Stern v Stern

[*1] Stern v Stern 2004 NY Slip Op 51591(U) Decided on December 13, 2004 Supreme Court, New York County Gische, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 13, 2004
Supreme Court, New York County

Elizabeth Stern, Plaintiff,

against

Geoffrey Stern, Defendant.



350717/02



Sheila Ginsberg Riesel, Esq.

Attorney for Plaintiff

Blank Rome LLP

405 Lexington Avenue

New York, New York 10174

Robert Stephen Cohen, Esq.

Attorney for Defendant

Cohen Lans, LLP

885 Third Avenue, 32nd Floor

New York, New York 10022

Judith J. Gische, J.

This motion seeks to have the court establish, in advance of trial, the valuation date of certain businesses established during the parties' marriage. Defendant seeks to have the court establish the date of marriage as the valuation date while the plaintiff seeks to have a date of distribution value utilized in connection with the parties' interest in Atlantique Partners LLC ("Atlantique"). Alternatively plaintiff asks that the court defer [*2]the issue of valuation date until trial.[FN1] The difference in the value of Atlantique between the two dates is approximately $3.2 million dollars.

The parties were married on March 29, 1986. This divorce action was commenced on November 12, 2002. During the marriage defendant was employed as an investment banker. In December 2000 defendant was terminated from employment at Prudential Securities and provided with a severance package worth approximately $4.8 million dollars. Shortly thereafter defendant began devoting 100% of his time to personal investing.

In furtherance thereof, in March 2001, Atlantique, a limited liability company, was formed in the State of Delaware. A March 30, 2001 operating agreement ("agreement"), signed by both parties individually and as trustees, provided that each party had a 45% ownership interest in their individual capacities and it also provided that trusts, for the benefit of each of their two minor children, held a 5% interest in the company. The agreement further provided that the defendant was the Managing Member and that he would serve without compensation. It is undisputed that Atlantique is a business vehicle through which the parties made personal investments.

Subsequently, but before the divorce proceeding was commenced, Double Eagle Partners II, LLC ("Double Eagle") and Muirfield Capital Managment LLC ("Muir") were also formed. It is unclear from this motion whether defendant has any ownership interest in Double Eagle; he does, however, receive compensation for managing Double Eagle's investments. He admits to being a partner in Muir, which has approximately $92 million dollars of "partners' capital invested" but there is no indication what his partnership interest actually is.

Defendant claims that "his" businesses are active assets, and subject to a date of commencement valuation. Plaintiff does not deny that through these companies, especially Atlantique, defendant actively managed the parties' very risky and complicated investments. She argues, however, that the active/passive distinction for selecting valuation dates is not a strict rule and not applicable where, as here, it would yield an inequitable result. She argues that defendant's "business" was simply managing the investment of the parties' marital capital, which would have appreciated in the normal course of events. Plaintiff further claims that defendant's arguments would have her limited to recouping, at most, her own share of the initial investment without any earnings thereon for the last two years. This, she argues, would be a windfall to defendant. With respect to Atlantique in particular, she argues that under the operating agreement she has a 45% interest in profits and that the equitable distribution laws cannot, and do not, vitiate that agreement. Indeed she has cross moved to have the court set a date of distribution valuation date for Atlantique based upon the agreement.

DISCUSSION

DRL §236 (B)(4)(b) provides that as soon as practicable after a matrimonial [*3]action has been commenced, the court shall set the date or dates the parties shall use for the valuation of each asset. The statute further expressly states that the valuation date may be anytime from the date of commencement of the action to the date of trial. At the outset the court rejects plaintiff's position that Atlantique should be valued as of the date of its distribution. In the absence of an agreement, there can be no distribution of marital assets in advance of trial [see: Jancu v. Jancu,174 AD2d 428 (1st dept. 1991)]. Thus the request for a distribution date valuation is inconsistent with the statutory language which sets trial as the last possible valuation date. See: McMahon v. McMahon, 187 M2d 364 (Sup Ct. NY Co. 2001).

