And here is the dissenting opinion
regarding prenuptial agreements in Gottlieb v Gottlieb, 2016 NY Slip Op
00613 [138 AD3d 30] (1st Dept. January 28, 2016):
"FEINMAN, J. (dissenting)
Resolution of this appeal and cross appeal requires us first to
determine whether it is appropriate to decide this dispute on summary
judgment, and second to clarify the difference between the defenses of
"unconscionability" and "manifest unfairness." In this proceeding, each
party to this marriage moved for partial summary judgment: plaintiff
argued that the prenuptial agreement in question should be enforced as
written; defendant argued that the agreement should be declared
unenforceable because, among other reasons, it was the product of
overreaching and is "manifestly unfair."
In the order appealed from, the motion court dismissed defendant's
first and third counterclaims, which challenged the agreement as a whole
and the property distribution provisions in particular, because it
found "no dispute over material facts." However, the motion court
ordered a trial on the second counterclaim, which challenged the
maintenance waiver, on the ground that "not enough facts [had been]
presented" to grant either party summary judgment. All three
counterclaims, however, turn on the same set of facts, and in order to
resolve these three counterclaims in a coherent manner, this Court must
first determine whether any material issues of fact are in dispute.
I agree with the majority that all three counterclaims need to be
decided on the same facts, but I disagree with its assessment that there
are no triable issues at all. While it is certainly possible to cast
defendant as impetuous and the negotiations as sober and deliberate, as
the majority does, there is a sufficiently compelling alternative
reading of the record to warrant a trial on the circumstances
surrounding the formation of the prenuptial agreement and whether its
enforcement is permissible. By summarily deciding this dispute based on
the extant record, there is no real opportunity to evaluate whether any
overreaching occurred during the negotiations. The negotiations
contained several instances of highly questionable conduct on the part
of plaintiff, and given the duty to negotiate marital agreements with
the "utmost of good faith" (Christian v Christian, 42 NY2d 63, 72
[1977]), we should not be so quick to excuse such conduct as simply
"callous." In addition to plaintiff's conduct during the negotiations,
the agreement also contains many troubling terms. On the surface, the
agreement provides defendant with a handsome settlement estimated at
$1.6 million, plus other benefits. However, the amount of the settlement
is only part of the story, and a review of the agreement reveals
numerous difficulties that could well support a finding of overreaching
and manifest unfairness.
As a threshold matter, we must first resolve whether any overreaching
has occurred in the execution of this agreement, and if so, whether the
agreement is manifestly unfair as a result. The record does not offer a
plain and clear answer to this question, or to whether the maintenance
waiver is enforceable, and this case should not be disposed of
summarily. Accordingly, I would [*22]deny summary judgment and remand
the matter for trial so that the court may evaluate the credibility of
the parties and decide all three counterclaims consistently and
coherently on a more fully developed record.
The Parties
Plaintiff, now 44, is the founder, Chief Investment Officer, and
majority shareholder of a biotechnology hedge fund, Visium Asset
Management, with an estimated $3.8 billion of funds under management. He
graduated from Brown University with a B.A. in economics and earned a
medical degree from New York University. After completing an internship
in internal medicine, he pursued a career in finance and worked at three
investment firms before founding his hedge fund in 2005. At the time he
filed for divorce in 2011, plaintiff earned $54 million in income, and
he reported a net worth of $188 million in 2013.
Defendant, now 37, is the full-time caregiver of the parties' two
young children, one of whom has special needs. She has been out of the
workforce since 2007. She received a B.A. in economics from the
University of Pennsylvania and worked at an internet marketing company
for one year and then as an analyst at a financial services firm for two
years. She later obtained a real estate license, earning commissions on
a handful of transactions, and then pursued a teaching certificate in
yoga. Defendant is generally in good health but has an autoimmune
disorder and suffers from anxiety, depression, and attention deficit
disorder. In 2013, defendant earned no income and reported a net worth
of $1.5 million.
Background
In September 2003, the parties were introduced at defendant's 25th
birthday party and started dating in December of that year. They soon
began living together, and after a brief hiatus, they resumed their
relationship in November 2004 with the intention of marrying. As
discussions of marriage ensued, plaintiff indicated he would not marry
without a prenuptial agreement. Defendant did not object, and the
parties began discussing the parameters of an agreement based on
preliminary terms proposed by plaintiff. The parties later became
engaged in September 2005 but did so without an agreement.
One month after the engagement, defendant learned she was pregnant
with the parties' first child and told plaintiff she did not want to
have children until the parties were married. In response, plaintiff
assured defendant that it would not be necessary to terminate the
pregnancy because "there was no question" the parties were going to
marry, and sign an agreement, by the time the baby was born.
However, after learning that defendant was pregnant, plaintiff
modified his proposal and made defendant a new, and lower, offer. After
some discussion, defendant accepted. But this reduction by plaintiff was
only the first of many more reductions to come, and each time defendant
accepted a new lower offer, plaintiff would lower his offer again and
ask defendant to agree to his latest terms. As this pattern repeated
itself and the baby's delivery date neared, defendant suggested that the
parties separately retain counsel and arranged for the parties to
jointly see a licensed clinical social worker. The counseling, however,
did not help and the negotiations continued to stall following delays
caused by plaintiff and his attorney. Then, when defendant was in the
third trimester of the pregnancy, plaintiff unexpectedly announced he
would [*23]not sign any agreement until after the baby was born, despite
his earlier promise to defendant. As a result, the parties did not
marry in time, and their first child was born in May 2006.
Several months after the birth of the first child, defendant asked
plaintiff to revisit the agreement so that the parties could finally
marry. Their discussions resumed, and plaintiff continued to reduce his
obligations under the agreement, presenting lower and lower offers to
defendant, each less favorable than the last. As the months passed,
defendant learned she was pregnant with a second child, despite her use
of birth control. Once again, defendant told plaintiff she did not want
any more children until the parties married. This time, plaintiff
strongly opposed the suggestion of an abortion and threatened to end
their relationship. Plaintiff then presented defendant with yet another
offer - his 12th - with even less favorable terms. Throughout these
discussions, defendant never made a full financial disclosure or
produced financial statements indicating his income. As the second
pregnancy progressed and the negotiations wore on, defendant instructed
her attorney to finalize an agreement in order to end "the nightmare,"
in spite of her attorney's advice. Within three weeks of learning that
defendant was pregnant with a second child, the parties finally executed
an agreement and were married a week later at the Office of the City
Clerk in May 2007.
