Decisions of Interest

Non-Party to Divorce Action Subject to TRO

Even though they were not parties to the matrimonial action, three limited liability companies (LLCs) were properly enjoined from selling their land pursuant to a temporary restraining order issued in a matrimonial action, as the husband in that action was a 50% owner of the LLCs and the LLCs could not act without his acquiescence. Ricatto v. Ricatto, Jacobson, et. al., nonparty appellants (Index No. 19174/02) 2004 N.Y. App. Div. LEXIS 1824 (App. Div., 2d Dept. 2/23/04) (Ritter, J.P.; Miller, Luciano and Townes, JJ.).

The defendant husband in this matrimonial action and the nonparty, David T. Jacobson, each own 50% membership interests in three limited liability companies that hold title to certain real property in Manhattan. A temporary restraining order issued by Supreme Court, Kings County, dated March 14, 2002, temporarily enjoined the defendant from, inter alia, disposing of or diminishing his interest in these LLCs. The TRO was filed with the City Register of the City of New York. Jacobson and the LLCs (the appellants here) moved for an order declaring that the TRO did not apply to the LLCs and directing the removal of the TRO from the files of the City Register insofar as it referred to the LLCs' properties. Supreme Court granted the motion only to the extent of directing the City Register to remove from its files that portion of the TRO that affected one piece of property, so that it could be sold. However, the Supreme Court directed that if any new property were obtained as a result of a “like exchange” purchase, the new property would be subject to the TRO.

The appellants, who want the TRO's restrictions lifted as to all the LLCs' property, contended here that filing the TRO with the City Register placed a cloud on the title of the real property owned by the LLCs, but that pursuant to Limited Liability Company Law ' 601, the defendant's membership interest in the LLCs is considered personal property, and, therefore, he has no interest in specific real property owned by the LLCs. Because of this, the Supreme Court should have granted their motion in its entirety, issued an order declaring that the TRO did not apply to the LLCs, and directed the City Register to remove the references in the TRO to the LLCs' properties from its files.

Citing Rigas v. Livingston, 178 NY 20, the court noted that even though the LLCs are not parties to the matrimonial action, nonparties may be bound by an injunction if they have knowledge of it, provided they are servants or agents of the defendants or act in collusion or combination with them. Jacobson acknowledged that the defendant provided the financing for the acquisition and operation of the real properties owned by the LLCs, while he provided the “sweat equity” as manager of the properties. Jacobson and the defendant were the only members of the LLCs, and each has a 50% membership interest. Pursuant to Limited Liability Company Law ' 401(d)(2), a vote of at least the majority in interest of the members is required for many actions, including the sale or mortgage of substantially all of the assets of the company, so the defendant has control of the operation of the LLCs. Accordingly, the appellants failed to demonstrate that the LLCs operated independently of the defendant with respect to the disposition of their properties. Since the TRO precludes the defendant from taking any actions as a member of the LLCs that would diminish the value of his membership interest, it serves to enjoin the LLCs as well. Therefore, the Second Department held, the TRO was properly filed with the City Register pursuant to Domestic Relations Law ' 234.

Denial of Modification Petition Fails for Lack of Forensic Evaluation

The Second Department reversed an order issued by the Family Court, Westchester County, denying a mother's petition to modify the visitation provisions of the parties' stipulation of settlement because Family Court had based its denial primarily on the opinions offered by a psychologist hired by and paid for by the father and no independent forensic evaluation was conducted on either the mother or the child. In the Matter of Brigitte Grisanti v. Grisanti, 2004 N.Y. App. Div. LEXIS 1730 (App. Div. 2d Dept. 2/17/04) (Ritter, J.P.; S. Miller, Luciano and Townes, JJ.).

Egyptian Dowry Contract Does Not Affect Property Distribution

The trial court properly rejected the plaintiff's argument that an Egyptian “Marriage Deed” governed the equitable distribution of the parties' marital assets or the maintenance obligations in their divorce case as there was no proof that the Marriage Deed was duly executed pursuant to Domestic Relations Law ' 236(B)(3) and nothing in that document spoke to the issues of equitable distribution of assets or maintenance obligations in the event of a divorce. Faraq v. Faraq, Index No. 6437-00, 2004 N.Y. App. Div. LEXIS (App. Div., 2d Dept. 2/23/04) (Altman, J.P., Cozier, Mastro and Rivera, JJ.).

