Monday, December 19, 2016

CONCURRING AND DISSENTING OPINIONS CAN BE MOST INSTRUCTIVE - PART 1



There was one concurring and one dissenting opinion regarding prenuptial agreements in Gottlieb v Gottlieb, 2016 NY Slip Op 00613 [138 AD3d 30] (1st Dept. January 28, 2016) - here is the first:

"Saxe, J. (concurring). I agree with the result reached by the majority, and with much of the reasoning of that opinion. I write separately to suggest that the standard enunciated in Christian v Christian (42 NY2d 63 [1977]), relied on by both the majority and the dissent to assess the enforceability of the parties' prenuptial agreement, is not the correct analytical framework to use when considering prenuptial agreements, especially their property division provisions. Property division provisions of prenuptial agreements may be set aside only on grounds that would warrant the invalidation of any contract.

Facts
The drawn-out process by which Mr. Gottlieb proposed and renegotiated the prenuptial agreement at issue here is fully laid out in my colleagues' writings, and need not be reiterated at length. It is enough to say that after first insisting on a{**138 AD3d at 50} prenuptial agreement, he then repeatedly reduced his offered terms, then declined to enter into an agreement while Ms. Lumiere Gottlieb was pregnant with the parties' first child, and only finally acceded to the execution of an agreement when Ms. Lumiere Gottlieb was pregnant with their second child.

The final agreement, executed by Ms. Lumiere Gottlieb against her attorney's advice, listed Ms. Lumiere Gottlieb's net worth as $610,817 and Mr. Gottlieb's net worth as $103,894,476. It limited the property to be treated as marital property as property titled in both parties' names as joint tenants or tenants by the entirety, along with any property agreed in writing by the parties to be marital property, and defined all other property as separate property, including income earned during the marriage, business interests, and the two apartments Mr. Gottlieb purchased before the marriage. Ms. Lumiere Gottlieb waived any interest in the increase in the value of Mr. Gottlieb's separate property, along with any rights under the Equitable Distribution Law. The only property distribution provided for by the agreement was that Ms. Lumiere Gottlieb would be entitled to payment of $300,000 for each year of the marriage, plus interest compounded annually at the rate of five percent. Pursuant to the agreement, Mr. Gottlieb was required to deposit sums into an account for this purpose during the marriage. The current value of that account is approximately $1,586,219.

Ms. Lumiere Gottlieb also waived spousal maintenance, except that if any minor children resided with Ms. Lumiere Gottlieb at the time of divorce, during the period in which a child of the marriage was under four years old, Mr. Gottlieb would pay spousal maintenance of $12,500 per month, and except that as long as a minor child resided with her, Mr. Gottlieb agreed to pay the carrying costs and utilities for an apartment (of a specified size, location and type) for Ms. Lumiere Gottlieb until the youngest child attained the age of majority, with all such payments to be treated as child support. Mr. Gottlieb also agreed to provide health insurance for Ms. Lumiere Gottlieb until the emancipation of the parties' children.
Mr. Gottlieb commenced this action for divorce in 2012, some five years after their marriage. In her answer, Ms. Lumiere Gottlieb interposed four counterclaims, the first seeking to declare the entire prenuptial agreement unenforceable, the second to set aide the maintenance provisions and the third to set aside the property distribution provisions. Her fourth{**138 AD3d at 51} counterclaim concerned an error in a provision about the price of the apartment Mr. Gottlieb agreed to purchase for her and the children.

Ms. Lumiere Gottlieb moved, and Mr. Gottlieb cross-moved, for partial summary judgment on Ms. Lumiere Gottlieb's counterclaims. Ms. Lumiere Gottlieb contended that, as a matter of law, the prenuptial agreement was unenforceable as the product of overreaching causing manifest unfairness.

The motion court dismissed Ms. Lumiere Gottlieb's first and third counterclaims, but denied dismissal of her second cause of action, which challenged the enforceability of the agreement's maintenance provisions. The majority now holds that the dismissal of the first and third counterclaims was correct, and that the second counterclaim should have been dismissed as well. I agree, although for other reasons. The dissent adopts Ms. Lumiere Gottlieb's suggestion that a prenuptial agreement may be set aside if it is the product of overreaching causing manifest unfairness, and would require a hearing to determine whether to set aside the agreement based on that standard. I strongly take issue with dissent's analysis and its conclusion.

