D.M. v K.M.

[*1] D.M. v K.M. 2006 NY Slip Op 52427(U) [14 Misc 3d 1206(A)] Decided on December 12, 2006 Supreme Court, New York County Visitacion-Lewis, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 12, 2006
Supreme Court, New York County

D.M., Plaintiff,

against

K.M., Defendant.



309080/01



John L. Buckheit, Esq., for plaintiff, and Harry Kresky, Esq., for defendant.

Laura Visitacion-Lewis, J.

Defendant former wife moves pursuant to CPLR 4403 to confirm in part and disaffirm in part the Report and Recommendation of the Special Referee dated June 7, 2006 ("Report"). Plaintiff former husband files in opposition, and defendant replies.

Upon review of the parties' submissions, the Report, and relevant portions of the hearing transcript, the court confirms in part and disaffirms in part, in accordance with the findings of fact and conclusions of law that follow.

FACTS AND PROCEDURAL HISTORY

The parties were married on July 26, 1986. There is one child of the marriage, H.M. ("the child"), age 12, who has been diagnosed as autistic.

In 1997, the parties separated, and the child continued to reside with defendant. On July 10 and 11, 2001, the parties entered into a Separation Agreement that provided for the parties to retain joint legal custody of the child, and that the child would reside with defendant. The Separation Agreement further provided that, commencing March 1, 2001, plaintiff was to pay defendant $2,500 monthly child support until the child's emancipation, and $16,000 monthly spousal maintenance through February 2009.[FN1] In the event that plaintiff's annual adjusted gross income fell below $1 million on a given year, there was to be a pro rata reduction of his maintenance obligations for that year.On September 17, 2001, the parties were granted an uncontested Judgment of Divorce, into which the Separation Agreement was incorporated by reference. Prior to the divorce proceedings, defendant was drinking excessively. During and after the litigation, defendant's drinking escalated. By September 2002, defendant's alcohol problem was sufficiently severe that the child, then eight years old, commenced residing with plaintiff. Shortly thereafter, defendant entered a residential rehabilitation facility in Connecticut for treatment of alcoholism.

Despite treatment, by the spring of 2003, defendant was drinking heavily on a daily basis. Her pattern of daily drinking was unpredictable; she would be sober for a time during the day, but then, at some point, which could be in the morning, afternoon, or night, she would have wine or vodka. During this period, plaintiff persuaded defendant that she should attend both joint and [*2]individual therapy sessions with plaintiff's therapist, Mr. L. Plaintiff informed Mr. L. about defendant's "severe drinking problem." Defendant was intoxicated during many, if not all, of her visits with Mr. L.

In at least one of their joint sessions with Mr. L., the parties discussed a possible modification of the Separation Agreement. Plaintiff was concerned that defendant was squandering her spousal maintenance monies on alcohol, and that he was enabling her addiction by continuing to give her money. Defendant did not want to rely upon plaintiff to give her monthly payments because he was heavily critical of her. Plaintiff's claim that specific modifications to the maintenance provisions of the Separation Agreement were discussed in sessions with Mr. L. was explicitly rejected by the Special Referee. It is undisputed, however, that the parties had agreed not to involve attorneys in the process of modifying the original Separation Agreement.

Notwithstanding this agreement, plaintiff's attorney, John L. Buckheit, Esq., prepared the subject Amended Separation Agreement ("Amended Agreement") entered into by the parties on May 4, 2003, and attended its execution, which took place in the lobby of plaintiff's apartment building. Defendant was not represented by counsel, and was denied the opportunity to review the document with an attorney before signing it.

Defendant's testimony, credited by the Special Referee, was that she "had been drinking without question" at the time that she met with plaintiff and his attorney on May 4, 2003. Plaintiff claimed that defendant seemed to be "very present" at this meeting, but described her as looking "disheveled."

Pursuant to the Amended Agreement, plaintiff, who was accorded physical and residential custody of the child, waived claims for child support contribution from defendant, and agreed to make one further spousal maintenance payment in the original sum of $16,000. Thereafter, plaintiff's spousal maintenance obligation would be reduced to $7,500 per month and would terminate in November 2004. The Amended Agreement further specified that, upon defendant's resumption of physical custody of the child, plaintiff would pay defendant $2,500 monthly child support and $2,500 monthly spousal maintenance.