The plain reading of the parties' Marriage Deed merely provided that pursuant to a dowry provision, the plaintiff was obligated to pay the defendant, as consideration for the arranged marriage, the sum of 10,000 Egyptian Pounds at the time of marriage and the “deferred” sum of 10,000 Egyptian Pounds in the event of “divorce or death.” While similar marriage documents have been upheld and their secular terms deemed enforceable as a contractual obligation, there was here no authority to support the plaintiff's contention that this dowry provision, as written, governed the equitable distribution of the parties' assets or maintenance obligations or waived the defendant's rights thereto in this divorce action.

Separate 'Action' Not Necessary to Formalize Agreement in a QDRO

Supreme Court, Monroe County, properly denied defendant's motion seeking a declaration that plaintiff's application for the execution of a qualified domestic relations order (QDRO) was time-barred. Duhamel v. Duhamel, 2004 N.Y. App. Div. LEXIS 1418 (App. Div., 4th Dept. 2/11/04) (Green, J.P; Scudder, Gorski, Lawton and Hayes, JJ.).

The parties were married in 1973 and divorced in 1986. Pursuant to a separation agreement that was incorporated but not merged in the judgment of divorce, plaintiff is entitled to share in defendant's employer-provided retirement plan and savings and investment plan. Plaintiff's marital, pro rata share of those assets is set forth in the agreement, and the parties further agreed that a QDRO would be submitted to the court in accordance with the Retirement Equity Act of 1984 (Pub L 98-397, 98 U.S. Stat 1429). In February 2001, plaintiff's counsel sought information from defendant for the purpose of preparing a QDRO, but defendant refused to provide such information, maintaining that, because of the 16-year interval between the divorce and the proposed submission of the QDRO, its submission was barred by the 6-year statute of limitations.

The court noted that CPLR 201 provides that “an action … must be commenced within the time specified in this article unless a different time is prescribed by law.” The submission of a QDRO to the court, however, is not the equivalent of the commencement of an “action.” Vested rights in a retirement or pension plan are considered marital property subject to distribution in a divorce action to the extent that they derive from the participant's employment after the marriage and before the commencement of the divorce action. Therefore, because a QDRO is derived from the bargain struck by the parties at the time of the judgment of divorce, there is no need to commence a separate “action” in order for the court to formalize the agreement between the parties in the form of a QDRO.

Law Firm Partner's Partnership Share Revalued

The Appellate Division, Second Department, reversed an order of Supreme Court, Westchester County, establishing that the husband's law firm's accounts receivable and work-in-progress were not to be considered in valuing of his partnership interest in the law firm. Rubino v. Rubino, 2004 N.Y. App. Div. LEXIS 1973 (App. Div., 2d Dept 2/23/04) (Altman, J.P.; Goldstein, Crane and Mastro, JJ.).

The parties were married in 1982. Shortly thereafter, the husband began working for the law firm of Willkie Farr & Gallagher (hereinafter WF&G) as an associate. In 1991, he was admitted into the partnership, specializing in corporate law. He continues in this position. On Feb. 24, 2000, the plaintiff wife commenced this action for divorce. It was undisputed that the value of the husband's partnership interest in the firm was subject to equitable distribution. The sole issue on appeal is the valuation of that interest.

On the consent of the parties, a valuation expert was appointed to conduct an analysis and determine the fair market value of the husband's partnership interest in WF&G as of Feb. 24, 2000. Determining that the firm's partnership agreement did not provide a reasonable basis for valuation because the withdrawal provisions of the agreement didn't provide for any income-based payout but only return of capital, the expert relied on the excess earnings method and arrived at a value of $1,500,000, representing $798,000 in goodwill and $728,000 in net tangible assets. The husband objected, arguing that accounts receivable and work-in-progress, which the expert valued at $550,000, should not have been included as an asset because, pursuant to WF&G's partnership agreement, upon his withdrawal from the firm, he is entitled only to a return of his capital account.

The wife made a pretrial motion for partial summary judgment, prompting Supreme Court to determine that accounts receivable and work-in-progress should not be considered in determining the value of the husband's share of the law firm's net tangible assets.

Citing to Burns v. Burns, 84 N.Y.2d 369, the appellate court found that the withdrawal provisions of the WF&G partnership agreement do not provide a reasonable basis for valuation because to “limit defendant's interest to the capital account ignores defendant's status as a continuing and productive partner in an ongoing enterprise.” The court went on to conclude that while there is no uniform method for fixing the value of an ongoing business for equitable distribution purposes, “this court, and others, have found the excess earnings method appropriate to value an interest in a professional partnership Applying the excess earnings method to this case, accounts receivable and work-in-progress must be included in establishing the value of the husband's partnership interest in his law firm. Only by doing so can the husband's interest in an ongoing concern be taken into consideration. Contrary to the Supreme Court's conclusion and the husband's contention, such methodology does not result in double counting.”

