IN DIVORCE, NON-DISCLOSURE IS NOT PER SE FRAUD

 

Wong v. Wong, 2022 NY Slip Op 33823 - NY: Supreme Court 2022:

"In order to state a claim for fraud in the inducement, a plaintiff must allege misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the plaintiff to rely on it, and justifiable reliance by plaintiff, resulting in damages (see Ambac Assur. Corp. v Countrywide Home Loans, Inc., 31 NY3d 569, 570-571 [2018]). Furthermore, the circumstances constituting the alleged wrong must be stated in detail (see CPLR 3016[b]; Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 [2008]). This requirement "may be met when the facts are sufficient to permit a reasonable inference of the alleged conduct" (Pludeman v Northern Leasing Sys., supra, at 492). A divorce settlement tainted by fraud is void ab initio (Angeloff v Angeloff, 56 NY2d 982, 984 [1982]).

Here, plaintiff alleges that defendant's representations of his assets, as set forth in his Net Worth Statements, were "false and untrue" and were made by defendant in order to induce plaintiff to enter into the Settlement and accept less equitable distribution, spousal maintenance, and counsel fees than she would have otherwise sought had she known defendant's true assets (Complaint, supra.) In particular, plaintiff claims that defendant failed to disclose eight stock accounts, four bank accounts, and ten real estate properties that he owned in Taiwan prior to the parties' marriage (see Complaint, supra; see also Affidavit of Victoria Wong, NYSCEF Doc. No. 45). Plaintiff further claims that defendant secreted these assets to induce her to enter into the Settlement and accept less of a distribution, spousal maintenance, and counsel fees than she is entitled to based on the value of defendant's true assets (see Complaint, supra.)

Plaintiff has since acknowledged that defendant included at least one of the stock accounts in his Net Worth Statements (see Affidavit of Victoria Wong, supra.) She has also acknowledged that the real estate properties were owned by defendant prior to the marriage, (id..) Nevertheless, she insists that defendant was obligated to list them on his Net Worth Statements (id..)

The documentary evidence relied upon by defendant to support his motion to dismiss is largely his Net Worth Statements and the Settlement. Defendant references the provisions of his Net Worth Statements that list most of the stock accounts and bank accounts (see Net Worth Statements, NYSCEF Doc. Nos. 46-49; Affidavit of Ricky Wong, NYSCEF Doc. No. 79). Defendant also asserts that his parents used their own funds to open one of the stock accounts in his name, without his knowledge, and that he was not aware of the account when he submitted his Net Worth Statements (see Affidavit of Ricky Wong, supra.) Defendant offers the affidavit of his sister to corroborate this assertion (see Affidavit of Shao-Fan Yuan Wong, NYSCEF Doc. No. 81). Defendant further states that plaintiff agreed, in both the Settlement and the Taiwan action, that the ten real estate properties were his separate property (see Affidavit of Rick Wong, supra.)

Even construed in the most favorable light, the pleadings fail to allege facts to establish that plaintiff was induced to enter into the Settlement based on fraud perpetrated by defendant. "[N]ondisclosure is not the equivalent of fraud" (Dayton v Dayton, 175 AD2d 427, 428 [3d Dept 1991]). "[A] husband's failure or refusal to disclose his financial circumstances when the agreement is executed is not sufficient to void an agreement fair on its face" (id..)

In any event, a review of defendant's October 23, 2008 Net Worth Statement reveals many of the accounts that plaintiff claims were not disclosed (see NYSCEF Doc. No. 46). Furthermore, as to defendant's separate real estate properties in Taiwan, the Settlement expressly states that "[w]ife's separate property shall forever remain hers and Husband's separate property shall forever remain his, notwithstanding ... the discovery of assets that either party failed to disclose in these proceedings, including `many assets' that husband previously acknowledged" (Settlement, supra, Art. VIII, ¶2). Thus, the claim for fraud in the inducement is dismissed.

The claim for breach of fiduciary duty must also be dismissed. The pleadings in a cause of action for breach of fiduciary must allege facts to establish the existence of a fiduciary relationship and misconduct by defendant, resulting in damages (see Burry v Madison Park Owner LLC, 84 AD3d 699, 699-700 [1st Dept 2011]). Here, plaintiff essentially claims that defendant breached his fiduciary duty to her by falsely and fraudulently misrepresenting his assets in his Net Worth Statements.

It is the general policy of New York courts to encourage litigants to resolve their actions through privately contracted agreements rather than judicial intervention (see McCaughey v McCaughey, 205 AD2d 330, 331 [1st Dept 1994]). Nevertheless, there is strict surveillance of all transactions between married persons, especially separation agreements (see Christian v Christian, supra, at 72). Separation agreements entered between husband and wife are subject to heightened judicial scrutiny and are more readily set aside due to the fiduciary relationship that exists between spouses requiring the utmost good faith upon execution (id..) Despite the heightened scrutiny, however, it remains that absent a showing of fraud or overreaching, courts will generally not modify or set aside the terms of a separation agreement entered between spouses (see Matter of Galasso, 35 NY2d 319, 321 [1974]). In determining whether a separation agreement is invalid, courts may look at the terms of the agreement to see if there is an inference of overreaching in its execution (see Christian v Christian, supra, at 72). If the execution of the agreement is fair, no other inquiry will be made (id.).

As stated, nondisclosure of financial circumstances in matrimonial actions is not the equivalent of fraud (see Dayton v Dayton, supra.) Furthermore. a review of the submissions relating to the matrimonial action reveals nothing from which one can infer overreaching by defendant in the execution of the Settlement, and plaintiff does not allege any facts to support an inference of overreaching. In addition, plaintiff was represented by counsel during most of the negotiations of the Settlement and received the entire amount contemplated by the agreement. Thus, the cause of action for breach of fiduciary duty is also dismissed."