Kaplan v Kaplan

[*1] Kaplan v Kaplan 2009 NY Slip Op 50898(U) [23 Misc 3d 1123(A)] Decided on February 9, 2009 Supreme Court, Nassau County DeStefano, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 9, 2009
Supreme Court, Nassau County

Natalie Kaplan, Plaintiff,

against

Ronald Kaplan, Defendant.



202411-04



COUNSEL FOR PLAINTIFF:

Peter J. Galasso, Esq.

Galasso, Langione & Botter

377 Oak Street

Suite 101

Garden City, NY 11530

(516) 222-6500

COUNSEL FOR DEFENDANT:

Alexander Potruch, Esq.

Potrauch & Daab

666 Old Country Rd.

Suite 700

Garden City, NY 11530

(516)222-6500

Vito M. DeStefano, J.

The defendant ("former husband") moves for an order: "(a) pursuant to DRL §240 reducing the child support and maintenance provisions of Stipulation, dated June 13, 2006 as [*2]incorporated in the Judgment of Divorce dated September 29, 2006 and permitting evidence of the defendant's financial circumstances subsequent to the filing of this Order to Show Cause on August 15, 2007; (b) directing that a hearing be held before the Honorable Angela Iannacci of the Supreme Court, Nassau County on that issue and the issue referred to in the Decision and Order dated December 7, 2007; (c) and consolidating that hearing with the hearing already commenced before this Court on July 23, 2008."

The court notes that it conducted a hearing on a prior motion by the former husband seeking downward modification of his maintenance and child support obligations as set forth in the parties' post nuptial stipulations and judgment of the court. In a decision and order dated January 10, 2009, the court denied the former husband's prior modification motion, and, in so doing, addressed several of the issues raised in the instant motion, to wit, the interpretation of Justice Iannacci's December 7, 2007 order setting the prior motion down for a hearing, the applicability of the Second Department's decision in Heller v Heller (43 AD3d 999 [2d Dept 2007]), the inapplicability of the law of the case doctrine, and the interpretation of the plain contractual language contained in the parties' June 13, 2006 stipulation.[FN1]

More specifically, the court, in its January 10, 2009 decision and order, stated the following, in relevant part:

Sometime subsequent * * * [to Justice Iannacci's December 7, 2007 order], the matter was transferred by administrative order to the undersigned. After reviewing the motion, cross motion and court's decision, this court conducted a hearing on the issue of whether the former husband suffered a "severe bona fides financial reversal"—the precise language utilized in the parties' September 3, 2002 post nuptial stipulation—which remained in effect when the agreement was modified in June 2006.

Footnote 1: The post nuptial stipulation provides, inter alia, that (Exhibit "K" at pp.14-15): "D. Modification. The parties agree that in the event of a severe bona fides financial reversal, the Husband shall have the right to apply to a court of competent jurisdiction to modify the maintenance and support provisions of this Article. Conversely, in the event of a substantial increase in the financial circumstances of the Husband, the Wife shall have the right to apply to a court of competent jurisdiction to modify the maintenance and support provisions of this Article. In the event that either party secures an order of a court of competent jurisdiction modifying downward the support and/or maintenance provisions of this Article, this agreement shall be deemed similarly modified to reflect the terms of the court order." [*3]

In reliance on the Second Department's decision in Heller v Heller (43 AD3d 999 [2d Dept 2007]), this court stated that the issue, as raised in the parties' papers, was a "threshold issue", which, if decided in the former husband's favor, would require a further showing by him under Domestic Relations Law § 236 B(9)(b), of substantial change in circumstances and extreme hardship, to warrant downward modification of child support and maintenance obligations, respectively.

Footnote 2: The essential holding of Heller is that where the parties have stipulated to permit one to "apply for a reduction" of maintenance and support obligations, the legal standard for modification (as delineated in the Domestic Relations Law) remains applicable. In Heller, the parties entered into a stipulation of settlement of their matrimonial action in which it was agreed that the plaintiff could "apply for a reduction" of maintenance and support obligations if his income fell below a certain monetary threshold. The Second Department, on an appeal by the plaintiff challenging, inter alia, the scope of the hearing conducted, remitted the matter for a limited hearing determining: first, whether the plaintiff was entitled to apply for a downward modification in his child support and maintenance obligations, and, if so, whether such a modification was warranted and, only if warranted, for a new hearing to determine the reduced amount of child support and maintenance.

The court notes some confusion regarding the standard to be applied in determining the former husband's request for downward modification. In this regard, it was alternatively argued by the parties that Heller did not apply and that the standard for modification of the former husband's child support and maintenance obligations, as set forth in the parties' stipulations, was intended to supplant the legal standard for modification as set forth in Domestic Relations Law § 236 B(9)(b). In fact, the former husband suggested that the standard articulated in the parties' stipulations was intended to lower the standard necessary to obtain downward modification; in contrast, the former wife argued that the standard for modification was raised by the parties' stipulations.

It was also suggested by the former husband that in light of Justice Iannacci's decision, the law of the case doctrine would be violated if the court were to apply the holding of Heller at bar.

