The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.
On December 29, 2006 Plaintiff Toehl Harding filed this lawsuit in the Second Judicial District Court of Nevada, alleging that her ex-husband, Defendant David Naseman, committed fraud during the parties' negotiations over a Property Settlement Agreement ("PSA") they entered into pursuant to their 1993 divorce. Specifically, Plaintiff complains that Defendant fraudulently misrepresented the amount of income the couple had earned in 1990 by providing her with false 1990 federal income tax forms that listed their joint income for that year as $1,323,916, while in actuality, and as reflected on the tax returns the parties filed with the Internal Revenue Service, it was $5,561,728. Defendant counterclaimed to recover attorneys' fees and damages for Plaintiff's alleged breach of the confidentiality provisions contained in the couple's PSA. This action was removed by Defendant to the United States District Court for the District of Nevada, and on October 1, 2007, it was transferred to this Court on Defendant's motion.*fn1
After the close of discovery on June 30, 2008, Defendant moved for summary judgment against Plaintiff. In an opinion and order issued on November 13, 2008, this Court allowed Plaintiff's claims for fraudulent concealment and fraudulent misrepresentation to proceed to trial or settlement; Plaintiff's remaining claims were dismissed. See Harding v. Naseman, 2008 U.S. Dist. LEXIS 92813, *29 (S.D.N.Y. 2008). The Parties did not settle, and from December 16 to December 19, 2008, a bench trial was held before this Court. Defendant, Plaintiff, Marcia Bothe (Defendant's third wife), Leonard Florescue, Esq. (Defendant's lawyer during his divorce from Plaintiff), Richard Cohen, Esq. (Plaintiff's lawyer during her divorce from Defendant), and document experts Gus Lesnevich and Erich J. Speckin, all testified at trial. Upon the close of the evidence, this Court reserved decision pending receipt of proposed findings of facts and conclusions of law.*fn2 This opinion now follows.
For the reasons stated below, Plaintiff's claims of fraudulent concealment and fraudulent misrepresentation are DISMISSED. Defendant's counter-claims for attorneys' fees and for breach of the confidentiality provisions of the PSA are likewise DISMISSED.
1. The Parties and Overview of Events Leading to this Lawsuit
A. Plaintiff Toehl Harding
Upon graduating from the New York University School of Law in 1972, Plaintiff Toehl Harding ("Plaintiff" or "Harding") went to work for Dewey, Ballantine, Bushby & Wood ("Dewey"), a New York law firm. (Harding Tr. 454.) Harding practiced corporate law at Dewey, which involved drafting "buy/sell agreements" and "merger agreements," conducting "due diligence," negotiating "sophisticated business transactions," and reviewing stock option documentation, such as option grants and option plans.*fn3 (Harding Tr. 518-19.) Plaintiff left Dewey in 1978 and went to work at U.S Industries (Harding Tr. 454), where she continued her practice as a "corporate attorney" with a particular focus in "securities." (Harding Tr. 519.) Part of her job at U.S. Industries was to "review option[s] documentation" such as "option[s] grants" and "option[s] plans." (Harding Tr. 520.) U.S. Industries was subject to a corporate takeover in 1984 and Harding's position was eliminated; subsequently, Plaintiff went to work as a corporate counsel for the NYNEX Corporation, where she remained until 1994. (Harding Tr. 454.)
In 1993, when Plaintiff negotiated and executed the PSA, she had been practicing corporate law for 20 years. (Harding Tr. 454.)
B. Defendant David Naseman
Defendant David Naseman ("Defendant" or "Naseman") was born in Lansing, Michigan, and when he was 13, his family moved to Schenectady, New York, where he went to public schools, graduating from high school in 1967. (Naseman Tr. 774.) With the help of "loans and scholarships," Defendant enrolled at Boston University, where he earned a joint degree in political science and economics in 1971. (Naseman Tr. 172, 774.) After a year off to work and for service in the National Guard, Defendant went to Tulane law school, where he was the managing editor of the law review, graduating with honors in 1975. (Naseman Tr. 775.)
