[*1]
Anonymous v Anonymous
2023 NY Slip Op 50198(U) [78 Misc 3d 1210(A)]
Decided on March 15, 2023
Supreme Court, New York County
Chesler, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on March 15, 2023
Supreme Court, New York County


Anonymous, Plaintiff,

against

Anonymous, Defendant.




Index No. 350060/2018



Counsel for Defendant
Krauss Shaknes Tallentire & Messeri LLP
350 5th Ave , STE 7620
New York, New York 10118
By: Caroline Krauss, Esq.

Counsel for Plaintiff
Mantel McDonough Riso LLP
410 Park Avenue, Suite 1720
New York, New York 10022
By: Kevin McDonough, Esq.


Ariel D. Chesler, J.

The following e-filed documents, listed by NYSCEF document number (Motion 010) 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 223, 224, 225, 226, 227, 228, 229, 230, 238, 239, 240, 241, 242, 243, 244 were read on this motion to/for ENFORCE/EXEC JUDGMENT OR ORDER.


INTRODUCTION

Defendant Wife moves for an order, compelling Plaintiff Husband to produce all of the required records to the Designated Accountant pursuant to a March 10, 2021 Order, an award of counsel fees in the amount of $863,076 for fees incurred between April 2020 and July 2022, an award of prospective counsel fees in the amount of $150,000, and an award of expert fees in the amount of $150,000.

Plaintiff Husband cross-moves for a declaratory judgment that pursuant to Article 6 of the parties' Prenuptial agreement, all property acquired during the marriage is Plaintiff's separate property, with the exception of the marital residence (which is subject to Plaintiff's separate property claims) and the business the parties own together.


BACKGROUND

As previously explored in an order entered on or about March 10, 2021 (Cooper, J.), the parties to this action entered into a prenuptial agreement (PNA) on November 18, 2004.

Article Six of the PNA, entitled "Distribution of Separate Property and Equitable Distribution of Marital Property," governs the division and distribution of "Separate Property" (Article Four) and "Marital Property" (Article Five) in the event of a divorce. The purpose of Article Six is to provide a mechanism to quantify each party's Separate Property entitlements in Marital Property, as well as quantifying each party's entitlements to their Marital Property.

Among other things, the PNA defined separate property as "all property owned or acquired by such party before the Effective Date of this Agreement," including "deals in progress" and "income. rents and proceeds derived from or accrued upon such party's Separate Property" as well as "the enhancement and appreciation in value of such party's Separate Property."

As for marital property, the PNA provided:

¶ 1 Any and all real or personal property that is acquired by either party or both parties after the date of their marriage and before an Operative Event that is not Separate Property as defined herein shall constitute Marital Property ....
¶ 3. It is expressly understood and agreed by [the parties] that any and all income and/or property received, during the marriage, by [plaintiff-husband] from his Separate [*2]Property, or from property resulting from the appreciation in [plaintiff husband]'s Separate Property, shall be the sole and Separate Property of [plaintiff husband]. In the event Separate Property of [plaintiff-husband] is used to purchase a marital asset, the Separate Property of [plaintiff-husband] so used remains [plaintiff-husband]'s Separate Property. The remaining equity in said marital asset shall be divided equally between the parties.

As found by Judge Cooper in his March 10, 2021 decision, "a plain reading, as difficult as that may be, of Articles Four and Five of the PNA, as read within the context of the PNA as a whole, establishes that the overwhelming majority of plaintiff's business and artistic assets constitute his separate property, whether having been brought by him to the marriage or having increased in scope and value during the marriage. Such a reading also establishes that the bulk of plaintiff's income earned during the marriage, whether from acting, film production, or business ventures, constitutes his separate property as well."

As explained by Justice Cooper (ret.), "Article Six evinces the parties' clear desire to opt out of the general rule that 'commingling of premarital assets with marital assets creates a presumption that the separate property has become marital property.' . . . In doing so, it requires both parties to cooperate in annual "record keeping" with a "designated accountant," with same functioning as a tracing mechanism to accurately account for, and guard against, commingling between separate and marital property when making investments or acquiring property assets during the marriage. Article Six additionally provides that after appropriate disclosure to the designated accountant of all investments made and income received, including the source, the accountant shall determine what, if any, property is marital and subject to equitable distribution."

Article Six "C", states: The parties acknowledge that during the marriage, in order to provide flexibility, liquidity and stability; and to take advantage of opportunity, they may, from time to time, use marital property in separate property investments or to acquire separate property, and use separate property in marital property investments or to acquire marital property. Therefore, to eliminate Plaintiff's burden of tracing his Separate Property commingled into Marital Property, the PNA provided for annual record keeping and audits to determine, each and every year, the amount of Separate Property invested in Marital Property, or vice versa.