The Agreement
The terms of the agreement are described in detail by the majority,
and on the surface, the provisions hardly seem unfair or problematic.
For example, defendant receives, in the event of divorce, a distributive
award of $300,000 for every year of marriage, $150,000 in "spousal
support" for every year a child of the parties is under the age of four
at the time of divorce, the use of an apartment for as long as a minor
child of the parties lives with defendant, and health insurance until
the children of the parties are emancipated. However, beneath the
surface are many questionable provisions which should be examined at
trial.
First, the agreement contains a number of sweeping waivers. Under the
agreement, defendant waived her right to spousal maintenance, equitable
distribution, counsel fees, interim counsel fees, a distributive award,
any pension and retirement benefits, and the right to contest the
agreement. The extent of these waivers cannot be overstated. Moreover,
the waivers do not even seem to comport with the reality of the party's
relationship. Such waivers, especially the waiver to spousal
maintenance, "essentially declare[] that [defendant did not need support
in case of divorce and would not be] economically disadvantaged by the
years of marriage" (Robert Leckey, Contextual Subjects: Family, State,
and Relational Theory at 118 [2007]). Here, the parties do not dispute
that plaintiff was to be the sole source of family income while
defendant raised the children full-time and managed the family's
household affairs. In fact, plaintiff actively discouraged defendant
from pursuing a career outside the home, going so far as to call her
real estate career "a joke" and mocking that he could earn far more in
one day than she could in one year. With defendant as the stay-at-home
parent and full-time caregiver of the children, it simply cannot be
taken at face value that defendant would not be in need of support in
case of divorce and would not be economically disadvantaged by the years
of marriage. These waivers are difficult to reconcile with the
respective roles of the parties during their relationship, and in light
of plaintiff's conduct during the negotiations, there are legitimate
concerns that the waivers [*24]were procured by overreaching and are
manifestly unfair.
Second, the agreement contains an expansive definition of separate
property that applies to nearly all property acquired by the parties
during their marriage, including income. Even assets that are commingled
and pooled during the marriage are to be treated as separate property
based on the amount deposited or invested by the party. Moreover, any
contribution by a spouse that increases the value of the other's
separate property is to be considered a "gift." The agreement also
expressly designates the matrimonial home, which plaintiff purchased in
his own name for $9.7 million, after the parties had married, as his
separate property. While this expansive separate property provision
suggests that the parties were self-supporting and would lead
financially independent lives, this was never the case, and the
agreement fully excludes defendant, the stay-at-home spouse, from
sharing in any income earned by plaintiff during the marriage. It is
therefore difficult to make sense of the fact that the agreement treats
income, which only plaintiff earned, as separate property in light of
the distinct family responsibilities assumed by the parties. As for the
treatment of non-income property, such as the matrimonial home, the
agreement similarly suggests that defendant would not contribute to
increasing the value of plaintiff's assets. But here too, the conduct of
the parties is entirely at odds with this provision's apparent
intention. After plaintiff acquired two adjacent apartment units for
$9.7 million, defendant spent more than one year overseeing the
combination and renovation of the units. The newly combined units, which
became the matrimonial home of the parties, now has an estimated value
of $30 million. In spite of defendant's efforts, the agreement leaves
her without any property interest in the matrimonial home, let alone to
an increase in value equivalent to her contribution, all of which raises
doubts as to whether the agreement actually reflects the intentions of
the parties at the time of execution.
Third, a significant, and troubling, condition attaches to the
housing provision. As the majority notes, defendant is eligible for
"rent-free, expense-free luxury housing." However, this entitlement is
conditioned on any minor children of the parties residing with
defendant. Otherwise, defendant loses the housing benefit and is given
30 days to vacate the apartment. As much as defendant may want the
children to reside with her, this provision does not give her a choice
in the matter, unless she is willing to give up the housing. This is no
real choice, and it would come at a great cost to defendant if, at a
later date, she ever wanted to change roles with plaintiff and have the
children live with him. As a result of this requirement, defendant will
also have less time to devote to her career than plaintiff will have to
his. Ultimately, even though defendant benefits from the housing
provision (for as long as the children live with her), it is the
children of the marriage who are the primary beneficiaries, not
defendant.
Fourth, and similar to the housing provision, the payment of what the
agreement refers to as "spousal support" is conditional on there being
children of the parties under the age of four at the time of divorce.
The agreement does not provide any spousal support that is not
contingent on the parties having children under a certain age. Since
plaintiff filed for divorce eight months after the parties' youngest
child turned four, defendant receives no "spousal support" under the
agreement. This provision is far less generous than it appears, and in
view of the other terms of the agreement and the manner in which it was
negotiated, further scrutiny is warranted.
Finally, even when dealing with a distributive award amounting to
$300,000 per year of marriage, context is everything. It is important to
remember that the purpose of a distributive award is to facilitate the
distribution or division of property between divorcing parties. It
should not be seen or considered as a form of income or support (see
Domestic Relations Law § 236[B][1][b] ["Distributive awards shall not
include payments which are treated as ordinary income to the recipient
under the provisions of the United States Internal Revenue Code"]; see
also Holterman v Holterman, 3 NY3d 1, 11 [2004]). Here, the distributive
award was accorded in lieu of equitable distribution, which defendant
was required to waive. As mentioned earlier, plaintiff reported a net
worth of $188 million in 2013, and even if the distributive award totals
$1.6 million after four years of marriage, it is a mere fraction of
plaintiff's property. At this stage of the proceeding, we do not need to
decide whether equity must intervene, but an imbalance of this
magnitude must not be treated lightly, and a trial should determine
whether there was any overreaching in the formation of this agreement
that led to manifestly unfair terms.
In isolation, no one issue necessarily invalidates the agreement.
Prenuptial agreements often include various waivers, custom definitions
of separate and marital property, and arrangements tailored to the
particular circumstances and needs of the parties. In this instance,
however, because it is certainly possible to draw an inference of
overreaching that resulted in manifestly unfair terms based on the
totality of the circumstances, defendant's counterclaims should not be
dismissed at this stage.