Discussion
Both the majority and the dissent quote Christian v Christian for the proposition that "[t]o warrant equity's intervention, no actual fraud need be shown, for relief will be granted if the settlement is manifestly unfair to a spouse because of the other's overreaching" (id. at 72), relying on that statement to hold that prenuptial agreements may be set aside (1) if they are the product of "overreaching" and, if so, (2) if they are "manifestly unfair." Unlike my colleagues, I submit that it is not appropriate to look to Christian for the current standard for judging the enforceability of prenuptial agreements' property division provisions.

There are two important points to recognize about the Christian decision. First, Christian was issued in 1977, so its analysis of this issue must, of necessity, be informed by the provisions of the subsequent Equitable Distribution Law, enacted in 1980, which provides its own approach for judging the enforceability of marital agreement provisions. While the dissent repeatedly characterizes my position as advocating that the statute "supersedes" the Christian ruling, I simply point out that instead of automatically applying the Christian standard, we should recognize that in Domestic Relations Law § 236 (B) (3)—enacted after Christian was decided—the {**138 AD3d at 52}legislature explicitly and implicitly provided standards by which to determine the enforceability of the various components of prenuptial agreements.

Second, Christian was concerned only with separation agreements between spouses, and its reasoning applied only to married couples who enter into separation agreements; it was not intended to apply to not-yet-married, affianced couples, and there is scant support for extending its application in that way.

Domestic Relations Law § 236 (B) (3) creates a different standard than the rule stated in Christian. In contrast to Christian's requirement of special scrutiny for separation agreements between a married couple, the statute explicitly authorizes and approves of agreements made both before and during a marriage, setting a baseline by which such agreements are deemed valid and enforceable as long as they are "in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded" (id.).

Importantly, while section 236 (B) (3) requires additional scrutiny for particular types of provisions in marital agreements, specifically, maintenance and child-related provisions, the statute makes no provision at all for heightened scrutiny of property division aspects of marital agreements. By imposing a specified heightened standard for support provisions, but not affirmatively imposing any such standard for property division provisions, we may infer, through the principle of expressio unius est exclusio alterius, that the legislature intended not to apply any such heightened standard to property division provisions of marital agreements (see McKinney's Cons Laws of NY, Book 1, Statutes § 240).

So, while Domestic Relations Law § 236 (B) (3) sets special standards by which to review maintenance and child support provisions of prenuptial agreements, the absence of a heightened standard in the statute for property provisions indicates that a heightened standard should not be applied when judging property provisions. The Christian analysis, which looks for overreaching and then manifest unfairness, creates a standard similar to the section 236 (B) (3) standard for judging maintenance provisions, with Christian's "manifest unfairness" component approximating the "fair and reasonable" component of the statute's maintenance standard, while Christian's "overreaching" component approximates the (procedural) "unconscionability" prong of the statute's standard for judging maintenance provisions. Since Christian's analysis imposes a{**138 AD3d at 53} heightened standard, while section 236 (B) (3) requires that property provisions be judged by ordinary standards for contract enforcement, the use of Christian's standards for judging property provisions is incorrect.

In insisting that the Christian standard must be employed here, the dissent relies on Goldman v Goldman (118 AD2d 498 [1st Dept 1986]), which does not provide any support for its point. Goldman involved an action to set aside a reconciliation agreement, which is not an agreement to which Domestic Relations Law § 236 (B) (3) applies, so its facts were virtually the converse of the situation presented here, and its use of the analysis provided by Christian v Christian was therefore uniquely appropriate there, as opposed to the circumstances of this appeal.

Even if the Christian pronouncement survived the Equitable Distribution Law, it would have no applicability to prenuptial agreements. It was the spousal relationship of the parties that prompted the Christian Court to explain that "separation agreements subjected to attack are tested carefully" (42 NY2d at 65) and that "a separation agreement may be set aside on grounds that would be insufficient to vitiate an ordinary contract" (id. at 72). In support of its premise regarding the special treatment of separation agreements, it quoted a 1889 Court of Appeals decision for the proposition that " '[a] court of equity . . . inquires whether the contract [between husband and wife] was just and fair, and equitably ought to be enforced, and administers relief where both the contract and the circumstances require it' " (id. at 65, quoting Hendricks v Isaacs, 117 NY 411, 417 [1889]).

