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Etzion v. Etzion

May 5, 2009

DEBORAH ETZION, APPELLANT-RESPONDENT,
v.
RAFAEL ETZION, ET AL., RESPONDENTS-APPELLANTS.



In an action, inter alia, for the rescission or reformation of a stipulation of settlement dated June 8, 2005, which was incorporated, but not merged, into the judgment of divorce referable to the plaintiff former wife and the defendant former husband Rafael Etzion, dated August 16, 2005, the plaintiff appeals from so much of an order of the Supreme Court, Nassau County (Marber, J.), entered January 17, 2008, as denied her motion, among other things, to compel the defendants to submit to electronic discovery, and for a preliminary injunction prohibiting the defendants from transferring certain money and assets, and the defendants cross-appeal from so much of the same order as denied their cross motion to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), and for an award of an attorney's fee.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

WILLIAM F. MASTRO, J.P., ANITA R. FLORIO, JOSEPH COVELLO and ARIEL E. BELEN, JJ.

(Index No. 6110/07)

DECISION & ORDER

ORDERED that the order is modified, on the law, (1) by deleting the provision thereof denying that branch of the plaintiff's motion which was to compel the defendants to submit to electronic discovery and substituting therefor a provision granting that branch of the motion to the extent of allowing the plaintiff and/or her computer forensic expert access to the defendants' non-privileged, material, and relevant electronic data regarding any possible sale of certain real property up to and including March 22, 2005, (2) by deleting the provisions thereof denying those branches of the defendants' cross motion which were pursuant to CPLR 3211(a)(7) to dismiss the causes of action sounding in unconscionability, prima facie tort, and breach of fiduciary duty and substituting therefor provisions granting those branches of the cross motion, and (3) by deleting the provisions thereof denying those branches of the defendants' cross motion which were pursuant to CPLR 3211(a)(1) to dismiss the causes of action sounding in mutual mistake and unilateral mistake and substituting therefor provisions granting those branches of the cross motion; as so modified, the order is affirmed insofar as appealed and cross-appealed from, without costs or disbursements, and the matter is remitted to the Supreme Court, Nassau County, for further proceedings in accordance herewith.

The plaintiff, Deborah Etzion, and the defendant Rafael Etzion (hereinafter the defendant) were married on October 12, 1978. The plaintiff commenced an action for a divorce and ancillary relief against the defendant on or about June 13, 2002. On March 22, 2005, the plaintiff and the defendant executed a memorandum agreement memorializing their "binding agreement with respect to [the plaintiff's] distributive share and a division of all other marital assets." This agreement (hereinafter the memorandum agreement) provided, inter alia, that the plaintiff would receive the sum of $6.1 million upon execution of a stipulation of settlement, and "the sum of $3.6 million in a note bearing interest at the rate of 6% per annum." The memorandum agreement further provided, among other things, that the plaintiff would receive "title to the marital residence and all of its contents free and clear of any judgment and/or liens." The defendant received title to several business corporations, among them, Variety Accessories, Inc. (hereinafter Variety), a business that sold ornaments. He also received title to Metro Shipping and Warehousing, Inc. (hereinafter Metro Shipping), a corporation that owned and operated the warehouse that stored Variety's stock and provided a location from which Variety's goods were shipped, and which owned the real property on the Greenpoint-Williamsburg waterfront in Brooklyn on which the warehouse was erected.

The plaintiff and the defendant subsequently entered into a stipulation of settlement dated June 8, 2005 (hereinafter the stipulation of settlement), incorporating the terms of the memorandum agreement. In the stipulation of settlement, the defendant represented that, as of the date of the execution of the memorandum agreement, he had "no active deals or pending negotiations relating to the sale or reorganization of Variety, in part or in whole, or any related entity, in part or in whole." According to the plaintiff, the parties premised their settlement negotiations, inter alia, upon a report prepared by a neutral appraiser regarding the value of the warehouse located on the Greenpoint-Williamsburg waterfront. The neutral appraiser determined that, as of March 27, 2003, the subject property (hereinafter the warehouse property) had a market value of $6,500,000. The plaintiff and the defendant were divorced pursuant to a judgment dated August 16, 2005. The judgment incorporated, but did not merge, the stipulation of settlement.