Proceedings in the Motion Court
The proceedings in the motion court are summarized by the majority.
It must be highlighted, however, that the parties presented starkly
different versions of the negotiations in their motion papers.
On the one hand, plaintiff argued that the parties participated in a
fair and thorough process which resulted in a generous agreement. He
emphasized that the parties had negotiated for well over a year, were
each assisted by experienced and independent counsel, had been advised
of their rights, fully understood the agreement, executed it
voluntarily, and acknowledged in the agreement that the terms were fair
and reasonable.
Defendant, on the other hand, described the process as deeply flawed.
She alleged that plaintiff substantially changed the bargaining
position of the parties, that he put her in the unwanted, precarious
position of negotiating as an unmarried mother, and that she relied on
plaintiff's assurances in deciding to continue the first pregnancy. She
also argued that plaintiff took advantage of her diminished emotional
and physical state during both pregnancies, as she was not taking
certain medications, and that the negotiations were tainted by
plaintiff's "bait and switch" offers, numerous insults and threats, and
failure to make a full financial disclosure.
As previously mentioned, the motion court dismissed defendant's first
and third counterclaims, but not the second counterclaim challenging
the maintenance waiver. On this issue, the motion court decided it would
"require evidence and testimony to determine whether the waiver of
maintenance was fair and reasonable at the time of execution, when
[defendant] was expecting the parties' second child, and/or is
unconscionable now. Therefore, this issue can be addressed at trial." In
addition, the court awarded defendant $50,000 in interim counsel fees
[*25]to defend against plaintiff's motion for exclusive possession of
the matrimonial home, and allowed defendant to affirmatively move for
exclusive possession of the matrimonial home and for temporary child
support.
Arguments on Appeal
Plaintiff appeals to the extent the motion court granted a hearing on
the maintenance waiver, awarded interim counsel fees, and denied his
motion to dismiss defendant's second counterclaim, and primarily argues
that there are no grounds to invalidate any part of the agreement given
the waivers it contains.
Defendant cross-appeals to the extent the motion court dismissed her
first and third counterclaims seeking to invalidate the prenuptial
agreement. In particular, she argues the motion court misapprehended the
equitable standard under which she seeks to invalidate the agreement,
namely, manifest unfairness, and failed to shift the burden of proving
the validity of the agreement onto plaintiff. Defendant also raises
arguments related to a fourth counterclaim concerning the purchase price
of the apartment in which defendant would reside with the children in
case of divorce; however, because defendant disclaimed that her motion
is based on fraud and expressly withdrew the fourth counterclaim below, I
agree with the majority that these arguments are not properly before
us.
Analysis
The majority concludes that there are no substantial issues of fact
and resolves this appeal on summary judgment. It finds that defendant
has not shown that the agreement is manifestly unfair or that plaintiff
engaged in overreaching during the negotiations, and that the
maintenance waiver was "fair and reasonable at the time of the making of
the agreement" and would "not [be] unconscionable at the time of entry
of final judgment" (Domestic Relations Law § 236[B][3][3]).
The extant record does not permit any such determination. As already
discussed, there is significant controversy concerning the formation of
the agreement, and indeed, the motion court ordered a trial on this
issue in connection with the second counterclaim. No factfinder has yet
evaluated the credibility of either party's version of the facts
surrounding the making of the agreement, and it may well be that a
factfinder would find that there was overreaching in the formation of a
manifestly unfair agreement or that the maintenance waiver is not
enforceable.
As the majority resolves this appeal on summary judgment, its
decision reaches the merits. Throughout its analysis, the majority
asserts that "manifest unfairness" is distinct from the defense of
unconscionability. I fully agree with those assertions, but the
difference between these defenses is not readily discernable from the
majority's application of "manifest unfairness" to this case. The
distinction is relevant in this appeal because defendant expressly does
not challenge the agreement on the basis of unconscionability, but
rather contends that it is manifestly unfair to her as a result of
plaintiff's overreaching. This issue has broad implications and deserves
further discussion.
The meaning and significance of the manifest unfairness defense has
been the subject of long-standing commentary among members of the bar.
Manifest unfairness and unconscionability are terms that are sometimes
used interchangeably (see e.g. Luftig v Luftig, 239 AD2d 225, 227 [1st
Dept 1997] ["the agreement was not unconscionable. . . [Its] terms are
not [*26]so manifestly unfair that equity must intervene to prevent an
injustice"], citing Christian v Christian, 42 NY2d at 71), and the
resulting ambiguity has left some wondering if manifest unfairness is
simply "legal literature" that is "repeated in deference but without
consequence" (Elliot Scheinberg, Contract Doctrine and Marital
Agreements in New York § 24.2[1] at 799 [2011]), and others observing
that "it seems difficult to distinguish between an agreement that is
unconscionable' and an agreement which is plainly inequitable'" (Alan
D. Scheinkman, 9PT2 West's McKinney's Forms Matrimonial and Family Law §
4:8 at 41), "inequity" being a term Christian employs alongside
manifest unfairness (see e.g. Christian at 72 [in reference to
agreements "subsisting in inequity"] and id. at 72 and 73 [in reference
to "inequitable conduct" of the parties]) that has also been applied in
subsequent decisions of this and other courts (see e.g. Cron v Cron, 8
AD3d 186, 187 [1st Dept 2004], lv dismissed 7 NY3d 864 [2006], lv denied
10 NY3d 703 [2008] ["the agreement's housing provisions ... are plainly
inequitable"]).
Arguably, it may be time to abandon the pretense that a distinction
exists at all between unconscionability on the one hand and manifest
unfairness (or "inequity") on the other. However, I would not favor
moving in that direction as the distinction is not a matter of mere
semantics. What is fundamentally at issue is whether there is a distinct
standard of vacatur that uniquely applies to marital agreements
(Scheinberg § 24.2), and rather than allow this equitable defense, which
we refer to as "manifest unfairness," to be subsumed into the general
defense of unconscionability, it is critical that the distinction be
clarified and not permitted to vanish. Manifest unfairness serves an
important and useful purpose in the matrimonial context, in which
"[a]greements between spouses, unlike ordinary business contracts,
involve a fiduciary relationship requiring the utmost of good faith"
(Christian at 72). It ensures that married and affianced parties
participate in a fair process, and it provides relief when agreements
are "manifestly unfair to a spouse because of the other's overreaching"
(id.).