After law school, Defendant moved to New York, where he practiced corporate and securities law at the Fried Frank law firm for seven and a half years. (Naseman Tr. 774-775.) In September of 1983, Defendant went to work at LIN Broadcasting Company ("LIN") (Naseman Tr. 173, 775), where he remained until October of 1990, when the Company was sold to McCaw Communications. (Naseman Tr. 174, 775.) At the time of this trial in December 2008, Defendant was employed as a senior counsel at Crowell and Moring, a Washington, D.C.-based law firm, where he practiced corporate and health care law and retained a Martindale-Hubbell AV-rating. (Naseman Tr. 174, 776.)
C. The Relationship Between Plaintiff and Defendant
In the summer of 1979, Plaintiff met Defendant, who lived in a house rented by Plaintiff's friends. (Harding Tr. 455.) In late 1979, the pair became "romantically involved" and a year later, Defendant moved into Plaintiff's rented apartment, located at 425 East 51st Street, Apt. 5A in Manhattan, New York. (Harding Tr. 455, 461; Pl. Ex. 27 ["Gross Income and Assets Memorandum" drafted by Defendant during Divorce Negotiations] at TH820.) On October 19, 1982, Defendant and Plaintiff were married. (Harding Tr. 456, 469; Naseman Tr. 828.) In August 1992, Defendant asked Plaintiff for a divorce. (Id.)
From September 1992 through April 1993, the parties, represented by New York counsel Leonard Florescue, Esq. for Defendant and Richard Cohen for Plaintiff, negotiated the terms of the distribution of their marital property, and on April 19, 1993, the parties agreed to the terms of how to divide their property. (Pl. Ex. 5 [Property Settlement Agreement and Accompanying Letters] at TH806-10 [April 19, 1993 correspondence].) On April 21, 1993, a divorce decree between Defendant and Naseman was entered by a Nevada court (subject to the signing of the PSA), and on May 4, 1993, in New York City, Plaintiff and Defendant signed the PSA and ancillary documents, which memorialized the terms of the marital property distribution that the parties and counsel had arrived at through negotiations. (Plaintiff's Ex. 5 at TH709-745 [Signed Property Settlement Agreement]; Naseman Tr. 174, 858.)
When Plaintiff and Defendant married in the fall of 1982, Defendant's net worth was less than $50,000; Plaintiff's net worth was a "good deal" greater than that of Defendant. (Harding Tr. 460-61.) Neither party separately owned any real property at the time of their marriage. (Harding Tr. 461; Pl. Ex. 27 at TH820.) The parties' income during their marriage was as follows:
(Pl. Ex. 27 at TH818; Pl. Exs. 6, 7 [1987 tax returns]; Pl. Exs. 8, 9 [1988 tax returns]; Pl. Exs. 10, 11 [1989 tax returns]; Pl. Exs. 12, 14 [1990 tax returns].) The parties filed joint tax returns for every year of their marriage except for 1992, and for the years 1988 through 1991, Plaintiff signed the parties' joint tax returns in blank prior to their completion.*fn4 (Pl. Ex. 27 at TH818; Harding Tr. 462, 601.)
The significant increase in income that Defendant earned in 1988 and 1990 arose from the exercise of stock options he accrued during his employment as an officer at LIN. (Naseman Tr. 182, 185.) In 1988, Defendant exercised LIN stock options, and from this, netted approximately $2.1 million. (Naseman Tr. 182; Harding Tr. 469, 776.) The proceeds from this exercise of options were used to pay off the mortgages on the couple's real properties, described infra; the remainder was deposited into an account with Republic National Bank bearing the names of both Defendant and Plaintiff (the "Joint Republic Account"). (Harding Tr. 466; Pl. Ex. 27 at TH820-21.) In 1990, after LIN Broadcasting was purchased by McCaw Communications, Defendant received more than $4 million for retiring LIN stock options that he held at the time of the takeover. (Harding Tr. 467-68; Naseman Tr. 815-16.) The proceeds from this exercise of options, approximately $2.7 million after taxes, were paid into a second account maintained at Republic National Bank, although this account was in Defendant's name only ("Individual Republic Account"). (Naseman Tr. 823-24; Pl. Ex. 28 [cover sheet from Individual Republic Account].) Shortly thereafter, in February through May 1991, Defendant transferred the money he earned in 1990 into an account that he had set up in early 1991 at Shearson Lehman ("Shearson Account"), which was also in his name only. (Naseman Tr. 823-24.)