However, prior to the hearing, the court pointed out that Heller was, in fact, cited in the parties' motion papers. In addition, the court noted that the wording of Justice Iannacci's decision in no way expressed that the "severe bona fides financial reversal standard" in the parties' stipulations was meant to alter or replace the legal standard for modification contained in the Domestic Relations Law, or that it was other than a threshold issue. In any event, the holding of Heller was applicable to every case in the Second Department, including the one at bar. Finally, the interpretation of contracts and the meanings of the unambiguous terms therein, presented questions of law for the court regardless of the arguments or interpretations offered by the parties, and there was no reason to interpret Justice Iannacci's decision in a manner that conflicted with the holding of Heller (see, e.g., Ruttenberg v Davidge Data Systems Corp., 215 [*4]AD2d 191 [1st Dept 1995]).

Accordingly, the sole issue addressed at the hearing was whether the former husband suffered a severe bona fides financial reversal. The court limited the evidence presented to the issue of the change in the former husband's financial circumstances allegedly occurring between the date on which the parties modified their stipulation of settlement (June 13, 2006), which was incorporated and not merged in the judgment of divorce, and the date that the motion was made (August 15, 2007).

Footnote 3: The former husband asked to expand the scope of the hearing to include evidence of severe bona fides financial reversal arising subsequent to August 15, 2007, however, under the circumstances, and because an issue was raised regarding the law of the case doctrine and this court's possible misapplication of the law, the scope of the hearing was limited. Thereafter another motion was made by the former husband seeking, inter alia, downward modification of his child support and maintenance obligations based on facts arising after the making of the motion. Significantly, submission of that motion was held in abeyance, pending the decision on the instant modification application.

The court again notes that after some initial confusion, and upon researching the issues thoroughly prior to the hearing, it determined that Heller was applicable at bar. Moreover, as indicated, although the court and parties had discussed expanding the scope of the hearing to include evidence of financial circumstances of the former husband occurring after August 15, 2007—the date that the prior motion was filed, the court ultimately decided against allowing such evidence, in light of former husband's contentions regarding the law of the case doctrine and the court's alleged misapplication of the law. In addition, the court noted that if it ultimately granted the modification motion then under consideration, the instant motion, to the extent that it sought modification based on a change of financial circumstances occurring after August 15, 2007, would be academic.

If, instead, the court were to determine (as, in fact, it ultimately did) that the former husband failed to establish a severe bona fides financial reversal (occurring between June 13, 2006 and August 15, 2007), then it would be necessary for the former husband to establish, independently of the prior motion, a severe bona fides financial reversal suffered during the period after August 15, 2007 to warrant a finding or hearing on that threshold issue, which would permit him to apply to the court for downward modification under the applicable legal standards for modification.

In short, the court, at the hearing on the prior motion, effectively denied the branches of the instant motion which sought to expand the scope of the hearing and to refer the hearing to Justice Iannacci. To the extent that any part of the instant motion can be considered a request for downward modification under Domestic Relations Law § 240, based on financial circumstances [*5]arising after August 15, 2007,[FN2] the application is denied for the following reasons:

In his supporting affidavit, the former husband asserts that on August 15, 2007, he was the sole owner of Empire News Service Inc. ("Empire"), which had gross receipts in excess of $1 million annually for several years. He was also receiving, as an owner of a restaurant called Destino, a salary of $1,000 per week, and he had purchased an interest in West 17th Restaurant Corp. "which was paying some returns at that time" (Affidavit of Ronald Kaplan at p.5). Because his total earned income in 2007 was $86,250, he was "compelled to utilize $66,508 from * * * [his] pension in order to pay those expenses"(Id.).

According to the former husband, by March 31, 2008, Empire was evicted from its premises, though it was forgiven $200,000 in rental payments. Also, in 2007, he "was compelled to sell" his interest in Destino, netting only $29,000 after all liabilities were paid (Id. at p.6). By the end of 2007, the former husband sold his interest in West 17th Street Restaurant Corp., receiving $31,000 (net). The former husband goes on to state that he "received another $27,000 and am still owed $108,000 in connection with that transaction" (Id.).

The former husband also reported that he purchased a 5% interest in "Southern Hospitality" in October 2007 (without indicating the extent of his investment), which he sold in June 2008 for $70,000. The former husband asserts that he received $1,250 per week from that business until the time that he sold his interest in it. He further states that he currently works part-time for his brother at Penn Book Store earning $500 per week. Because of increasing expenses, he moved from West 26th Street to Long Island City and bought a used Honda (Id.).

As noted by the plaintiff ("former wife"), however, the former husband's assertions fail to establish a severe bona fides reversal. First, several of the investments described in the former husband's affidavit were concedely profitable. For example, with respect to his investment in West 17th Restaurant Corp., it appears that the profit that is or will be realized by the former husband is approximately $135,000 (according to his own affidavit, and the unsworn deposition transcript of the former husband annexed to the Affirmation in Opposition as Exhibit "A", at pp.82-93).