The difference between unconscionability and manifest unfairness was
carefully examined by the Court of Appeals in Christian, an appeal which
concerned a separation agreement between two parties whose marriage had
broken down. At the time, parties in New York could not divorce under
then § 170(6) of the Domestic Relations Law without a valid separation
agreement. Although both parties in Christian wanted to divorce and
needed their separation agreement to be recognized as valid to do so,
the plaintiff still challenged a portion of the agreement "which
stipulated that there be an equal division of certain securities"
(Christian at 66). Supreme Court declared that the agreement was invalid
in its entirety, finding the defendant husband guilty of fraud and
overreaching, and in the absence of a valid agreement, the court
reasoned it could not grant a divorce and ordered the parties to resume
their marital relationship. The Appellate Division reversed and granted a
divorce, finding no evidence of fraud or overreaching in the record to
invalidate the agreement, but declared that the impugned property
provision was "so unconscionable as to be unenforceable" (id. at 71).
Although the Court of Appeals expressed similar concerns, it reversed
the determination of unconscionability by the Appellate Division and
remanded the matter to Supreme Court for a full trial on the property
provision in accordance with the equitable standard established by the
Court, namely, "manifest unfairness."
In its discussion, the Court noted that the term unconscionability
does not actually appear in the case cited by the Appellate Division for
that proposition (id.; see also Riemer v Riemer, 48 Misc 2d 873 [Sup
Ct, Kings County 1965], affd 25 AD2d 956 [2d Dept 1966], lv dismissed 17
NY2d 915 [1966]). As a result, the Court defined unconscionability in
these terms:
"over the years, an unconscionable bargain has been regarded as one
such as no [person] in his [or her] senses and not under delusion would
make on the one hand, and as no honest and fair [person] would accept on
the other' (Hume v United States, 132 US 406, 411), the inequality
being so strong and manifest as to shock the conscience and confound
the judgment of any [person] of common sense' (Mandel v Liebman, 303 NY
88, 94). Unconscionable conduct is something of which equity takes
cognizance, when warranted (see Weirfield Holding Corp. v Pless &
Seeman, 257 NY 536; Graf v Hope Bldg. Corp., 254 NY 1, 4; Howard v
Howard, 122 Vt 27; 27 Am Jur 2d, Equity,§ 24, pp 549-550; cf. 2
Pomeroy's Equity Jurisprudence [4th ed], § 873, p 1804)"
(Christian at 71).
It is worth noting that nearly all the cases cited by the Court in
its review of unconscionability concern commercial transactions (see
e.g. Hume v United States, 132 US 406 [1889] [reasonableness of
government contractor costs]; Mandel v Liebman, 303 NY 88 [1951]
[compensation agreements between agents and principals]; Weirfield
Holding Corp. v Pless & Seeman Inc., 257 NY 536 [1931]
[unconscionable conduct in mortgage foreclosure proceedings]; see also
Graf v Hope Bldg. Corp., 254 NY 1 [1930]; Howard v Howard, 122 Vt 27,
163 A2d 861 [1960] [Vermont action to rescind a settlement agreement in a
filiation proceeding]).
The Court then turned to the marital context and discussed separation
agreements. The Court observed that "[g]enerally, separation agreements
which are regular on their face are binding on the parties," that
"[j]udicial review is to be exercised circumspectly," and that where
there has been full disclosure and "an absence of inequitable conduct,
... courts should not intrude so as to redesign the bargain" (Christian
at 71, 72). The inquiry, however, does not end there, and the Court
outlined a set of equitable principles that also apply in the course of
reviewing transactions between spouses. As the Court acknowledged on
more than one occasion, conjugal parties are not commercial actors:
"Agreements between spouses, unlike ordinary business contracts, involve
a fiduciary relationship requiring the utmost of good faith" (Christian
at 72, citing Ducas v Guggenheimer, 90 Misc 191 [Sup Ct, NY County
1915], affd sub nom. Ducas v Ducas, 173 App Div 884 [1st Dept 1916]). As
a result, "[t]here is a strict surveillance of all transactions between
married persons, especially separation agreements," and such agreements
may be set aside under principles of equity (Christian at 72). It noted
that "[e]quity is so zealous in this respect that a separation
agreement may be set aside on grounds that would [*27]be insufficient to
vitiate an ordinary contract" (Christian at 72). The Court summarized
these principles in these terms:
"[t]hese principles in mind, courts have thrown their cloak of
protection about separation agreements and made it their business, when
confronted, to see to it that they are arrived at fairly and equitably,
in a manner so as to be free from the taint of fraud and duress, and to
set aside or refuse to enforce those born of and subsisting in inequity"
(Christian at 72).
Having considered the equitable principles relevant to the marital
context, the Court then established manifest unfairness as a defense to
the enforcement of separation agreements:
"To 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. In determining whether a
separation agreement is invalid, 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. If the execution of the agreement,
however, be fair, no further inquiry will be made" (internal citations
omitted)
(Christian at 73).
In contrast to unconscionability, manifest unfairness is rooted in a
long line of matrimonial cases which are cited by the Court (Hendricks v
Isaacs, 117 NY 411 [1889] [equity may intervene in transactions between
married parties]; Benesch v Benesch, 106 Misc 395, 402 [NY Mun Ct 1918]
["there is a distinction to be drawn between contracts of separation
between husband and wife and strictly business contracts. The same
strict principles or the same considerations that are applied to or
govern the duties of parties to business contracts cannot always govern
or be applied to the enforcement of every provision of a separation
agreement"]; Hungerford v Hungerford, 161 NY 550, 553 [1900] [contracts
between spouses must be "just and fair" and equity intervenes as
required]; Cain v Cain, 188 App Div 780 [4th Dept 1919] [spousal support
agreement may be set aside upon grounds otherwise insufficient to set
aside an ordinary contract]; Scheinberg v Scheinberg, 249 NY 277, 282
[1928] [settlement agreement between divorcing spouses unenforceable at
equity if one party "acts unfairly and the other yields to the pressure
of circumstances"]; Matter of Smith, 243 App Div 348, 353 [4th Dept
1935] [agreements between divorcing spouses must be "fair and
equitable"]; Ducas v Guggenheimer, 90 Misc at 194 ["[courts] have thrown
around separation agreements the cloak of their protection to the end
that they shall be free from the taint of fraud or duress and that they
shall be fair, equitable, and adequate, considering the husband's
circumstances"]; Montgomery v Montgomery, 170 NYS 867, 869 [Sup Ct, NY
County 1918] ["contracts between husband and wife are only upheld [in
equity] where they are fair and equitable"], affd 187 App Div 882 [1st
Dept 1919] and [*28]affd 188 App Div 965 [1st Dept 1919]).
