real estate agent who brokered the sale,makes it unclear as to whether any active deals or pending negotiations for the sale of thewarehouse property existed at the time the plaintiff and the defendant executed the memorandumagreement (see Coby Group, LLC vHasenfeld, 46 AD3d 593, 595 [2007]). Additionally, as the Supreme Court found,money damages would be sufficient to satisfy the plaintiff's claim. As such, she did not establishthat she would suffer irreparable injury in the absence of a preliminary injunction (see Matterof Walsh v Design Concepts, 221 AD2d 454 [1995]), and thus failed to establish the needfor a preliminary injunction.
The parties' remaining contentions are without merit. Mastro, J.P., Florio, Covello andBelen, JJ., concur.