Indeed, when the Court of Appeals has discussed the Christian decision, it has explained that "because of the fiduciary relationship between husband and wife, separation agreements generally are closely scrutinized by the courts, and such agreements are more readily set aside in equity under circumstances that would be insufficient to nullify an ordinary contract" (Levine v Levine, 56 NY2d 42, 47 [1982] [emphasis added], citing Christian v Christian, 42 NY2d at 72, and McGahee v Kennedy, 48 NY2d 832, 834 [1979]). Similarly, cases of this and other Departments applying Christian's standard for setting aside marital agreements on the ground that they are "manifestly unfair to a spouse because of the other's overreaching" have most often involved agreements between spouses (see e.g.{**138 AD3d at 54} Petracca v Petracca, 101 AD3d 695, 698 [2d Dept 2012] [internal quotation marks omitted]; Kleinman v Kleinman, 289 AD2d 18 [1st Dept 2001], lv denied 98 NY2d 610 [2002]; Gibson v Gibson, 284 AD2d 908 [4th Dept 2001]).

It is the fiduciary nature of the marital relationship that has prompted the law to apply intense scrutiny to separation agreements between married couples. In contrast, the circumstances of unmarried parties who are negotiating prenuptial agreements are virtually the converse of a marital relationship. Typically, a monied prospective spouse, like Mr. Gottlieb here, will refuse to proceed with the marriage unless the non-monied prospective spouse accedes to the proposed terms; that is, the parties will never marry, and therefore never undertake the fiduciary obligations that status entails, unless and until the proposed agreement is signed.

The distinction between how the law treats the two situations is illustrated by the very fact that despite the inherent duress of a threat not to marry unless the proposed agreement is accepted, such a threat does not invalidate a prenuptial agreement (see Barocas v Barocas, 94 AD3d 551 [1st Dept 2012], appeal dismissed 19 NY3d 993 [2012]; Cohen v Cohen, 93 AD3d 506 [1st Dept 2012]).

The differentiation between married spouses and non-married couples for purposes of imposing a fiduciary duty is consistent with the law's general approach to marriage. As the U.S. Supreme Court recognized in Obergefell v Hodges (576 US &mdash, 135 S Ct 2584 [2015]), marriage fundamentally alters the legal status of the couple, creating new legal rights and obligations that are not present for a non-married couple. Among those rights and obligations is the obligation to give, and the right to receive, the utmost good faith, fairness and loyalty that is the essence of a fiduciary duty.

My colleagues' view that established law imposes the same fiduciary duty owed in marital relationships on engaged couples entering into prenuptial agreements is not well-founded. I would not rely on Matter of Greiff (92 NY2d 341 [1998]) as does the majority writer, because it is an explicitly narrow ruling; it does not support a broad extension to prenuptial agreements generally of the rule imposing a fiduciary duty on separation agreements between spouses. Unlike Greiff, there is nothing extraordinary about Ms. Lumiere{**138 AD3d at 55} Gottlieb's challenge to the prenuptial agreement at issue here. And, while there are circumstances in which a non-married romantic relationship may correspond closely enough to a married relationship to make imposition of a fiduciary duty appropriate (see e.g. Rosenzweig v Givens, 13 NY3d 774, 775 [2009]; Robinson v Day, 103 AD3d 584, 585 [1st Dept 2013]), in my view the relationship between these parties at the time they entered into the prenuptial agreement does not present such a situation.

A rule that a fiduciary duty arises by virtue of a couple's engagement would clearly be unworkable; the mere label and plan to become married in the future, is not enough in itself to create a duty of loyalty. And, barring such a bright-line rule, it would be difficult to pinpoint the moment in time, or particular circumstances that would cause a fiduciary duty to spring into being between fiancés. While some might suggest that having children together should be viewed as a viable basis for imposing a fiduciary duty, it is important to note that the law limits the obligations of unmarried parents to the support and care of the children, and does not impose a duty of support and care toward the partner. By the same token, the law should not be extended to impose a fiduciary duty solely by virtue of a couple's having children together.