It is clear that Christian intended to distinguish manifest
unfairness and to establish a standard that is appropriate for reviewing
marital agreements. Indeed, many decisions of this Court follow
Christian in this regard (see e.g. Goldman v Goldman, 118 AD2d 498, 500
[1st Dept 1986] ["In Christian, the Court of Appeals held that
separation and property settlement agreements are reviewable in equity
and may be set aside if manifestly unfair to a spouse because of the
other's overreaching'"]; see also Cron v Cron, 8 AD3d at 187 [1st Dept
2004] [finding that while a prenuptial was not unconscionable, other
provisions were invalid as "plainly inequitable"]). Nevertheless, other
decisions simply rely on Christian for the principle of
unconscionability and do not apply the manifest unfairness standard or
the equitable principles established therein (see e.g. Rowley v Amrhein,
46 AD3d 489, 489 [1st Dept 2007] ["Plaintiff contends that even if the
agreement is valid, it is unconscionable. However, nothing in the
agreement shocks the conscience"], citing Christian at 71; Kojovic v
Goldman, 35 AD3d 65, 69 [1st Dept 2006], lv denied 8 NY3d 804 [2007]
["the concept of unconscionability is reserved for the type of agreement
so one-sided that it shock[s] the conscience' such that no [person]
in his [or her] senses and not under delusion would make [it] on the one
hand, and ... no honest and fair [person] would accept [it] on the
other'"], quoting Christian at 71; Smith v Walsh-Smith, 66 AD3d 534, 534
[1st Dept 2009], lv denied 14 NY3d 704 [2010] ["We reject defendant's
contention that the prenuptial agreement is unconscionable ... [W]e
cannot say that the agreement is so unfair as to shock the conscience
and confound the judgment of any [person] of common sense'"], quoting
Christian at 71; Leighton v Leighton, 46 AD3d 264, 267 [1st Dept 2007,
Nardelli J., concurring in part, dissenting in part], appeal dismissed
10 NY3d 739 [2008] ["the 1986 prenuptial agreement is manifestly not
unconscionable, for it cannot be said that it was so unfair as to shock
the conscience"], citing Lounsbury v Lounsbury, 300 AD2d 812, 814 [3d
Dept 2002]). In some ways, Christian is the buffet option of matrimonial
cases. There is something for everyone — many cases cite Christian for
the principle of judicial restraint; many others invoke it for the
principle of judicial review (compare Golding v Golding, 176 AD2d 20, 22
[1st Dept 1992] with Kojovic v Goldman, 35 AD3d at 71). However,
Christian should not be reduced to mean all things to all people, and
this appeal highlights the need to review and revisit the meaning and
application of "manifest unfairness."
"Manifest unfairness" involves a two-pronged inquiry into the
execution and substance of the agreement. First, the contestant must
show that the other party overreached in the execution of the agreement.
Christian did not define overreaching but referred to two cases. The
first, Matter of Baruch (205 Misc 1122, 1124 [Sur Ct, Suffolk County
1954], affd 286 App Div 869 [2d Dept 1955]), a dispute over a prenuptial
agreement, defined overreaching in these terms: "we come to the charge
of overreaching, which means to overdo matters, or get the better of one
in a transaction by cunning, cheating, or sharp practice." The other,
Pegram v Pegram (310 Ky 86, 90, 219 SW2d 772, 774 [1949]), noted that
"the court will not suffer the wife to be over-reached. It will not
sustain a contract that is unfair or prejudicial to her when obtained
while she is under her husband's domination." Christian also asserted
that overreaching does not require a showing of fraud, and that courts
may look at the terms of the agreement to draw an inference or a
[*29]negative inference of overreaching in the execution.
This first prong is essentially a procedural inquiry and encompasses
the entire duration of the negotiations; it is not limited to the period
immediately preceding the conclusion of the agreement. Overreaching may
be viewed in terms of bargaining abuses, such as "shrewd manipulations"
(Ducas, 90 Misc at 199), as well as threats, intimidation, unfair
surprises, exploitation of trust, and deceit (see Robert S. Adler &
Elliot M. Silverstein, When David Meets Goliath: Dealing with Power
Differentials in Negotiations, 5 Harv Negot L Rev 1, 29 [2000]).
Moreover, overreaching may include tactics which, though permissible in
the commercial arena, do not belong in negotiations between parties who
owe fiduciary duties to each other (see e.g. Ducas, 90 Misc at 196,
cited by Christian at 72 ["The courts should require the contract to be
the free act of the parties rather than the product of shrewd bargaining
by astute intermediaries, however free these bargainings may be from
the taint of fraud or duress"]). Compared to unconscionability, manifest
unfairness subjects the negotiating process between conjugal parties to
a higher degree of scrutiny and does not sanction unscrupulous methods.
If the first step shows an absence of overreaching, the inquiry ends
and enforcement cannot be avoided under this defense. However, if the
contestant establishes overreaching, the inquiry proceeds to the second
step in which the contestant must then show that the agreement is
manifestly unfair.
What, then, is manifestly unfair in the context of marital
agreements? On this point, Christian does not provide all the answers.
As a general principle, the fairness of an agreement ought to correspond
to the intention of the parties as expressed in an agreement. The
function of contract is to "structure a relationship and channel
parties' expectations forward in time" (Leckey at 117), and ordinarily,
the intention of the parties is found in the four corners of an
agreement (Laurence v Rosen, 228 AD2d 373, 374 [1st Dept 1996]; see also
Van Kipnis v Van Kipnis, 11 NY3d 573, 577 [2008] ["As with all
contracts, prenuptial agreements are construed in accord with the
parties' intent, which is generally gleaned from what is expressed in
their writing"]). However, where there has been overreaching, an
agreement may not reliably reflect the intentions of the parties, making
it more difficult to evaluate whether the parties considered their
agreement to be fair.