On October 6, 2005, the defendant entered into a contract for the sale of the warehouse property for the sum of $84,570,000. The closing took place on May 2, 2006. The dramatic increase in the market value of the warehouse property apparently resulted from the adoption of a comprehensive municipal land use and waterfront plan for Greenpoint and Williamsburg, which had been announced by the New York City Department of City Planning on June 18, 2003, and received coverage in the press throughout the administrative process leading to its approval. The plan provided for, inter alia, the rezoning of the waterfront area to allow for residential development. The City formally adopted the rezoning plan on May 11, 2005, two months after the parties entered into the memorandum of agreement and one month before they entered into the stipulation of settlement. The plaintiff commenced the instant action against the defendant, Variety, and Metro Shipping (hereinafter collectively the defendants), all of which were involved in the sale of the warehouse property, seeking, among other things, rescission and/or reformation of the stipulation of settlement. The plaintiff moved, inter alia, to compel the defendants to submit to unfettered electronic discovery of their personal and business computers, as well as for a preliminary injunction prohibiting them from transferring any money or assets under their ownership or control to the extent of the proceeds received from the sale of the warehouse property.

The defendants cross-moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), annexing various documents to their motion papers, including the complaint, the memorandum agreement, the stipulation of settlement, excerpts from the appraisal report, and various newspaper articles and press releases. The defendants argued, inter alia, that the complaint failed to state a cause of action because information regarding the rezoning plan was in the public domain, and thus freely accessible to all parties. They further argued, among other things, that the plaintiff could have obtained an updated appraisal of the market value of the warehouse property during the matrimonial settlement negotiations, and that the defendant did not prevent her from doing so. The Supreme Court denied both the motion and the cross motion. We modify.

In order to prevail on that branch of their cross motion which was to dismiss the complaint pursuant to CPLR 3211(a)(1), the defendants were required to demonstrate that "the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326). Insofar as the defendants' cross motion was predicated upon CPLR 3211(a)(7), the court is required to "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87-88). "Whether the plaintiff can ultimately establish the allegations is not part of the calculus'" (Aberbach v Biomedical Tissue Servs., Ltd., 48 AD3d 716, 717-718, quoting EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19).

Under this standard, the complaint in this case is sufficient to state a cause of action to recover damages arising from the defendant's alleged fraudulent misrepresentation that he had not engaged in any active deals or pending negotiations relating to the sale or reorganization of any entity related to Variety. Metro Shipping, which owned and occupied the warehouse property on which Variety conducted its operations, is unquestionably a related entity.

Since spouses stand in a fiduciary relationship to each other, agreements between them require "the utmost of good faith" (Christian v Christian, 42 NY2d 63, 72; see Barchella v Barchella, 44 AD3d 696, 697). Thus, if the plaintiff is ultimately able to substantiate her claim that the defendant concealed an existing agreement to sell the warehouse property, she may be able to succeed on the fraudulent misrepresentation cause of action (see Chapin v Chapin, 12 AD3d 550, 550-551; Cruciata v Cruciata, 10 AD3d 349, 350). Moreover, such allegations are sufficient to state a cause of action for reformation and/or rescission of the stipulation of settlement (see Christian v Christian, 42 NY2d 63; Brennan-Duffy v Duffy, 22 AD3d 699), as well as to impose a constructive trust on the warehouse property or the proceeds received from the sale of that property (see Iwanow v Iwanow, 39 AD3d 476, 477; Mattera v Mattera, 125 AD2d 555, 556 ["A constructive trust is an equitable remedy which may be imposed whenever necessary to satisfy the demands of justice"]). Thus, the Supreme Court properly denied those branches of the defendants' cross motion which were to dismiss the first, second, and sixth causes of action.

However, the complaint failed to state a cause of action sounding in prima facie tort. Although the complaint contains an assertion that disinterested malevolence was the sole motivation for the defendant's conduct, the principal allegations of the complaint indicate otherwise. The complaint clearly demonstrates that financial gain was a motivation on the part of the defendant, as the value of the warehouse property was allegedly concealed so as to avoid paying the plaintiff her potential distributive share of its actual sales price, an amount that would have exceeded $30,000,000 (see Matter of Entertainment Partners Group v Davis, 198 AD2d 63). Moreover, "prima facie tort was designed to provide a remedy for intentional and malicious actions that cause harm and for which no traditional tort provides a remedy, and not to provide a catch all' alternative for every cause of action that cannot stand ...


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