During the spring of 2004, defendant returned to the rehabilitation facility she had entered in 2002, but relapsed approximately three months after completing the program. On May 10, 2004, while defendant was residing in the rehabilitation facility, the parties entered into a stipulation to prevent foreclosure upon defendant's Manhattan condominium, for which she had accrued maintenance arrears of nearly $42,000.[FN2] The stipulation provided that the apartment would be sold and that, from the proceeds of the $2.5 million sale, defendant would receive $200,000 directly, and the balance would be placed into an irrevocable trust for defendant's benefit.[FN3] Defendant receives a monthly income of $7,500 from the trust. [*3]

On December 7, 2004, defendant filed an order to show cause before this court, seeking rescission of the Amended Agreement; $550,000 in maintenance arrears from plaintiff; and counsel fees (Motion Seq. No. 1).[FN4] On October 5, 2005, this court referred the following issues to a Special Referee: (1) the validity and enforceability of the Amended Agreement, including the circumstances surrounding defendant's execution thereof; (2) the amount of spousal maintenance arrears, if any, owed to defendant by plaintiff; and (3) defendant's application for counsel fees.

The Special Referee held a fact-finding hearing to address these issues on January 24, 2006, and February 7, 2006, and issued his Report on June 7, 2006. The Report concluded that: (1) the Amended Agreement is unenforceable; (2) the maintenance arrears owed to defendant by plaintiff to the date of the Report total $829,800; and (3) defendant's application for counsel fees should be denied for failure of proof.

DISCUSSION

It is well-settled that the report of a Special Referee is properly confirmed when "the findings contained therein are substantially supported by the record and the Referee has clearly defined the issues and resolved matters of credibility" (Melnitzky v Uribe, 33 AD3d 373 [1st Dept 2006] [citation omitted]; see also Merchants Bank of NY v Dajoy Diamonds, 5 AD3d 167 [1st Dept 2004], Freedman v Freedman, 211 AD2d 580 [1st Dept 1995], Kaplan v Einy, 209 AD2d 248, 251 [1st Dept 1994]). It is within the discretion of the motion court to make new determinations based upon an independent review of the record without additional testimony (see, e.g., Jacynicz v 73 Seaman Assocs., 270 AD2d 83, 86 [1st Dept 2000], lv to appeal den., 95 NY2d 761 [2000]; Barrett v Stone, 236 AD2d 323, 324 [1st Dept 1997]).

1.Rescission of the Amended Agreement

With respect to the validity and enforceability of the parties' Amended Agreement, the Special Referee recommended that the Amended Agreement be rescinded on the grounds that 1) defendant's chronic alcoholism rendered her mentally incompetent for the purposes of executing a valid contract, and 2) given the totality of the circumstances attending the execution of the Amended Agreement, defendant did not knowingly and voluntarily execute the Amended Agreement.

In recommending rescission of the Amended Agreement, the Special Referee applied the holding and reasoning of the Court of Appeals in Ortelere v Teachers' Retirement Bd of NYC, 25 [*4]NY2d 196 (1969), to support his finding that defendant lacked the capacity to execute the Amended Agreement. The Special Referee's reliance upon Ortelere is misplaced, as that case dealt with the psychosis of one of the contracting parties, and not, as here, with alcoholism and its distinguishing characteristics, such as the transitory nature of intoxication. Indeed, it has long been recognized that an intoxicated person may be capable of making a contract, "depending upon the effect of the intoxication upon his understanding and mental capacity" (McKeon v Van Slyck, 223 NY 392 [1918]; see also 67 NYJur2d Infants, Etc. * 116 [2006]). Thus, the mere fact of intoxication, or the disease of alcoholism is not, in and of itself, sufficient to vitiate a contract.

In the instant matter, it is undisputed that defendant suffers from chronic alcoholism and was drinking regularly during the time period within which the Amended Agreement was negotiated and ultimately executed. However, the record is devoid of evidence of how much alcohol defendant had consumed as of the time - which is also unspecified - that she went to plaintiff's lobby on the day the agreement was signed, and, more importantly, the effect upon her, if any, of that quantity of alcohol. Her testimony in this regard, which is limited to stating that she "had been drinking without question," is insufficient to support the conclusion that she lacked the capacity to contract with defendant (see Towner v Towner, 225 AD2d 614, 615 [2d Dept 1996] [affirming grant to plaintiff of summary judgment awarding him a conversion divorce where defendant's claim of alcoholism was unaccompanied by facts indicating a lack of capacity to contract]; see also Lyons v Lyons, 289 AD2d 902, 904 [3d Dept 2001] [affirming grant to defendant of partial summary judgment dismissing motion to set aside separation agreement where no duress found and record is devoid of evidence that plaintiff's "will was overborne by her condition of chronic alcoholism"], lv to appeal den., 98 NY2d 601 [2002]).

