Weitz v Weitz

[*1] Weitz v Weitz 2005 NY Slip Op 52367(U) [20 Misc 3d 1113(A)] [20 Misc 3d 1113(A)] Decided on June 6, 2005 Supreme Court, Nassau County Austin, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 6, 2005
Supreme Court, Nassau County

Sylvia Weitz, Plaintiff,

against

Melvin Weitz, Defendant.



18798-97



COUNSEL FOR PLAINTIFF

Rosenberg, Calica & Birney, Esqs.

100 Garden City Plaza

Garden City, New York 11530

COUNSEL FOR DEFENDANT

Kreines & Engelberg, Esqs.

330 Old Country Road

Mineola, New York 11501

Leonard B. Austin, J.

DECISION AFTER TRIAL

INTRODUCTION

Plaintiff, Sylvia Weitz ("Sylvia"), commenced this plenary action against her former husband, Defendant, Melvin Weitz ("Mel"), claiming that he failed to pay all of the moneys due under their marital Settlement Agreement dated October 6, 1995.

By order dated September 4, 2003, this Court granted Sylvia's motion for summary judgment and set the matter down for an evidentiary hearing to determine the amount due to her. In so doing, this Court found that phrase "gross proceeds", among others, relating to the sale of Melmarkets, Inc. doing business as Foodtown a martial asset distributed 57% to Sylvia and 43% to Mel in the Settlement Agreement was

ambiguous necessitating a hearing as to what if any deductions from the sale price of the [*2]business was appropriate. Such hearing was held on December 3 and 17, 2004. Post-trial memoranda were submitted thereafter.

DISCUSSION

In 1991, Sylvia commenced a divorce action against Mel. The primary marital asset subject to equitable distribution was Mel's ownership of Melmarkets, Inc. which did business as Foodtown Supermarkets ("Foodtown"). At the time of the commencement of matrimonial action, Mel owned 100% of the shares in Foodtown. In order to have funds available to facilitate equitable distribution, Mel was required to sell Foodtown.

In October 1995, Mel and Sylvia entered into a Settlement Agreement resolving their matrimonial dispute. Pursuant to the terms of the martial settlement, Mel was to transfer 55.7% of his shares of Foodtown to Sylvia. Sylvia executed an irrevocable power of attorney authorizing Mel to vote her shares and which would be used to enable Mel to negotiate and close the sale of Foodtown to Stop & Shop.

At or about the time the Settlement Agreement was being finalized, Mel entered into an Asset Purchase Agreement ("Purchase Agreement") whereby he agreed to sell Foodtown to Stop & Shop, Inc. The Purchase Agreement was dated October 10, 1995. Initially, Mel agreed to sell Foodtown to Stop & Shop for $87,500,000.00. The purchase price of Foodtown was subject to an upward adjustment to reflect certain tax

obligations of the shareholders of Foodtown. (Settlement Agreement, Article XII[2], Defendant's Ex. A).

Article XII(2) of the Settlement Agreement further provided that the proceeds of the sale of Foodtown to Stop & Shop would be distributed to Sylvia receiving 55.7% of the gross proceeds and Mel receiving 44.3% of the gross proceeds.

Article XII(3)(a) of the Settlement provided that the sales price of Foodtown could be adjusted if the net worth of Foodtown changed prior to the closing as provided in the Purchase Agreement.

The sales price recited in the Purchase Agreement was reduced to $85,500,000.00 as a result of Mel's decision to pay a $2,000,000.00 finder's fee to his son from a prior marriage and another individual.

To assure that Sylvia's distributive share from the sale of Foodtown was not reduced by the finder's fee, Mel and Sylvia entered into an amendment to the Settlement Agreement pursuant to which Sylvia's share of the proceeds was increased to 57% and Mel's share was reduced to 43%.

At the closing, Stop & Shop paid only $72,500,000.00. The purchase price was reduced by $250,000.00 which was applied to rent due on Foodtown's East Meadow store;[FN1] a payment of a transfer tax of $1,1713,695.00; sales tax of $668,686.00; and an "equity adjustment" of $5,492,503.00. After these items were deducted from the purchase price of $85,500,000.00, the net sales price was $77,375,116.00. From this sum, $150,000 was deducted as a legal fee and $4,475,116.00 was held in escrow.