In the absence of a reliable writing to indicate the intention of the
parties, the common law has developed alternatives for determining the
fairness of an agreement. In the cases cited by Christian, one method of
measuring the fairness of an agreement is the "test of adequacy." For
instance, in Ducas, "[t]he test of adequacy is not what constitutes the
minimum upon which a person can live. The question is whether the sum is
in itself a reasonable one and will permit of a standard of living
commensurate with the husband's income and the mode adopted by him when
the parties lived together" (90 Misc at 200). Under this approach,
fairness is measured against the marital standard of living and is based
on the financial means of the overreaching party. Another approach,
followed by the Second Department, determines fairness according to the
nature and magnitude of any rights waived in light of the disparity in
net worth and earnings of the parties (Petracca v Petracca, 101 AD3d
695, 698 [2d Dept 2012]). These methods of determining the fairness of a
prenuptial agreement can be helpful; however a better approach
[*30]would be one that also considers how well the terms of an agreement
align with the conduct of the parties over the course of their
relationship as a means of determining what the parties themselves
consider to be fair. Terms that may appear to be objectively unfair may
nevertheless be considered fair to the parties of an agreement,
especially by parties who do not wish to have an economically
interdependent relationship. For example, a prenuptial agreement that
waives maintenance, narrowly defines marital property, and discourages
the commingling of assets would suggest that the parties do not intend
to have a relationship of economic interdependence, and if the conduct
of the parties is generally consistent with the terms of an agreement,
this would support that an agreement is fair to them. But where the
expressed terms of an agreement are so divorced from the reality of a
party's relationship, such as where there is a severe disconnect between
the degree of economic interdependence expressed by the terms of an
agreement compared to the conduct of the parties, as may be the case
here, it is appropriate for equity to intervene to the extent a party's
overreaching has caused the inconsistency. Indeed, in Van Kipnis, the
Court of Appeals similarly considered whether the terms of a prenuptial
agreement were consistent with the conduct of the parties during their
marriage and upheld the prenuptial agreement because they were
consistent [FN2]. Contrary to what the concurrence asserts, I am not
suggesting that the marital standard of living or the concept of
adequacy be the sole criteria for evaluating the fairness of marital
agreements.
This review of Christian highlights the distinction between manifest
unfairness and unconscionability and seeks to clarify certain
ambiguities. However, while agreeing that manifest unfairness is the
appropriate standard, the majority, by adopting a much more deferential
approach, seems to apply an unconscionability standard instead, which in
my view is not correct. But notwithstanding this disagreement, there is
no dispute between the majority and the dissent concerning the
applicability of Christian's manifest unfairness standard to prenuptial
agreements.
My concurring colleague, on the other hand, comes to the novel
conclusion, on the basis of "expressio unius est exclusio alterius," and
a series of doubtful inferences, that the Equitable Distribution Law
essentially superseded the manifest unfairness standard in Christian by
"explicitly and implicitly provid[ing] standards by which to determine
the enforceability of the various components of prenuptial agreements."
There is simply no support for this premise. The interplay between the
standards contained in Christian and the Equitable Distribution Law has
already been considered by this Court in the past, and in cases where
the statutory standard did [*31]not apply, the Christian standard of
manifest unfairness has been applied instead (see e.g. Goldman v
Goldman, 118 AD2d at 500 ["Although the statutory standard in Domestic
Relations Law § 236(B)(3) is inapplicable here, traditional common-law
standards do apply to test the validity and enforceability of the
agreement. In Christian, the Court of Appeals held that separation and
property settlement agreements are reviewable in equity and may be set
aside if manifestly unfair to a spouse because of the other's
overreaching'. . . In our view, it is appropriate to take into account
these common-law equitable factors, notwithstanding the inapplicability
here of the broader fair and reasonable [when made] and not
unconscionable at final judgment' statutory standard" (internal
citations omitted)], citing Christian). The concurrence contends that
the reliance on Goldman is misplaced because it was an action to set
aside a "reconciliation agreement" to which Domestic Relations Law §
236(B)(3) allegedly does not apply. However, this is incorrect. In
Goldman, it was not the type of agreement that made the Domestic
Relations Law inapplicable. Rather, it was the type of action that
precluded the application of the statute, and since the action brought
in Goldman was not a "matrimonial action" as defined by the statute, it
was not subject to Domestic Relations Law § 236(B)(3)[FN3]. Either way,
it is well settled that to the extent the Domestic Relations Law does
not apply to particular provisions of a marital agreement, the
traditional common-law standard established in Christian applies
instead. Not only is the view of the concurrence not the law, but it
also does not follow that the establishment of a statutory standard for
certain provisions voids the common-law standard applicable to all other
provisions. The Equitable Distribution Law has never been read as
superseding Christian, and I see no reason to start reading it that way
now.
The concurrence also claims that there is "scant support" for
extending Christian, which concerned a separation agreement, to
prenuptial agreements, and that the cases that apply Christian "most
often" involve separation agreements. There is simply no support for
this generalization. Basic research on any legal database clearly shows
that for nearly 40 years, Christian has been consistently applied to
prenuptial agreements and separation agreements alike by courts at every
level, including the Court of Appeals. Indeed, the Court of Appeals has
just recently cited Christian in a probate action in which a petitioner
contested a prenuptial agreement (see Matter of Fizzinoglia, 26 NY3d
1031 [2015]). Nevertheless, the concurrence still concludes that
Christian does not apply to prenuptial agreements or to affianced
parties, notwithstanding the overwhelming case law to the contrary.
I agree with the concurrence to the extent it asserts that "when
considering property distribution provisions of prenuptial agreements,
we must look to the common-law standards." However, I simply do not
agree with the common-law standards my colleague applies or the
authorities on which he relies. Even though courts at every level have
applied the equitable principles established in Christian to premarital
and separation agreements for nearly 40 years, the concurrence reaches
the conclusion that "it is not appropriate to look to Christian for the
current standard for judging the enforceability of prenuptial
agreements[]" and that "the use of Christian's standards for judging
property provisions is incorrect." Instead, the concurrence would apply
the standards applicable for setting aside "any type of contract." To do
so would be incompatible with Christian and 40 years of matrimonial law
and would abandon the power of the court to do equity when required.