For these reasons, the Special Referee's conclusion that defendant's undisputed alcoholism is, in and of itself, a basis for rescinding the Amended Agreement is disaffirmed.

However, the court confirms the Referee's findings with respect to the circumstances attending the execution of the Amended Agreement, and, on the basis thereof and for the reasons set forth below, rescinds the Amended Agreement as the product of overreaching by plaintiff.

Because an agreement between spouses "involve[s] a fiduciary relationship requiring the utmost of good faith" (Christian v Christian, 42 NY2d 63, 72 [1977]), a separation agreement "may be set aside on grounds that would be insufficient to vitiate an ordinary contract" (id). In determining the validity of a separation agreement, "courts may look at the terms of the agreement to see if there is an inference, or even a negative inference, of overreaching in its execution" (id at 73). Equitable relief is then warranted "if the settlement is manifestly unfair to a spouse because of the other's overreaching" (id at 72; see also Kleinman v Kleinman, 289 AD2d 18 [1st Dept 2001], lv to appeal den., 98 NY2d 610 [2002]).

In the case at bar, plaintiff was the only party who stood to benefit from the terms of the Amended Agreement. Pursuant to the Amended Agreement, plaintiff was relieved of his obligation to pay nearly $1 million of his originally stipulated maintenance obligation of over $1.5 million. Defendant, in contrast, not only effectively waived her right to the $16,000 [*5]monthly spousal support previously agreed upon by the parties, but ceded physical custody of the child and the corresponding right to receive child support from defendant.[FN5]

In addition to its manifestly unfair terms, inequitable circumstances attended the execution of the Amended Agreement. Despite plaintiff's representation to defendant that no attorneys would be involved in the process of negotiating the modification, plaintiff consulted with his attorney, and his attorney drafted the Amended Agreement and oversaw its execution. In contrast, defendant was unrepresented during the negotiations and in the drafting of the Amended Agreement. Further, the signing took place under conditions that were decidedly unconducive to the reflection and consideration appropriate for the waiver of substantial rights. Plaintiff and his attorney briefly convened with defendant in plaintiff's apartment building lobby and presented the document that she was to sign and the attorney to notarize. There was no discussion of the Amended Agreement's terms, and there was no opportunity for defendant to have it reviewed by an attorney.

Given that plaintiff was well aware that defendant was drinking regularly during this period, the circumstances under which the Amended Agreement was executed, together with its inequitable terms, constitute overreaching by plaintiff. Because equity will not validate separation agreements "born of and subsisting in inequity" (Christian, supra, at 72), the parties' Amended Agreement is void ab initio and unenforceable.

2.Arrears & Counsel Fees

Upon rescission of the Amended Agreement, the parties' original Separation Agreement controls. In accordance with the Separation Agreement, plaintiff is obligated to pay defendant spousal maintenance of $192,000 per year at the rate of $16,000 per month from March 2001 to February 2009, with pro rata reductions for any years in which his annual income falls below $1 million. Plaintiff claims entitlement to such reductions for 2002 through 2005.

For the year 2002, plaintiff reported an adjusted gross income of $1,742,196. He argues, however, that he is entitled to a pro rata reduction for 2002 because the bulk of his income that year derived from capital gains, an unspecified portion of which may have come from the sale of property he was awarded as a part of his equitable distribution. Plaintiff's claim is rejected. The Separation Agreement expressly provides for pro rata reduction based upon plaintiff's reported adjusted gross income; no distinction is made with respect to the source or form of plaintiff's income. Moreover, plaintiff fails to identify what portion, if any, of these capital gains were generated from his share of the marital property.

In 2003, plaintiff's adjusted gross income is reported as minus (-) $40,278, due to real estate losses, and plaintiff's maintenance obligation for that year is therefore $0.

With respect to his 2004 earned income, plaintiff testified that it decreased to $78,500, but he failed to provide his tax returns, as required by the Separation Agreement in order to qualify for a pro rata reduction. Plaintiff's 2004 maintenance obligation is therefore not subject to reduction. [*6]

Plaintiff's federal income tax return for 2005 shows an adjusted gross income of $776,773, which is 77.6773% of $1 million. His maintenance obligation for that year, calculated at 77.6773% of $192,000, is $149,140.42.