The couple's combined incomes allowed them to support a relatively luxurious lifestyle, and they regularly vacationed abroad, golfed and skied, dined out, owned and maintained multiple residences and automobiles, and amassed wealth. (Harding Tr. 512, 622-23; Pl. Ex. 27 at TH819-22.) The couple placed their accumulated monies in a number of investment and bank accounts. (Pl. Ex. 27 at TH819-20.) At the time when the parties' divorce negotiations commenced in the fall of 1992, the couple had one jointly-held bank account: the Joint Republic Bank account, which contained $925,000. (Id. at TH819.) Defendant also held four investment/bank accounts in his name: a First Interstate Bank of Nevada account contained approximately $9,000; a Lee (Massachusetts) Bank money market account contained $14,000; a First Florida Bank account, co-owned by Defendant's mother, contained $4,616, and; the Shearson account, which held $2,770,002. (Pl. Ex. 27 at TH819-20.)
The couple's income also allowed them to purchase a number of properties both before and during their marriage. In April 1982, six months prior to their nuptials, Defendant and Plaintiff purchased a home in Lenox, Massachusetts for $97,500. (Pl. Ex. 27 at TH821.) The parties split the down payment on this house, while Defendant paid for 80% of the $175,000 in improvements made to the property. (Pl Ex. 27 at TH821.) In July 1988, Defendant paid off the $67,000 mortgage on the property. (Pl. Ex. 27 at TH821.) This property was worth $225,000 at the time of the couple's divorce.
In 1985, the apartment building at which Plaintiff and Defendant resided, 425 East 51st Street, converted to cooperative apartments, and the couple purchased Apartment 5A, the apartment at which Plaintiff resided prior to Defendant moving-in, at the "insider" price of $150,000. (Naseman Tr. 176; Harding Tr. 456-57; Pl. Ex. 27 at TH820.) Plaintiff provided the entire 20% down payment ($30,000) for that apartment. (Pl. Ex. 27 at TH818-820.) The couple split the rent and expenses on that apartment until July 1988, when Defendant paid off the mortgage of $115,000. (Pl. Ex. 27 at TH820.) In 1987, the couple jointly purchased Apartment 6A in that same building for $395,000; Plaintiff provided the 10% down payment. (Naseman Tr. 178; Pl. Ex. 27 at TH820-21.) Defendant paid off the mortgage on Apartment 6A ($356,000) in July 1988. (Pl. Ex. 27 at TH821.) Each of these apartments was worth $375,000 at the time of the couple's divorce. (Id. at TH820-21.)
In addition to the aforementioned properties, Defendant purchased two other properties, both of which were listed in his name only. (Pl. Ex. 27 at TH820-21.) In 1987, Defendant purchased a home for his parents in Clarlevoix, Michigan for $105,000; at the time of purchase, Plaintiff executed a waiver of dower for this property. (Pl. Ex. 27 at TH821; Def. Ex. PP [1987 Mortgage Agreement] at DN00525, DN00527.) Defendant paid off a mortgage of $66,000 on that property in July 1988, and at the time of the couple's divorce in 1993, the house was worth $120,000. (Id.) In March 1990, Defendant purchased a condominium in Venice, Florida, also for his parents, for $105,000; at the time of purchase, Plaintiff executed a waiver of dower for this property. (Pl. Ex. 27 at TH821.) At the time of the couple's divorce, this apartment was worth $107,500. (Id.)
Marcia Bothe ("Bothe") attended Creighton University and Northern Illinois University, from which she graduated with a degree in broadcast journalism and English, and a minor in marketing. (Bothe Tr. 92.) After college, Bothe worked at a radio station, at Hilton Hotels, and then at Canyon Ranch, which was in Western Massachusetts. (Bothe Tr. 92, 142-43.) Bothe successfully sued Canyon Ranch for sexual harassment, and she used the proceeds from this suit to open a bridal business. (Bothe Tr. 93, 142-43.) Subsequent to the lawsuit, Bothe worked for a few years for the Boston Symphony Orchestra at Tanglewood. (Id.)