And rather than apply matrimonial standards to matrimonial disputes, the
concurrence applies commercial standards to matrimonial disputes. For
example, my colleague relies extensively on classic contract law
treatises such as Williston on Contracts, Farnsworth on Contracts, and
Corbin on Contracts and virtually ignores the authorities in the field
of matrimonial law. My colleague also relies extensively on commercial
cases such as Gillman v Chase Manhattan Bank, 73 NY2d 1, 10 [1988] in
support of the unconscionability standard he advances. However, Gillman
involved a dispute between Chase Manhattan Bank, N.A. and the creditors
of the Jamaica Tobacco and Sales Corp. over a security agreement. This
case could not be more removed from the matrimonial context.
Nevertheless, the concurrence quotes certain passages from Gillman in
which the Court addresses the issue of unconscionability. What the
concurrence fails to ever mention is that Gillman involved the
application of the Uniform Commercial Code, and the passage quoted by
the concurrence concerns § 2-302 of the Uniform Commercial Code,
"Unconscionable Contract or Clause." Never before has the Uniform
Commercial Code been applied to the matrimonial context. And while the
concurrence strongly opposes applying Christian, and four decades of
matrimonial case law, to this case because the former concerns a
separation agreement and the latter a prenuptial agreement, it is
seemingly undisturbed by importing the Uniform Commercial Code and
applying Gillman, a commercial dispute over a security agreement, to a
prenuptial agreement.
Indeed, there is little support for the views expressed by the
concurrence among the departments of the Appellate Division. Most
notably, Cioffi-Petrakis, a leading decision of the Second Department
that my colleague does not cite, expressly held that "agreements
addressing matrimonial issues have been subjected to limitations and
scrutiny beyond that afforded contracts in general" (Cioffi-Petrakis v
Petrakis, 103 AD3d 766, 767 [2d Dept 2013], lv denied 21 NY3d 860 [2013]
[emphasis added] [internal quotation marks omitted]). It describes the
heightened scrutiny applicable to marital agreements in these terms: "an
agreement between spouses or prospective spouses may be invalidated if
the party challenging the agreement demonstrates that it was the product
of fraud, duress, or other inequitable conduct" (Cioffi-Petrakis at 767
[emphasis added], citing Christian at 73).
At this stage of the proceedings, it is premature to make any
findings of fact as to whether plaintiff engaged in overreaching, and
similarly premature to find that there are no issues as to whether the
spousal maintenance waiver is unconscionable as applied to present
circumstances. [*32]Even in Barocas, a case cited several times by the
majority which involves similar issues, the split majority there
remanded the spousal support waiver for trial and did not decide that
issue summarily (Barocas v Barocas, 94 AD3d 551, 552 [1st Dept 2012],
appeal dismissed 19 NY3d 993 [2012] ["Although defendant's waiver of
spousal support was not unfair or unreasonable at the time she signed
the agreement, given her knowing and voluntary execution thereof with
benefit of counsel, factual issues exist as to whether the waiver would
be unconscionable as applied to the present circumstances"]). I agree
with the majority that certain factors, such as the presence of
independent counsel, militate against a finding of overreaching.
Moreover, the majority correctly points out that "the mere fact that
[plaintiff] did not include his income in his financial disclosure,
standing alone, is not a basis to set the agreement aside" and that an
agreement cannot be set aside "merely because" it may have been
improvident or one-sided. However, far from standing alone, plaintiff's
failure to make a full financial disclosure is just one of many indicia
of either overreaching or manifest unfairness, including his conduct
during the negotiations, the use of dilatory tactics, the many
questionable provisions and lopsided distribution under the agreement,
the conflicting versions of events surrounding the negotiations, and the
inconsistency between the conduct of the parties with the terms of the
agreement. In short, there are sufficient indicia in the record to
support defendant's defenses and counterclaims to preclude summary
judgment.
I strongly disagree with the concurrence's assertion that the
relationship between the parties here did not give rise to any mutual
fiduciary duties. As the majority highlights, "the parties were engaged,
had been living together for more than three years, had a child
together, and were expecting another." However, my concurring colleague,
who recognizes that "[a] fiduciary relationship may arise where a bond
of trust and confidence exists between the parties,'" would hold that
this particular relationship does not "correspond closely enough to a
married relationship." If the relationship between these parties does
not "correspond closely enough to a married relationship," I cannot
imagine what would. Moreover, rather than conclude that plaintiff was in
breach of his fiduciary duties to defendant, the concurrence takes the
extraordinary and troubling position that defendant essentially should
have known better than to trust plaintiff, that plaintiff's treatment of
her demonstrated the absence of a relationship of trust and confidence,
and that the harsh consequence of defendant's allegedly misguided
judgment is to deny the recognition of any fiduciary relationship
whatsoever. This reasoning puts the cart before the horse and is
decidedly out of step with the jurisprudence on fiduciary relationships
cited by the majority. It is a mistake of law to assert, as the
concurrence seems to reason, that conduct in breach of a fiduciary duty
proves the absence of a fiduciary relationship altogether. The
obligations attendant to fiduciary duties arise out of the particular
nature of the relationship of the parties and are imposed by law. The
parties did not have an obligation to enter into a prenuptial agreement,
but they did, as fiduciaries, have an obligation of loyalty to each
other and an obligation to negotiate with the utmost good faith.
The concurrence also reaches the conclusion that the agreement is not
substantively unconscionable because "the facts were disclosed at the
time the parties entered into the agreement." However, defendant
expressly argues that plaintiff did not make a full financial
[*33]disclosure. Because there are triable issues concerning the
adequacy of plaintiff's disclosure, the concurrence should not be
drawing any resulting legal conclusions at this stage.