Paragraph one of Article Six sets forth the record keeping and financial disclosure requirements:

During their marriage, on a calendar year basis, (January — December), the parties shall keep an accurate record of all investments; whether made in Separate or Marital Property; provided, however, that the initial records shall cover the period from the Effective Date to December 31, 2005. The record shall set forth the name of the investment into which the property is placed, the amount invested, the date and the name and address of the person to contact for information regarding the investment. The parties shall also keep an accurate record of all income, earned or received by either party, which record includes the source, amount and date received of said income. In the first instance, the record of, and supporting documents for, all investments shall be provided to [the parties] annually within two months after the end of 2005 and each successive calendar year during the marriage of the parties to review at the offices of the Designated Accountant. The Designated Accountant shall respond and attempt to answer any [*3]question raised by either [of the parties]. In the event that either party desires to have another accountant review and/or discuss the materials provided with the Designated Accountant, either party may invite another accountant to the office of the Designated Accountant to conduct such review.

Article Six provides that all investments made during the marriage, regardless of whether such investments were made into a "Separate Property" asset or into a "Marital Property" asset, are to be divided between the parties in the event of divorce, based upon a ratio of the parties' income from "Separate Property" or "Marital Property" sources for the year in which the investment was made. Based upon documentation provided to the Designated Accountant, the Designated Accountant was to determine the total of any income invested into marital property in each year and determine the ratio to be applied to each investment. Such ratios would then determine what portion of such investments are the separate property of each party, and the remainder of any marital investment would be marital property and divided equally.

However, for years the parties both failed to comply with their accounting obligations under the PNA.


THE MARCH 10, 2021 ORDER

In an earlier motion sequence (MS 3), plaintiff moved, pursuant to CPLR 3103, for a protective order precluding extensive discovery sought by defendant pertaining to his purported separate property. Plaintiff also moved, pursuant to CPLR 2304, to quash five information subpoenas seeking documents from his accountants, agents, and lawyers pertaining to income he earned over the entirety of the marriage.

Defendant cross-moved, pursuant to CPLR 3212, for partial summary judgment determining and declaring her rights under the PNA. Specifically, as a result of plaintiff allegedly failing to comply with Article Six of the PNA, she sought to sever that article from the PNA as unenforceable, and to enforce Articles Four and Five. Further, she requested that the court determine and declare that plaintiff's separate property is limited only to those specific assets listed in Exhibit A to the PNA, subject to a showing that such assets have not been comingled or transmuted into marital property, and that all other assets existing be deemed marital property to be divided equally among the parties. Lastly, she sought, pursuant to CPLR 3124, to compel the discovery sought in her First Notice for Discovery and Inspection and to enforce certain subpoenas.

In an order entered on or around March 10, 2021, Justice Cooper granted plaintiff's motion for a protective order as to certain discovery requests and to quash subpoenas on third parties and denied defendant's cross motion for partial summary judgment seeking a declaration that all property other than that specified in Schedule A to the parties' PNA is marital property and to compel compliance with her discovery demands.

Notably, Judge Cooper remarked that generally both parties agree the PNA is valid and binding and "neither party argues that the terms of the PNA are anything other than clear and unambiguous." However, he goes on to note that they argue the language clearly evinces a certain intent in "two very disparate ways." Judge Cooper rejected many of the interpretations provided by Defendant which ignored the specific language found in the PNA, and specifically found that "[the] language clearly contemplates that assets acquired, and income earned during the marriage, derived from separate property assets, remain separate property and do not become marital property."

In addition to much analysis of the various Articles in the PNA, Judge Cooper found that Article Six is "one of the central functions of the PNA and should have been complied with - by both parties." He rejected Defendant's argument in favor of severing and invalidating Article Six, and likewise he rejected "Plaintiff's conclusory assertion that Article Six is 'moot.'"

Judge Cooper cogently reasoned that it is the role of the Designated Accountant, not a party, to determine whether there was commingling of separate and marital property. He determined that therefore Article Six must be enforced, that the parties must select a new accountant and provide the required disclosures to such accountant. He concluded: "Notwithstanding any difficulty in producing the required records, some being as much as 15 years old or more, the burden falls on the party seeking a separate property credit, as it relates to business ventures and/or property acquisitions made during the marriage, to adequately document to the designated accountant a basis for same."