Likewise, the former husband's assertions regarding his investment in Southern Hospitality do not establish any loss, let alone a severe financial reversal. Significantly, the former husband failed to recite the actual amount of his investment in his affidavit nor does he state that there was a loss associated with it. According to his deposition testimony, the former husband invested $70,000 in that enterpise and was paid $1,250 per week gross (salary) (Deposition transcript of former husband at pp.106-10). Notably, the former husband provides no explanation as to the reason why he sold his interest in Southern Hospitality. [*6]

Regarding the former husband's failed business, Empire, the court notes that a substantial amount of evidence and allegations concerning it were introduced at the hearing on the prior modification motion. In fact, in the January 10, 2009 decision and order, the court noted the following:

Seven months after the modification stipulation was signed, according to the former husband, the Empire State Building management relocated ticket booths and entrances in the building which negatively impacted on Empire. As a consequence, he stopped paying rent and closed one of two kiosks operated by Empire. In 2008, the former husband closed the business altogether.

A review of the income tax returns of Empire, the parties and the former husband reveals that in 2004, Empire's gross revenue was $1,086,480, yielding a profit of $76,859. The former husband's salary from Empire in 2004 was reportedly $93,000 (Exhibit "N"). In 2005, Empire's gross revenue was $914,292; its profit was reported as $44,438. The former husband's salary from Empire in 2005 was $72,500 (Exhibit "H"). In 2006, Empire's gross revenue was $611,111; Empire's reported loss in 2006 was $28,788. The former husband's salary from Empire in 2006 was $37,500 (Exhibit "I"). In 2007, Empire's gross revenues were $497,450; its loss was reported as $15,670. The former husband's salary from Empire in 2007 was $26,000 (Exhibit "J").

In addition, in 2004, the parties reported income (from Empire and other sources) of $159,630, with an adjusted gross income of $142,475 (Exhibit "N"). In 2005, the former husband reported income of $60,582, with an adjusted gross income of -

$33,708 (Exhibit "H"). In 2006, the former husband reported income of -$115,426 and an adjusted gross income of -$168,819 (Exhibit "I"). In 2007, the former husband reported income of $101,552, with an adjusted gross income of $76,552.

Based on the foregoing, the court does not find a severe bona fides financial reversal occurring from June 13, 2006 and August 15, 2007, the former husband failing to establish a significant reduction in earnings between those dates. In fact, Empire's losses were apparently reduced between 2006 and 2007. Moreover, irrespective of the years considered, the former husband's income from 2004, and for each year thereafter, was insufficient to meet either his $20,000 per month maintenance and support obligations under the post nuptial stipulation or the approximately $12,500 per month he was obligated to pay under the modification stipulation.

Last, the court notes that Empire's 2007 tax return (Exhibit "AA") incorrectly reported $110,130 in rent as a business deduction, when, in truth, no rent was paid during that time. Under the circumstances, the court rejects the former husband's testimony concerning the extent of funds—and his ignorance with respect thereto—available to him between 2004 and 2006.

Thus, the former husband's assertions in the instant application regarding the gross receipts "enjoyed" by Empire at one time were raised and rejected after hearing. It is also relevant to note that the former husband's application herein describes only the gross receipts of Empire, [*7]without specificity and without a statement of profits and losses. Accordingly, the former husband's allegations in regard to Empire are insufficient to meet his burden.

Regarding the former husband's incomplete reference to Destino (to wit, that at one time he earned $1,000 per week from that venture but no longer has such income because he sold his interest in the restaurant), again this was addressed in great detail at the hearing, after which the court stated in its January 2009 decision and order that: "although reporting losses in 2006 and 2007 (Exhibits "I" and "J" respectively), [that restaurant] was sold by the former husband in 2007 for $570,000, an amount which enabled him to recover his entire investment, plus a profit, and to pay other investors."

Finally, the court notes that the former husband cites the sales of various business interests and the loss of Empire in reference to his reduction in income (from $86,250 yearly, he alleges, to $500 per week). However, the foregoing demonstrates that the loss of income was partially self-imposed and otherwise not "severe", particularly when considered with the profits made, or losses saved, by the former husband. In other words, the loss of income experienced by the former husband after losing/selling his business interests cannot be considered in isolation and without reference to the benefits he obtained by virtue thereof. Additionally, that the husband experienced a loss of income does not establish a severe bona fides financial reversal because it is evident that the former husband's income was insufficient to meet his maintenance and support obligations at the time he signed the modification stipulation. As this court stated in its January 2009 decision and order, "irrespective of the years considered, the former husband's income from 2004, and for each year thereafter, was insufficient to meet either his $20,000 per month maintenance and support obligations under the post nuptial stipulation or the approximately $12,500 per month he was obligated to pay under the modification stipulation."

The motion, therefore, is in all respects denied, to the extent it was not previously decided.

Dated: February 9, 2009

__________________________

Hon. Vito M. DeStefano J.S.C. Footnotes

Footnote 1:As will be discussed, the court actually addressed the issues at the hearing and more fully explained its reasoning in the January 2009 decision and order. In addition, the court notes that it inadvertently placed the index number of a related action between the parties on the January 2009 decision and order. The actual index number on that order should be 202411-04.

Footnote 2:Although the supporting affidavit focuses on the former husband's application to expand the scope of the hearing, the notice of motion seeks the broader relief of downward modification.