Non-Party to Divorce Action Subject to TRO

Even though they were not parties to the matrimonial action, three limited liability companies (LLCs) were properly enjoined from selling their land pursuant to a temporary restraining order issued in a matrimonial action, as the husband in that action was a 50% owner of the LLCs and the LLCs could not act without his acquiescence. Ricatto v. Ricatto, Jacobson, et. al., nonparty appellants (Index No. 19174/02) 2004 N.Y. App. Div. LEXIS 1824 (App. Div., 2d Dept. 2/23/04) (Ritter, J.P.; Miller, Luciano and Townes, JJ.).

The defendant husband in this matrimonial action and the nonparty, David T. Jacobson, each own 50% membership interests in three limited liability companies that hold title to certain real property in Manhattan. A temporary restraining order issued by Supreme Court, Kings County, dated March 14, 2002, temporarily enjoined the defendant from, inter alia, disposing of or diminishing his interest in these LLCs. The TRO was filed with the City Register of the City of New York. Jacobson and the LLCs (the appellants here) moved for an order declaring that the TRO did not apply to the LLCs and directing the removal of the TRO from the files of the City Register insofar as it referred to the LLCs' properties. Supreme Court granted the motion only to the extent of directing the City Register to remove from its files that portion of the TRO that affected one piece of property, so that it could be sold. However, the Supreme Court directed that if any new property were obtained as a result of a “like exchange” purchase, the new property would be subject to the TRO.

The appellants, who want the TRO's restrictions lifted as to all the LLCs' property, contended here that filing the TRO with the City Register placed a cloud on the title of the real property owned by the LLCs, but that pursuant to Limited Liability Company Law ' 601, the defendant's membership interest in the LLCs is considered personal property, and, therefore, he has no interest in specific real property owned by the LLCs. Because of this, the Supreme Court should have granted their motion in its entirety, issued an order declaring that the TRO did not apply to the LLCs, and directed the City Register to remove the references in the TRO to the LLCs' properties from its files.

Citing Rigas v. Livingston, 178 NY 20, the court noted that even though the LLCs are not parties to the matrimonial action, nonparties may be bound by an injunction if they have knowledge of it, provided they are servants or agents of the defendants or act in collusion or combination with them. Jacobson acknowledged that the defendant provided the financing for the acquisition and operation of the real properties owned by the LLCs, while he provided the “sweat equity” as manager of the properties. Jacobson and the defendant were the only members of the LLCs, and each has a 50% membership interest. Pursuant to Limited Liability Company Law ' 401(d)(2), a vote of at least the majority in interest of the members is required for many actions, including the sale or mortgage of substantially all of the assets of the company, so the defendant has control of the operation of the LLCs. Accordingly, the appellants failed to demonstrate that the LLCs operated independently of the defendant with respect to the disposition of their properties. Since the TRO precludes the defendant from taking any actions as a member of the LLCs that would diminish the value of his membership interest, it serves to enjoin the LLCs as well. Therefore, the Second Department held, the TRO was properly filed with the City Register pursuant to Domestic Relations Law ' 234.

Denial of Modification Petition Fails for Lack of Forensic Evaluation

The Second Department reversed an order issued by the Family Court, Westchester County, denying a mother's petition to modify the visitation provisions of the parties' stipulation of settlement because Family Court had based its denial primarily on the opinions offered by a psychologist hired by and paid for by the father and no independent forensic evaluation was conducted on either the mother or the child. In the Matter of Brigitte Grisanti v. Grisanti, 2004 N.Y. App. Div. LEXIS 1730 (App. Div. 2d Dept. 2/17/04) (Ritter, J.P.; S. Miller, Luciano and Townes, JJ.).

Egyptian Dowry Contract Does Not Affect Property Distribution

The trial court properly rejected the plaintiff's argument that an Egyptian “Marriage Deed” governed the equitable distribution of the parties' marital assets or the maintenance obligations in their divorce case as there was no proof that the Marriage Deed was duly executed pursuant to Domestic Relations Law ' 236(B)(3) and nothing in that document spoke to the issues of equitable distribution of assets or maintenance obligations in the event of a divorce. Faraq v. Faraq , Index No. 6437-00, 2004 N.Y. App. Div. LEXIS (App. Div., 2d Dept. 2/23/04) (Altman, J.P., Cozier, Mastro and Rivera, JJ.).