Sylvia claims she is entitled to receive $48,735,000.00 which is 57% of $85,500,000.00. [*3]She was paid the sum of $41,613,250.00 from the amount paid at closing. She has also received an additional $2,874,891.00 from the amount paid into escrow at closing. Thus, Sylvia claims she is still due the sum of $4,246,859.00.

The purchase price paid by Stop & Shop to Foodtown was reduced at closing from $85,500,000.00 to $82,867,619.99 to reflect tax and rent obligations of Foodtown. Sylvia asserts that this reduction should not be taken into account in calculating her share of the sales proceeds.

A further adjustment Mel asserted should be taken against Sylvia's interest in Foodtown was in the sum of $5,406,503.00 which he characterized as an "equity adjustment". In its Order of September 4, 2003, this Court found that such adjustment was not contemplated by either the Settlement Agreement or the Purchase Agreement. Thus, no equity adjustment could be applied by Mel to reduce Sylvia's share of the proceeds of sale. (See, Weitz v. Weitz, N.Y.L.J., 9/16/03, p. 23 col. 4.)

The Purchase Agreement and the Settlement Agreement used the terms "gross proceeds", "proceeds" and "sales proceeds" without defining those terms. Sylvia asserts that those terms should be interpreted to mean "gross sales price." Mel, on the other hand, claims that those terms were ambiguous and that he should be able to offset some of the closing costs and expenses against Sylvia's share. As a result of this ambiguity, the Court directed a hearing to determine what was meant by those terms.

Neither Sylvia nor Mel testified at the trial. Instead, the Court heard from the matrimonial counsel of the parties, the Melmarkets accountant and corporate counsel for Melmarkets. Thus, the intention of the parties was gleaned from the negotiations and communications among counsel and the documents admitted into evidence.

Where an agreement is ambiguous, parol evidence must be considered to determine the intent of the parties. Blue Jeans U.S.A. Inc. v. Basciano, 286 AD2d 274 (1st Dept. 2001); and Nausch v. AON Corp., 283 AD2d 353 (1st Dept. 2001),

In this case, an ambiguity existed in regard to the amount upon which Sylvia's share of the sales proceeds was to be based. The propriety of the deductions Mel took from $85.5 million sales price became the focal point of the case.

The Settlement Agreement provided that Sylvia was to receive 55.7% of the gross proceeds of the sale of Foodtown to Stop & Shop. Sylvia's percentage was premised upon Foodtown being sold to Stop & Shop for the sum of $87,500,000.

After the Settlement Agreement had been executed and Mel unilaterally decided to pay the $2,000,000.00 finder's fee from the proceeds of sale of Foodtown to Stop & Shop to Bruce Weitz and Howard Lipson, Sylvia's percentage of the proceeds was increased to 57%.

The intent of both this modification and the amount Sylvia was to receive was set forth in a letter from Robert L. Friedman, Esq. of Simpson, Thacher and Bartlett, Esqs.

who represented Melmarkets, Inc. in the sale to Stop & Shop to Dominic Barbara, Esq., Sylvia's matrimonial attorney, dated October 10, 1995. That letter provided, in part:

"To implement the relevant provision of the Settlement Agreement, MelMarkets (Foodtown) was going to recapitalize by issuing 557 shares of common stock to Sylvia and 443 shares to Mel. This would effectuate the terms of the Settlement Agreement calling for Sylvia to receive $48,750,000 of the $87,500,000 of the total consideration paid by Stop & Shop."

The letter then made reference to the payment of the finder's fee and stated: [*4]

"In order to prevent any change in the amount of the total consideration to be paid to Sylvia, the number of MelMarkets shares to be issued to Sylvia will be increased to 570 shares, with 430 shares to be issued to Mel.." (Emphasis added)

A copy of this letter was copied to Mel and, his matrimonial attorney,

Stanley Hirsch, Esq. Neither Mel nor Mr. Hirsch voiced any objection to either the

modification of the Settlement Agreement or the proposed distribution which would pay

to Sylvia with 57% of the gross sales price. Indeed, Mr. Friedman testified on cross-examination that the capital gain and sales tax liabilities were not anticipated to come from Sylvia's share. In any event, such adjustments were to be reconciled based upon the Closing Balance Sheet which was never prepared.