There is also no basis whatsoever in the record for the concurrence's
assertion that "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 [plaintiff]
required [defendant] to accept a hard bargain," and that he "laid these
cards on the table." These arguments were never raised by the parties
nor do they even come close to their respective versions of events. On
the contrary, plaintiff has contended all along in his submissions that
the settlement generously provides for defendant. Plaintiff has never
alleged that he "required [defendant] to accept a hard bargain." Also
without support in the record is the concurrence's claim that
"[m]arriage was a business to [plaintiff], and he let her know that" or
the concurrence's unfounded inference that plaintiff somehow
communicated this alleged sentiment "not in so many words, but by his
conduct." Nowhere in the record is there any support for these claims or
inferences. Although this version of events and colorful language may
make for interesting reading, it views the record through a prism that
examines the record only in the light most favorable to plaintiff.
The concurrence also claims to find a "not-so-veiled hostility to
prenuptial agreements" coursing through this dissent. To be clear, I
harbor no such sentiment. Rather, the question is simply whether, on the
extant record, summary judgment should be denied so that the facts in
dispute surrounding the making of the agreement may be determined at
trial. I fully agree with my colleague that "the law gives parties the
right to opt out of the Equitable Distribution Law," but opting out of
the statutory scheme does not also entail opting out of the common law.
If it is found that plaintiff did not overreach, that the terms are not
manifestly unfair in spite of any overreaching, or that the maintenance
waiver is permissible, then those terms should be declared enforceable.
The concurrence, however, prefers to exaggerate my position and wonders
"whether prenuptial agreements should now be relegated to the dust bin."
Such hyperbole is unnecessary. The defense of manifest unfairness
intervenes only where the execution of an agreement is tainted by
overreaching, and in the absence of overreaching, courts do not inquire
further.
Finally, the award for interim counsel fees should not be vacated,
and a hearing should not be required to determine what portion of the
$50,000 sought by defendant is connected to child-related issues.
Plaintiff primarily argues that the agreement bars any award of counsel
fees and that defendant provided no documentation in support of her
application. "The purpose of interim counsel fees is to level the
playing field while litigation is ongoing" (Saunders v Guberman, 130
AD3d 510, 511 [1st Dept 2015], citing O'Shea v O'Shea, 93 NY2d 187, 190
[1999] ["The courts are to see to it that the matrimonial scales of
justice are not unbalanced by the weight of the wealthier litigant's
wallet"]), and it is clear that the playing field between these parties
is far from level. Courts possess the discretion to award interim
counsel fees, "as justice requires," under Domestic Relations Law §
237(a). The court determined that defendant "lacks sufficient funds of
her own to compensate counsel without depleting her assets" and it was
well within the discretion of the court to award interim counsel fees to
defendant. In the absence of [*34]any finding that the motion court
abused its discretion, the award should not be disturbed, especially
since this award is interim and subject to adjustment in any final
determination.
Conclusion
For the reasons set forth above, I would modify the order of the
Supreme Court, to the extent appealed from, by denying plaintiff's
motion for summary judgment, reinstating defendant's first and third
counterclaims, and remanding for trial on whether the prenuptial
agreement should be declared unenforceable in whole or in part.
Footnotes
Footnote 1: The agreement also provided that if the marriage lasted 10
years, and there were no living issue of the marriage at the time of
divorce, the husband would purchase, in the wife's name, a one-bedroom
apartment in the same location and with the same attributes.
Footnote 2: The wife withdrew the fourth counterclaim during oral argument before the motion court.
Footnote 3: Although not in record on appeal, subsequent motion practice
in this Court reveals that, in compliance with his obligation under the
agreement, the husband purchased an $8.7 million apartment for the wife
and children to live in.
Footnote 4: The wife also complains that her counsel was ineffective for
failing to notice both the trust provision and the error about the cost
of the apartment. Even if true, that would have no bearing on whether
the husband engaged in overreaching. We also reiterate that the wife
ignored her counsel's advice not to sign the agreement.
Footnote 5: Contrary to the dissent's view, the fact that the wife
oversaw the renovations of the apartment in which the parties ultimately
resided has no bearing on the parties' intent at the time the
prenuptial agreement was signed. Nor does it call into question the
validity of the clear and unequivocal separate property provisions of
the agreement.
Footnote 6: We need not decide whether a fiduciary relationship would
exist where an affianced couple had little or no relationship prior to
executing a prenuptial agreement.
Footnote 7: The concurrence also questions the significance of Christian
in light of the subsequent enactment of the Equitable Distribution Law.
This argument was not raised by either party on appeal. Moreover, trial
and appellate courts throughout the State have consistently applied
Christian to marital agreements entered into after the Equitable
Distribution Law became effective.
Footnote 8: That statutory provision also makes maintenance provisions
subject to the requirements of section 5-311 of the General Obligations
Law, which prohibits agreements that relieve either spouse of the
support obligation such that the other is likely to become a public
charge. Here, there is no claim that the wife runs the risk of becoming a
public charge.
Footnote 9: The parties do not challenge on this appeal the court's
determination of the child support, exclusive occupancy or discovery
issues raised in the motion.
Footnote 10: Because our decision in Anonymous (123 AD3d at 581) was
issued after this case was argued, the parties have not addressed the
question of whether, despite the waiver, counsel fees for
non-child-related matters can be awarded "as justice requires" (id. at
585).
Footnote 1: It is not merely Mr. Gottlieb's negotiating style that
negates the existence of a fiduciary relationship between the parties at
the time they entered into the agreement. Rather, it is the entire
constellation of events in the premarital life of this couple, as
reflected in the record, that overwhelmingly demonstrates that Ms.
Lumiere Gottlieb could not reasonably have reposed trust in Mr. Gottlieb
when she executed the agreement.
Footnote 2: "[W]ith the exception of two jointly owned residences
(which were distributed as marital property), the parties did not
commingle their separately owned assets throughout their 38—year
marriage. We therefore agree with the courts below that the agreement
constitutes an unambiguous prenuptial contract that precludes equitable
distribution of the parties' separate property, rendering it unnecessary
to resort to extrinsic evidence" (Van Kipnis at 579).
Footnote 3: As this Court decided in Goldman, "We agree with Special
Term that the second cause of action as couched is legally insufficient.
Domestic Relations Law § 236(B)(3) expressly applies to the validity
and enforceability of certain agreements "in a matrimonial action,"
which is defined in Domestic Relations Law § 236(B)(2). This is not a
matrimonial action since plaintiff does not seek separation, divorce,
annulment, a declaration of the validity or nullity of a marriage,
maintenance or a distribution of marital property" (Goldman at 500).
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