Critically, he also found that "[t]o the extent [Defendant] seeks disclosure concerning the alleged comingling of separate and marital property, the PNA must be read as a waiver to such discovery contingent on the parties complying with Article Six. Because Article Six, which is being enforced here, requires that all documentary submissions to the designated accountant be made available for inspection by either party in the office of the designated accountant, it obviates the need to exchange further information." In other words, "[t]he record keeping process provided for under Article Six, with which both sides must comply, satisfies and supplants any right to discovery that defendant may have in this action."

Accordingly, Judge Cooper granted Plaintiff's motion for a protective order and denied Defendant's cross motion for partial summary judgment.


THE APPEAL

Defendant appealed the order. On appeal, the First Department unanimously affirmed the March 10, 2021 order (see Anonymous v. Anonymous, 198 AD3d 526 [1st Dept 2021]). In so doing, the Court stated:

"We agree with the motion court that Article Four, Paragraph 2 of the parties' prenuptial agreement (PNA) served to establish a broad definition of each party's separate property to encompass assets acquired during the marriage. Such reading would "give fair meaning to all of the language employed by the parties to reach a practical interpretation of the expressions of the parties so that their reasonable expectations will be realized"' (Strong v Dubin, 75 AD3d 66, 68 [1st Dept 2010][internal quotation marks and citation omitted]). The recital to the PNA set forth that the parties wished to "fix, determine and limit... the financial and property rights and claims that may accrue to each of them by reason of the Marriage..." To adopt the wife's interpretation of separate property as limited only to the husband's premarital assets listed on Exhibit A annexed to the PNA would have the contrary effect of expanding her marital rights, not limiting them, and would further render Article 4 superfluous since premarital property is already considered separate property under the Domestic Relations Law (see Matter of John E. Andrus Mem. Home v DeBuono, 260 AD2d 635, 636 [2d Dept 1999], lv denied 93 NY2d 813 [1999]). Article Four of the PNA also contained express language contemplating the acquisition of "Separate Property" after the marriage to undermine the wife's claim that all property acquired after the marriage date was marital property. Accordingly, the husband's income earned during the marriage and other business assets acquired during that time are his separate property and not subject to discovery (see [*4]Kalousdian v Kalousdian, 35 AD3d 669, 670-671[2d Dept 2006])."

Apart from affirming the March 10, 2021 order, and responding to certain arguments made by Defendant on appeal, the First Department vacated a stay it had ordered of the "enforcement of that portion of the order requiring the parties, pursuant to the PNA to determine each party's equitable distribution rights by engaging a Designated Neutral Accountant."


DISCUSSION

A. Production of Documents to the Designated Accountant

CPLR 5522 encompasses the actions an appellate court may take in disposing an appeal. Specifically, CPLR 5522[a] states: "A court to which an appeal is taken may reverse, affirm, or modify, wholly or in part, any judgment, or order before it, as to any party."

Of course, as the commentaries note the above rule is a "general and necessarily broad statement of the powers the appellate court has in disposing of the case." (Practice Commentaries C5522:1. Disposition of Appeal, by Richard C. Reilly). Moreover, the commentaries note the rule "is a self-evident statement of the raison-d'être of an appellate court." (Id.).

Critical to the arguments put forth in the motions before this Court, it is fundamental that "While affirmance of a judgment or order may give it added authority as a precedent, its force and effect in other respects are as if no appeal had been taken" (see Carmody-Wait 2d New York Practice with Forms § 70:476 - Effect of affirmance of judgment or order on appeal). Thus, when an order is affirmed all aspects of it remain in effect, untouched and unaltered, and therefore must be followed by the parties. As explained by the commentaries, the directives, findings and relief granted in the order are binding and the appeal taken has had no effect on the obligations of the parties.

Here, the First Department's affirmance of the March 10, 2021 order means that the parties must comply with the directive to retain a Designated Accountant, and must provide all the necessary disclosures to such accountant in lieu of the discovery exchange the parties would have engaged in had they not contracted for this alternate procedure. This conclusion is further supported by the fact that the stay of enforcement of the Article 6 procedure initially granted by the Appellate Division was vacated in conjunction with the decision on the appeal.

Plaintiff argues that, contrary to the fundamental rules set forth above, the First Department decision was "clear and unambiguous" in finding that there was no obligation to provide 14 years of documentation to the Designated Accountant, which he contends supersedes the March 10, 2021 order. He relies on the line in the First Department's decision which states that Plaintiff's "income earned during the marriage and other business assets acquired during that time are his separate property and not subject to discovery." He further argues that Defendant seeks to compel him to engage in an exercise in futility which will needlessly cost Plaintiff hundreds of thousands of dollars." On this point, he argues: "since all income earned during the marriage was Plaintiff's separate income, no marital property, and thus no marital income, was created, thus, the ratio determinations are not necessary to be conducted."