In some instances, and with respect to some assets, it is readily apparent how the valuation date should be selected. Antenucci v. Atenucci, 193 AD2d 948 (4th dept. 1992). Pre-trial motions to select a valuation date are to be encouraged and granted in such circumstances. It is in keeping with the statutory mandate to select a date as soon as practicable. In other cases, however, the selection of a valuation date should await trial because there are factual disputes or equitable considerations that need to weighed and considered by the court. Enzein v. Enzein, 149 AD2d 783 (3rd dept. 1989); Flax v. Flax, NYLJ 4/20/92 (NY Co. Sup. Ct. Saxe, J.). Indeed, the premature selection of a wrong valuation date may only further complicate a case because the court can still reconsider its valuation date decision at trial. Maharam v. Marharam, 245 AD2d 94 (1st dept. 1997).

There is a large body of established case law that holds that active assets are generally valued as of the date of commencement of a divorce action while passive assets are valued as of the date of trial. Ferrailoli v. Ferailoli, 295 AD2d 268 (1st dept. 2002); Heine v. Heine, 176 AD2d 77 (1st dept. 1992). This case law, however, is not a rule of law that mandates a particular outcome. It is a useful tool to analyze the issue, but it does not otherwise supplant the court's discretion to select a date befitting the case once all the circumstances are presented. Wegman v. Wegman, 123 AD2d 220 (2nd dept. 1986). In the final analysis, the court's determination of a valuation date should be based upon producing a just result in a particular case. Poster v. Poster, 4 AD3rd 145 (1st dept. 2003). The court should be concerned if the date selected confers a windfall on either party. Wegman v. Wegman, supra at 234.

In this case it is premature for the court to select a valuation date for Atlantique or any of the other business that, by statutory definition, constitutes marital property. The issue must await trial where it can be considered holistically in the context of equitable distribution. While defendant was actively involved in managing the parties' investment, there are other factors to be considered and weighed by the finder of fact. They include the extent to which (or whether) passive market forces contributed to the post commencement appreciation and whether it would be equitable in the context of this case to treat plaintiff's portion of the parties' investments as if they were fallow for two years.

Further complicating the equitable distribution is the fact that Atlantique is a Delaware Limited Liability Company ("LLC") with an operating agreement. The court disagrees with plaintiff's argument, that the operating agreement mandates use of a particular valuation date. It does, however, bear upon distribution. In this regard both parties are placing too much emphasis on what effect the selection of a valuation date [*4]will have on the ultimate distribution of assets in this case. It is through the distribution award that the court exercises appropriate discretion to do equity. Tippons, T., The Matrimonial 'Dating Game', NYLJ 11/8/02, p.3 (col. 1).

LLCs are legal entities that exist separate and apart from the members who actually participate in them. Indeed one of the primary reasons for their formation is to insulate the members from personal liability arising from their operation. Great Lakes Chem. Corp. V. Monsanto Co. 96 F. Supp. 2d 376 (D. Del. 2000). The equitable distribution laws do not require the court to vitiate previously established separate business entities and/or otherwise valid contracts. Rather, those matters are controlled by the applicable business and contract law. See: Matter of Karl Springer Woodworking Ltd., 148 M2d 626 (NY Co. Sup. Cahn, J.). The court's role is to consider whether the business interest titled in one or the other spouse's name is marital property, and then determine whether such interest or other property should be awarded to one or the other spouse in satisfaction of his or her distributive share. Kaye v. Kaye, 102 AD2d 687 (2nd 1987); see also: Clark v. Kelly, 1999 WL 45862 (Del. Ch. 1999).

Applying this analysis to the case at bar, defendant's argument that a date of commencement valuation entitles him to 100% of the appreciation is not necessarily true. Pursuant to their operating agreement, 45% of that appreciation is titled in plaintiff's name and if it is not part of marital property, then it must belong to the person having title. On the other hand if a date of trial valuation is used, the court still has the discretion to award the non-titled spouse an interest in that property, which may or may not reflect the operating agreement and without disturbing such agreement.

Defendant's concerns about contribution that led to the incredible increase in value over the last two years are best addressed in the context of the equitable division of property.

Accordingly the motion and the cross-motion are denied in their entirety. This constitutes the decision and order of the court.

Dated: December 13, 2004

New York, New York

So Ordered:

_______________________

J.G. J.S.C.

Footnotes

Footnote 1: In her original cross-motion plaintiff also sought to have the court draw an unfavorable inference on valuation due to non-disclosure. This branch of the motion was previously resolved.