A fiduciary relationship "may arise where a bond of trust and confidence exists between the parties and, hence, the defendant must be charged with an obligation not to abuse the trust and confidence placed in him or her by the plaintiff" (Rocchio v Biondi, 40 AD3d 615, 616 [2d Dept 2007]). The essence of a fiduciary relationship is the expectation that the fiduciary will, and should, be guided by the interests of the other party. No such expectation could have reasonably arisen here.

From nearly the outset of their relationship, Mr. Gottlieb indicated to his fiancée that he was not prepared to be generous with her in any way with respect to the emoluments of marital distribution—that marriage to him required her to accept a hard bargain, given his considerable wealth. But he laid these cards on the table, and, in fact, when the prenuptial agreement was finally negotiated and ready for execution, Ms. Lumiere's counsel urged her not to sign it—advice she refused to take. Ms. Lumiere could have had no expectation that Mr. Gottlieb was protecting her interests as his fiancée; his treatment {**138 AD3d at 56}of her demonstrated the converse, the complete absence of a relationship of trust and confidence.[FN*]

The dissent suggests that the Court should provide legal protection to a party who from the beginning of her relationship with her future spouse refused to acknowledge what was always there to be seen—that her fiancé was never going to meet the most basic tenet of a fiduciary relationship. Marriage was a business to him, and he let her know that, not in so many words, but by his conduct. The dissent disagrees, asserting that Mr. Gottlieb did not make any such statements in his submissions to the Court, and in fact took the position that the agreement provides Ms. Lumiere Gottlieb with a "luxurious and secure life." However, the record strongly supports the inferences I draw with regard to how Mr. Gottlieb treated his fiancée at the time they entered into the agreement; assertions made by a party in court papers do not disprove those inferences.

Therefore, in a case such as this, when considering property distribution provisions of prenuptial agreements, we must look to the common-law standards for setting aside any type of contract, such as fraud, duress and unconscionability. Under this general common-law rule,
"[p]eople should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain. Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side. It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fair-minded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability" (8 Richard A. Lord, Williston on Contracts § 18:1 at 8 [4th ed 2010] [internal quotation marks omitted]).{**138 AD3d at 57}
"[A]n unconscionable contract has been defined as one which is so grossly unreasonable as to be unenforcible because of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party" (King v Fox, 7 NY3d 181, 191 [2006]). "A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made—i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party" (Gillman v Chase Manhattan Bank, 73 NY2d 1, 10 [1988] [internal quotation marks omitted]). The term "unreasonably favorable" is sometimes referred to as "substantive" unconscionability, while the "absence of meaningful choice" is referred to as "procedural" unconscionability (see 1 Farnsworth on Contracts § 4.28 at 583 [3d ed 2004]). Generally, both are necessary for unconscionability to be established as grounds to set aside a contract (Gillman at 10).

Procedural unconscionability is essentially equivalent to the term "overreaching." Both concepts focus on the process of arriving at the agreement. The definitions of "overreaching" offered by my colleagues here include "the concealment of facts, misrepresentation or some other form of deception" (Stawski v Stawski, 43 AD3d 776, 777 [1st Dept 2007]) and "cunning, cheating, [and] sharp practice" (see Matter of Baruch, 205 Misc 1122, 1124 [Sur Ct, Suffolk County 1954], affd 286 App Div 869 [2d Dept 1955]).
Of course, here, Ms. Lumiere Gottlieb explicitly conceded when moving for summary judgment that she was not claiming fraud, duress, or unconscionability. Therefore, her challenge to the property division provisions of the prenuptial agreement must be rejected without further discussion.

In any event, like the majority, I reject any suggestion of overreaching or procedural unconscionability here, because as this Court observed in Barocas v Barocas (94 AD3d at 552), "meaningful choice is not an issue inasmuch as defendant knowingly entered into the agreement against the advice of . . . counsel." In concluding otherwise, the dissent employs terms such as "shrewd manipulations" (citing Ducas v Guggenheimer, 90 Misc 191, 199 [Sup Ct, NY County 1915], affd sub nom. Ducas v Ducas, 173 App Div 884 [1st Dept 1916]) and exploitation of trust. However, there was no trickery or subterfuge involved here; Mr. Gottlieb's negotiating strategy{**138 AD3d at 58} was entirely clear and apparent. Ms. Lumiere Gottlieb knew what she was getting into, and was advised not to, but ultimately decided to accept the offered terms because she wanted to get married. Willingness to enter into an agreement known to be one-sided, against the advice of counsel, because of the desire to get married, cannot establish the type of "absence of meaningful choice" that constitutes overreaching or procedural unconscionability (see Strong v Dubin, 48 AD3d 232, 232-233 [1st Dept 2008]).