The flaw in Plaintiff's position is that if he were correct the First Department would have reversed or modified the order appealed and then explained what if any the parties' obligations in this action were. They instead affirmed the order and vacated the stay of enforcement of the [*5]Article 6 provisions.

Further, the isolated line pulled from the decision, upon which Plaintiff relies, must be read in its proper context. Indeed, the purpose of that line is to respond to Defendant's arguments regarding her demands for discovery outside of the Article 6 procedure. As to those demands, both the March 10, 2021 order and the First Department order affirming it concluded that she is not entitled to discovery. Instead, the parties must comply with the Article 6 procedure which they agreed to in the PNA.

In any event, the March 10, 2021 order rejected Plaintiff's position that there is no need to do the calculations. The Court, in dismissing this very argument, stated: "plaintiff's sweeping and conclusory assertion that Article Six is 'moot' because there was no commingling of separate and marital property, must also be rejected. The PNA is clear that this determination is for the designated accountant to make, not a party." (Order at 14).

Defendant also points out that "it is simply not a foregone conclusion that all of Plaintiff's assets will be determined to be his Separate Property under the PNA, as Plaintiff has contended." Of course, this was the exact conclusion set forth by the Court in the March 10, 2021 order. And, this conclusion, which was not disturbed by the First Department, is precisely why the Court directed the disclosures be made to the Designated Accountant so that the Designated Accountant can determine whether there was commingling of separate and marital property, and thus whether Defendant is entitled to a share of any of the assets.

This is not to say that it is impossible that Plaintiff is ultimately proven correct that there was not commingling of separate and marital property. However, as was determined two years ago, this call must be made by the Designated Accountant following the necessary disclosures provided for in the PNA. As was previously determined, it is Plaintiff's burden to prove to the Designated Accountant that all of the assets in question are his separate property.

In sum, there is no basis to grant Plaintiff's cross motion for a declaratory judgment. The Defendant's motion to compel Plaintiff to produce all of the required records to the Designated Accountant is granted. Accordingly, the parties are directed to immediately provide disclosures to the already agreed upon Designated Accountant. Should either party fail to comply, a motion for sanctions or other appropriate relief may be filed.


B. Counsel and Expert Fees

In support of the request for an award of counsel fees, Defendant provided an attorney affirmation setting forth their qualifications, memorandum of law, retainer agreement, statement of net worth, and billing invoices.

In the affirmation, Defendant's counsel states that from April 2020 through July 2022 Defendant has incurred approximately $855,732 in legal fees and $7,344 in disbursements in the matter. They also request $150,000 for prospective work.

Counsel explains that approximately $325,000 was incurred in relation to the appeal to the First Department as well as related post-decision motions. Many of the arguments made on appeal and in the motions related to the interpretation of the PNA and the definition of separate property therein.

Another $145,000 was incurred in an appeal of the June 30, 2021 and September 22, 2021 orders which related to interim support, interim counsel and accounting fees, and the "hiatus period" (as defined in the PNA).

$50,000 was incurred in preparing for an all day settlement conference, and $336,000 [*6]was incurred in addressing the interim issues that arose after April 2020, including preparing for oral arguments and multiple court conferences with Justice Cooper in 2020 and 2021; interfacing with opposing counsel and Ms. Sloan to address numerous interim access/schedule/vacation issues pursuant to the dispute resolution terms of the parties' Parenting Agreement; and interfacing with our client to address interim issues that arose such access issues, vacation issues, and the like.

Further, counsel notes that the work to be done is extensive and relates to the Designated Accountant's determinations, other financial provisions of the PNA, such as sale of the marital residence, and child support, which is not covered by the PNA.

Counsel notes that pursuant to a June 30, 2021 order in this action, Defendant was awarded $350,000 in interim attorney fees and $70,000 in interim accounting fees to Defendant's accounting expert, KLG, LLC. These fees covered the period between 2018 and April 2020. In addition, Plaintiff agreed to pay $150,000 of Defendant's counsel fees pursuant to a July 7, 2022 stipulation.

According to Defendant's counsel, to date, Plaintiff has paid a total of $1,055,000, on account of Defendant's legal and accounting fees incurred in this action. Of that sum, $960,000 has been to MMR, LLP for attorneys' fees. Of that amount, $125,000 is an advance on Defendant's equitable distribution rights, and per the July 7, 2022 Stipulation, $150,000 is not subject to reallocation. $90,000 has been paid to KLG for accounting fees.