The plain reading of the parties' Marriage Deed merely provided that pursuant to a dowry provision, the plaintiff was obligated to pay the defendant, as consideration for the arranged marriage, the sum of 10,000 Egyptian Pounds at the time of marriage and the “deferred” sum of 10,000 Egyptian Pounds in the event of “divorce or death.” While similar marriage documents have been upheld and their secular terms deemed enforceable as a contractual obligation, there was here no authority to support the plaintiff's contention that this dowry provision, as written, governed the equitable distribution of the parties' assets or maintenance obligations or waived the defendant's rights thereto in this divorce action.

Separate 'Action' Not Necessary to Formalize Agreement in a QDRO

Supreme Court, Monroe County, properly denied defendant's motion seeking a declaration that plaintiff's application for the execution of a qualified domestic relations order (QDRO) was time-barred. Duhamel v. Duhamel , 2004 N.Y. App. Div. LEXIS 1418 (App. Div., 4th Dept. 2/11/04) (Green, J.P; Scudder, Gorski, Lawton and Hayes, JJ.).

The parties were married in 1973 and divorced in 1986. Pursuant to a separation agreement that was incorporated but not merged in the judgment of divorce, plaintiff is entitled to share in defendant's employer-provided retirement plan and savings and investment plan. Plaintiff's marital, pro rata share of those assets is set forth in the agreement, and the parties further agreed that a QDRO would be submitted to the court in accordance with the Retirement Equity Act of 1984 (Pub L 98-397, 98 U.S. Stat 1429). In February 2001, plaintiff's counsel sought information from defendant for the purpose of preparing a QDRO, but defendant refused to provide such information, maintaining that, because of the 16-year interval between the divorce and the proposed submission of the QDRO, its submission was barred by the 6-year statute of limitations.

The court noted that CPLR 201 provides that “an action … must be commenced within the time specified in this article unless a different time is prescribed by law.” The submission of a QDRO to the court, however, is not the equivalent of the commencement of an “action.” Vested rights in a retirement or pension plan are considered marital property subject to distribution in a divorce action to the extent that they derive from the participant's employment after the marriage and before the commencement of the divorce action. Therefore, because a QDRO is derived from the bargain struck by the parties at the time of the judgment of divorce, there is no need to commence a separate “action” in order for the court to formalize the agreement between the parties in the form of a QDRO.

Law Firm Partner's Partnership Share Revalued

The Appellate Division, Second Department, reversed an order of Supreme Court, Westchester County, establishing that the husband's law firm's accounts receivable and work-in-progress were not to be considered in valuing of his partnership interest in the law firm. Rubino v. Rubino , 2004 N.Y. App. Div. LEXIS 1973 (App. Div., 2d Dept 2/23/04) (Altman, J.P.; Goldstein, Crane and Mastro, JJ.).

The parties were married in 1982. Shortly thereafter, the husband began working for the law firm of Willkie Farr & Gallagher (hereinafter WF&G) as an associate. In 1991, he was admitted into the partnership, specializing in corporate law. He continues in this position. On Feb. 24, 2000, the plaintiff wife commenced this action for divorce. It was undisputed that the value of the husband's partnership interest in the firm was subject to equitable distribution. The sole issue on appeal is the valuation of that interest.

On the consent of the parties, a valuation expert was appointed to conduct an analysis and determine the fair market value of the husband's partnership interest in WF&G as of Feb. 24, 2000. Determining that the firm's partnership agreement did not provide a reasonable basis for valuation because the withdrawal provisions of the agreement didn't provide for any income-based payout but only return of capital, the expert relied on the excess earnings method and arrived at a value of $1,500,000, representing $798,000 in goodwill and $728,000 in net tangible assets. The husband objected, arguing that accounts receivable and work-in-progress, which the expert valued at $550,000, should not have been included as an asset because, pursuant to WF&G's partnership agreement, upon his withdrawal from the firm, he is entitled only to a return of his capital account.

The wife made a pretrial motion for partial summary judgment, prompting Supreme Court to determine that accounts receivable and work-in-progress should not be considered in determining the value of the husband's share of the law firm's net tangible assets.

Citing to Burns v. Burns , 84 N.Y.2d 369, the appellate court found that the withdrawal provisions of the WF&G partnership agreement do not provide a reasonable basis for valuation because to “limit defendant's interest to the capital account ignores defendant's status as a continuing and productive partner in an ongoing enterprise.” The court went on to conclude that while there is no uniform method for fixing the value of an ongoing business for equitable distribution purposes, “this court, and others, have found the excess earnings method appropriate to value an interest in a professional partnership Applying the excess earnings method to this case, accounts receivable and work-in-progress must be included in establishing the value of the husband's partnership interest in his law firm. Only by doing so can the husband's interest in an ongoing concern be taken into consideration. Contrary to the Supreme Court's conclusion and the husband's contention, such methodology does not result in double counting.”