In the absence of a showing of procedural unconscionability or overreaching in the formation of the prenuptial agreement, even under the Christian standard there is no basis to go on to examine the agreement for "manifest unfairness," as the dissent does at length.
Even if further examination were appropriate, that examination should concern whether the terms of the agreement were substantively unconscionable. This would entail considering whether the financial terms were so extreme and one-sided as to appear unconscionable (see Gillman, 73 NY2d at 12; 1 Corbin on Contracts § 128 [1950]). While a one-sided agreement leaving the parties with substantial disparities of wealth may strike some observers as unfair, that does not make it substantively unconscionable, since the facts were disclosed at the time the parties entered into the agreement (see Smith v Walsh-Smith, 66 AD3d 534, 535 [1st Dept 2009], lv denied 14 NY3d 704 [2010]), and particularly since Ms. Lumiere Gottlieb is not being left destitute.

It is possible that the use in Christian of the concepts of "overreaching" and "manifest unfairness" may simply have been new terminology essentially recapitulating the concepts of procedural and substantive unconscionability. However, the dissent's discussion expands substantially beyond considerations of substantive unconscionability, emphasizing the word "fairness" in the term "manifest unfairness" to suggest that the enforceability of a prenuptial agreement may be addressed by reference to the concept of adequacy, and by consideration of the marital standard of living.

This turns the law on its head. Indeed, if most prenuptial agreements were to be examined by the standards proposed by the dissent, most if not all of them would be found manifestly unfair. In general, the purpose of such agreements is not to achieve fairness, but to protect the assets of the monied party from being turned over to the other, and to strictly limit what{**138 AD3d at 59} the non-monied spouse will receive in the event of a divorce. In particular, such agreements are geared toward avoiding any claim of entitlement to a distributive award or spousal support in proportion to the parties' standard of living during the marriage. The law imposes minimum requirements for certain types of financial provisions, but even accepting the applicability of the Christian standard, and even assuming there were a question of fact as to whether there was overreaching here, the question would not be whether the amounts being received by the non-monied spouse under the agreement approximates the parties' standard of living during the marriage. The "manifest unfairness" standard is not met by a failure to provide for an approximation of the marital standard of living after a divorce. If it did (assuming Christian's applicability), the very purpose of prenuptial agreements would be eviscerated. There would be no reason to opt out of the Equitable Distribution Law if the very same considerations used to enforce the statute were applied in the event the parties opted out of the statute.

There is no dispute that the maintenance provisions of the parties' agreement must be judged by the standard expressed in Domestic Relations Law § 236 (B) (3), which only allows enforcement of maintenance provisions "provided that such terms were fair and reasonable at the time of the making of the agreement and are not unconscionable at the time of entry of final judgment." I agree with the majority that as a matter of law Ms. Lumiere Gottlieb failed to satisfy that standard. Ms. Lumiere Gottlieb's waiver of spousal support was not unfair or unreasonable at the time she signed the agreement. She has a degree in economics, and has been employed in finance; while her absence from the field while the children were young may impact her job search, she certainly has the ability to ultimately be self-supporting. Nor is that waiver unconscionable inasmuch as she will receive approximately $1.5 million, as well as an all-expenses-paid apartment up until the couple's children reach the age of 18.

In conclusion, I believe that coursing through the dissent is a not-so-veiled hostility to prenuptial agreements. All prenuptial agreements are in essence one-sided, and may seem unfair to those who believe fairness must be the guiding principal in financial distribution resulting from divorce. But the law gives parties the right to opt out of the Equitable Distribution Law and to order their own affairs. While the law still provides certain minimum standards to protect non-monied parties who{**138 AD3d at 60} sign off on opting out in order to make their own arrangements, none of those protections offer economic recompense measured by the marital standard of living; imposing such a standard would eviscerate the right to opt out. One wonders, after reading our dissenting colleague's opus, whether prenuptial agreements should now be relegated to the dustbin."

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