Pursuant to Domestic Relations Law Section 237(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..." Although "there shall be a rebuttable presumption that counsel fees shall be awarded to the less monied spouse (id.)," the awarding of attorney and expert fees in a matrimonial action nevertheless continues to be within the sound discretion of the trial court.

The purpose of interim attorney and expert fee awards is to enable the spouse with less financial resources to litigate the action on "equal footing" with the spouse with greater resources. Interim fees also act as a means of preventing the monied spouse from " 'wearing down or financially punishing the opposition by recalcitrance, or by prolonging the litigation'" (Prichep v Prichep, 52 AD3d 61, 65 [2nd Dept 2008] [internal citations omitted]).

Further, a less monied spouse is not expected to liquidate their remaining assets to litigate on an equal footing (see Lennox v. Weberman, 109 AD3d 703, 704 [1st Dept 2013]).

There can be no question that Plaintiff is the monied spouse. The same has been found in this action previously, including in the June 30, 2021 order, and in an October 18, 2021 order which was also affirmed by the First Department (see Anonymous v. Anonymous, 206 AD3d 548 [1st Dept 2022]). It is also true that, as contended by Plaintiff, defendant has assets and "will gain significantly more by the sale of the marital residence and the commencement of her permanent maintenance" (206 AD3d at 549).

Plaintiff also argues that, as had been found by Judge Cooper in earlier motion sequences, much of the legal services performed were not necessary and should not be paid by Plaintiff. Specifically, he contends that Defendant engaged in conduct resulting in unnecessary litigation, especially in relation to her efforts to rescind the PNA and/or interpret it in ways that do not line up with its clear and unambiguous terms.

In exercising its discretion when awarding interim attorney fees, a trial court "must consider the financial circumstances of the parties and the circumstances of the case as a whole, including the relative merits of the parties' positions and whether either party has delayed the proceedings or engaged in unnecessary litigation" (Marchese v Marchese, 185 AD3d 571, 576 [2nd Dept 2020]).

Here, the Court has considered the relative finances of the parties discussed above, the circumstances of the case, including the relative merits of the positions relating to the PNA, as well as the significant amount of counsel fees incurred by Defendant in appeals and further litigation relating to interpretation of the PNA. The Court also considers the relative merits of the parties on the instant motion, as well as the need for continued necessary legal fees. In considering the foregoing, in the Court's discretion an award of counsel fees is warranted but it would not be appropriate to award all the fees sought. Accordingly, Plaintiff will be directed to pay $500,000 for counsel fees incurred by Defendant and an additional $100,000 for prospective legal fees to be incurred by Defendant. Such award is subject to reallocation.

Defendant also moves for an award of expert fees in the amount of $150,000. In support of this request, she provides an affidavit from her expert David L. Gresen of KLG. He explains both his qualifications and experience, and the work he has completed thus far, including review of years of tax returns. He describes the work he believes will be necessary to value assets once the Designated Accountant has completed his task. And, he estimates the fees to be incurred for his work will be $175,000.

However, as detailed by Gresen, Plaintiff has already paid $95,000 in interim expert fees to KLG. The expert fee request pertains to work Gresen expects to do in connection with review of materials provided to the Designated Accountant and related Article Six calculations.

While both parties must cooperate with the Designated Accountant and the cost for same is a separate matter, Defendant's election of another expert accountant to double-check the work of the Designated Accountant is not something for which Plaintiff should be responsible. Indeed, the PNA does not require Plaintiff to cover such fees. Defendant is, of course, free to hire and pay KLG for such additional work at her own expense. Accordingly, an award of expert fees is denied.


CONCLUSION

The Court shares the concern expressed by the prior jurist handling this matter that the time for the parties to settle their financial issues in accordance with the PNA is long overdue. Rather than simply follow the procedures and terms to which they agreed both parties continue to litigate even when clear answers have been provided by the terms in the PNA, and by the Courts — both trial and appellate. The parties must now proceed in accordance with their agreement and the decisions of multiple Courts so that they can move closer to resolution.

Defendant's motion is granted to the extent indicated in this decision. Plaintiff's cross motion is denied.

This constitutes the decision of the Court.

Accordingly, it is

ORDERED that the parties shall immediately provide disclosures to the already agreed upon Designated Accountant; and it is further

ORDERED that within 60 days of this Order Plaintiff shall pay $600,000 directly to Defendant's counsel, and it is further

ORDERED that any relief not granted is denied.

3/15/2023
ARIEL D. CHESLER, J.S.C.