It is noted that 55.7% of $87,500,000 is $48,737,500 and that 57% of

$85,500,000 is $48,735.000.

It was Mel who retained Simpson, Thacher and Bartlett to represent Melmarkets in connection with the sale of Foodtown to Stop & Shop. Mr. Friedman knew that Mel and Sylvia were in the process of obtaining a divorce when the Purchase Agreement was negotiated. Mr. Friedman testified that he was also aware that Sylvia was to receive a share of the proceeds of the sale of Foodtown. Clearly, this indicates that it was the intent and understanding of the parties that Sylvia was to receive 57% of the gross sales price subject to adjustment in accordance with the explicit terms of the Purchase Agreement and Settlement Agreement. From the agreements and modification thereof, it is clear that Sylvia's 57% share must be read as $48,735,000.00.

Mr. Friedman further testified that Sylvia's share of the proceeds of sale would be reduced only in accordance with the provisions of Article II of the Purchase Agreement and Article XII of the Settlement Agreement.

Article II of the Purchase Agreement and Article XII of the Settlement Agreement dovetail. Article XII(3) of the Settlement Agreement acknowledges that the sales price from which Sylvia is to receive her share may be adjusted if there was a change in the net worth of Foodtown prior to the closing.

Paragraph 2.4(a) of the Purchase Agreement provides that the purchase price of Foodtown could be reduced "by the amount, if any, by which the Net Assets of Foodtown on the Closing Balance Sheet are less than negative $12,300,000.00."

Paragraph 2.4(b) of the Purchase Agreement sets forth the mechanism for determining such price adjustment. It provides that Foodtown would promptly prepare the Closing Balance Sheet after closing. The independent accounting firms for Foodtown and Stop & Shop would then review the Closing Balance Sheet prepared by Foodtown. The accountants would attempt to reconcile within 30 days of closing, any disputes with regard to the Closing Balance Sheet. The parties agreed that any dispute which could not be resolved by the accountants and which would cause an adjustment in the purchase price of greater than $250,000 would be referred to a specifically designated public accounting firm for determination. The determination of the designated accounting firm would be final and binding on the parties. For disputes of less than [*5]$250,000, the dispute would be resolved by averaging the amount claimed by the Foodtown and the amount claimed by Stop & Shop. Further, from the Closing Balance Sheet, "Eliminated Liabilities" was defined to include gains tax and sales tax liabilities assumed by Melmarkets as seller. (Defendant's Ex. C, Amendment No. 1 to the Purchase Agreement, ¶ 2 [iii]).

The closing took place in December 1995. A Closing Balance Sheet was never prepared by Foodtown although it was within Mel's power to direct its preparation and submission. The procedures provided for by the Purchase Agreement for adjusting the purchase price were never implemented. Mel must bear the loss resulting from this omission.

Mel asserts that the purchase price was reduced at closing to $82,867,619. These reductions related to lease obligations due on Foodtown's East Meadow store, capital gains taxes due on the sale of Foodtown and sales tax due from Foodtown. Mel asserts that these downward adjustments to the purchase price should be taken into account when computing the amount due to Sylvia notwithstanding ¶ 2 (iii) of Amendment No. 1 to the Purchase Agreement. (Defendant's Ex. C)

The Purchase Agreement contained clear and unambiguous provisions relating to the method by which the purchase price of Foodtown could be reduced. None of those provisions apply herein.

Clear and unambiguous terms of an agreement with be interpreted and enforced in accordance with their plain meaning. Evans v. Famous Music Corp., 1 NY3d 452, 458 (2004); Greenfield v. Philles Records, Inc., 98 NY2d 562, 565 (2002); and W.W.W. Assocs. v. Giancontieri, 77 NY2d 157, 163 (1990). Both the Purchase Agreement and the Settlement Agreement establish a procedure by which the sales price and, accordingly, Sylvia's share could be reduced. This procedure was never implemented.

The only closing documents ever prepared in connection with the sale of Foodtown to Stop & Shop were prepared in 2002 at the request of Mel's present attorney. Such document (Defendant's Ex. F for identification only) was prepared for litigation purposes and not pursuant to the Purchase Agreement. It was not admitted into evidence.