Pursuant to the above computations, plaintiff's maintenance obligations under the Separation Agreement totaled $725,140.42 from March 1, 2001 to December 31, 2005. In the Report, the Special Referee credited plaintiff with having paid defendant maintenance totaling $178,200 from March 2001 to January 2005, a sum that neither party disputes. Upon application of this $178,200 credit, the total of plaintiff's arrears from March 1, 2001 to December 31, 2005 is $546,940.42.

At the time of the parties' submissions for the instant motion, plaintiff's federal income tax return for 2006 was not yet available. As such, plaintiff's maintenance arrears are calculated only through December 2005. Plaintiff is directed to provide defendant copies of his federal income tax return for 2006 on or before April 15, 2007, for computation of 2006 maintenance arrears, if any, due and owing to defendant.

Plaintiff's application to offset defendant's maintenance award with a sum representing defendant's share of child support for the period during which plaintiff has had residential custody of the child is denied as without basis. No sum of child support was ever imposed upon defendant.

Finally, the court confirms the Special Referee's recommendation that defendant's application for counsel fees be denied, as no evidence was presented with respect to the sums claimed and the services provided.

WHEREFORE, it is hereby

ORDERED, that the parties' Amended Agreement is rescinded as void ab initio and unenforceable; and it is further

ORDERED, that plaintiff shall pay defendant the sum of $546,940.42, as and for outstanding spousal maintenance arrears accrued from March 1, 2001 to December 31, 2005, in annual installments of no less than $100,000, payable on the first day of the year commencing January 1, 2007; and it is further

ORDERED, that upon plaintiff's failure to pay defendant maintenance arrears of $546,940.42 in annual installments of no less than $100,000 on or before the first day of the year commencing January 1, 2007, the Clerk of the County is directed to enter judgment in favor of defendant, K.M., and against plaintiff, D.M., in the amount of $100,000, together with statutory interest, for each unpaid installment; and it is further

ORDERED, that plaintiff shall provide defendant copies of his federal income tax return for 2006 on or before April 15, 2007, for computation of any 2006 spousal maintenance arrears; and it is further

ORDERED, that, within thirty days of receipt of plaintiff's federal income tax return for 2006, counsel for the parties shall, in good faith, endeavor to mathematically calculate the sums, if any, of 2006 spousal maintenance without court intervention; and it is further

ORDERED, that, if counsel are unable to agree upon the sums, if any, of 2006 spousal maintenance, they shall jointly initiate a telephone conference with the court for resolution; and it is further

ORDERED, that 2006 maintenance arrears, if any, shall be added to the previously calculated maintenance arrears of $546,940.42, and paid in accordance with the payment schedule established herein for maintenance arrears; and it is further [*7]

ORDERED, that plaintiff shall pay defendant ongoing spousal maintenance in accordance with the terms of the parties' Separation Agreement; and it is further

ORDERED, that defendant's application for counsel fees is denied.

This constitutes the Decision and Order of the Court; any matters not decided herein are denied.

_______________________________

LAURA VISITACI N-LEWIS, J.S.C. Footnotes

Footnote 1: The total amount of maintenance contemplated in the Separation Agreement is $192,000 per year for eight years.

Footnote 2: The names of both parties were on the deed to the condominium, which had been the marital residence. However, at the time of the divorce, the parties divided their real property by according defendant exclusive rights to the condominium and plaintiff exclusive rights to the parties' second home in Amangansett.

Footnote 3: Also from the proceeds of the sale, $50,000 was paid to plaintiff in satisfaction of a debt owed to him by defendant's father, G.M.

Footnote 4: By order to show cause filed on December 10, 2004, plaintiff moved for full custody of the child, and to restrict defendant's parental access on the ground that her chronic alcoholism rendered her incapable of properly caring for their autistic child (Motion Seq. No. 2). By order of this court dated September 7, 2006, plaintiff was awarded sole custody of the child on consent. At the time, defendant's failure to maintain sobriety had caused her to be expelled from a treatment program. Given defendant's inability to reliably and appropriately maintain access with the child, Dr. Esther Chachkes, the child's Guardian Ad Litem, recommended suspension of access until defendant had established a minimum period of nine months' sobriety, which recommendation the court adopted. By order to show cause filed November 9, 2006 (Motion Seq. No. 9), defendant sought to re-establish contact through telephone access. In light of a recent report that defendant has been maintaining sobriety, a so-ordered stipulation providing for weekly supervised telephone visits was entered into on November 21, 2006.

Footnote 5: Although plaintiff waived child support from defendant, which waiver violates public policy, he still stood to benefit from having been relieved of his own, undoubtedly greater, payments of child support to defendant.