The only other possible permissible adjustment is contained in Article XII(2) of the Settlement Agreement which provides for any upward adjustment of the purchase price to reflect certain tax obligations of the shareholders of Foodtown. Nothing was introduced before the Court which would reflect whether the contingencies which would give rise to this adjustment ever occurred or how those contingencies would affect Sylvia's share of the sale proceeds.

Thus, Mel has failed to meet his burden with regard to establishing the contested adjustments should properly be taken from the gross to reduce Sylvia's distribution. Most telling, in this regard, was the testimony of James Gamello, CPA, an accountant engaged to aid in the sale of Melmarkets. Mr. Gamello, who met with the parties herein and their respective matrimonial counsel, stated that the intention of the parties and the import of the agreements, from an accounting perspective, was that the adjustments were to be as an exchange of liabilities between Melmarkets and Stop & Shop; not an adjustment to net worth.

Therefore, based upon the evidence presented, Sylvia is due the sum of $4,246,859.00 together with interest at the statutory rate from January 11, 1996 which is 30 days after the closing for Melmarkets, during which adjustments could have been, but were not, made.

Sylvia's attorney also seeks legal fees for services performed in connection with this application and in connection other applications made over the past 7 years in an effort to enforce the Settlement Agreement. [*6]

Paragraph XXX of the Settlement Agreement provides that if a party defaults on his/her obligations under the terms thereof, the defaulting party shall pay the legal fees

of the non-defaulting party should the non-defaulting party prevail in a suit to obtain the enforcement of the Agreement.

Mel defaulted his obligations under the terms of the Agreement.[FN2] Sylvia successfully prosecuted an action to enforce the Agreement. Therefore, she would be entitled to recover her legal fees.

Additionally, legal fees are awarded on a quantum meruit basis. See, Simoni v. Time-Line, Ltd., 272 AD2d 537 (2nd Dept. 2000); and Borg v. Belair Ridge Development Corp., 270 AD2d 377 (2nd Dept. 2000). A reasonable counsel fee is calculated by considering factors such as time spent, the difficulty if the issues involved, the nature of the services, the amount in controversy, the professional standing of counsel and the results obtained. Matter of Potts, 213 App. Div. 59 (4th Dept.), lv. app. den., 241 N.Y.S. 510 (1925). See also, DeCabrera v. Cabrera-Rosete, 70 NY2d 879 (1987); Sands v. Lammer, 150 AD2d 355 (2nd Dept. 1989); and Matter of Ury, 108 AD2d 816 (2nd Dept.), lv. app. den., 64 NY2d 611 (1985). Such determination is left to the trial court which is familiar with the circumstances and equities of the case. Ebrahimian v. Long Island R.R., 269 AD2d 488 (2nd Dept. 2000).

Accordingly, the matter shall be referred to a Special Referee to hear and determine all issues relating to whether Sylvia gave notice to Mel of his alleged default in accordance with the terms of the Settlement Agreement prior to commencing this litigation to enforce the Settlement Agreement and, if so, the amount of reasonable legal fees to which Sylvia's attorney is entitled.

Settle order on ten (10) days notice. Such order shall provide for a hearing to be held before Special Referee Thomas V. Dana on July 25, 2005 at 10:00 a.m. to hear and determine all issues relating to reasonable attorneys fees to be awarded to Sylvia and that upon the determination of the Special Referee, Sylvia shall be entitled to enter a Clerk's judgment in the sum of $4,246,859.00 together with interest from January 11, 1996, reasonable counsel fees as awarded by the Special Referee and costs and disbursements as taxed by the Clerk.

Dated: Mineola, NY_____________________________

June 6, 2005Hon. LEONARD B. AUSTIN, J.S.C. Footnotes

Footnote 1:The accountant for Melmarkets testified that although he made the adjustment for this rent, he never saw the payment therefor.

Footnote 2:As a condition precedent, the Settlement Agreement required Sylvia to give fifteen (15) days notice to cure to Mel before she is entitled to recover counsel fees. While no proof of such notice has been adduced, Mel has not argued that Sylvia is not entitled to counsel fees on this basis. Thus, he has waived this defense to counsel fee award.