Defendant and Bothe first met in the summer of 1991 in Lenox, Massachusetts, where Defendant and Plaintiff maintained a summer home, and they became "romantically involved" in the summer of 1992. (Bothe Tr. 93-94.) In December of 1992, the couple decided to marry in June of 1993, and on June 12, 1993, less than two months after Defendant divorced Plaintiff, Defendant and Bothe were married. (Bothe Tr. 98; Def. Ex. OOOO [Bothe declaration dated June 17, 2008].) During their marriage, Bothe would sign three or four tax forms in blank; Defendant would then complete the couple's taxes and mail the tax forms to the IRS. (Bothe Tr. 99.)
In January of 1997, Defendant and Bothe moved to Scottsdale, Arizona, where they purchased a home ("Lot 56"). (Bothe Tr. 101.) In November of 2004, divorce proceedings began between Defendant and Bothe, and from November 19, 2004 to October 31, 2005, Defendant was excluded from Lot 56, the "marital home" that he shared with Bothe in Scottsdale, pursuant to court order. (Bothe Tr. 101.)
E. Bothe's Discovery of Financial Information
Shortly after Defendant was excluded from Lot 56, Bothe began a search of that home for financial documents to assist her in her divorce. (Bothe Tr. 101-02.) In the master bedroom closet, Bothe found a file box containing a number of financial documents. (Bothe Tr. 102.) Inside that box was a packet of documents, held together by a black "Acko" binder clip, relating to the 1993 divorce of Defendant and Plaintiff. (Id.) Included in this packet was: a) the signed PSA and accompanying letters between counsel (Pl. Ex. 5); b) a six-page History of Gross Income Memorandum ("Gross Income and Assets Memorandum") listing all of Defendant and Plaintiff's assets at the time of their divorce (Pl. Ex. 25) along with a one-page attached Supplemental Information Memorandum ("Supplemental Information Sheet") (Pl. Ex. 26),*fn5 and c) a hand-written set of notes prepared by Naseman for Florescue concerning the division of Defendant and Plaintiff's assets ("Defendant's Handwritten Notes") (Pl. Ex. 24). (Bothe Tr. 102-08.) Bothe photocopied these documents at the time of their discovery. (Bothe Tr. 109.)
Bothe had known that Defendant kept all of his tax records in a crawl space under the stairs at Lot 56. (Bothe Tr. 110-111; Naseman Tr. 175.) On the Friday after Thanksgiving of 2004, Bothe went into a footlocker located in the crawl space under the stairs, and from that footlocker, located a number of tax returns for years that preceded her marriage to Defendant. (Bothe Tr. 111.) Specifically, Bothe found Defendant and Plaintiff's joint 1987 federal and New York State tax returns (Pl. Exs. 6 [1987 federal return] and 7 [1987 state return]), their 1988 federal and New York State tax returns (Pl. Exs. 8 [1988 federal return] and 9 [1988 state return]), their 1989 federal and New York State tax returns (Pl Exs. 10 [1989 federal return] and 11 [1989 state return]), their 1990 federal and New York State tax returns showing an income of $5,561,728 ("$5.5 million return") (Pl. Exs. 12 [1990 federal return] and 14 [1990 state return]), and, a 1990 federal tax return showing an income for the couple of $1,323,916 ("$1.3 million return") (Pl. Ex. 13 [1990 $1.3 million federal return].)*fn6 (Bothe Tr. 112-113.)
On January 18, 2006, the day after Defendant's deposition in connection with his divorce from Bothe, Bothe contacted Plaintiff and told Plaintiff that she had discovered two different 1990 tax returns -- one reflecting $5.5 million in income and one reflecting $1.3 million in income.*fn7 (Bothe Tr. 114-16; Def. Ex. OOOO.) Upon hearing of the $5.5 million tax return, Plaintiff became upset and told Bothe that it was "absolutely false" that she and Defendant had ever earned $5.5 million. (Bothe Tr. 116; Harding Tr. 485.) Bothe then asked Plaintiff if she signed ever blank tax returns, and Plaintiff responded that she did in the later years of her marriage to Defendant. (Bothe Tr. 116-17.) Plaintiff's contemporaneous notes indicate that Bothe also informed her of the existence of an account at Shearson Lehman containing $2.8 million. (Pl. Ex. 43 [Plaintiff's notes from 01/18/06 conversation with Bothe].) Bothe then asked Plaintiff if she would review the documents, and two days later, Bothe mailed Plaintiff copies of the PSA (Pl. Ex. 5), Defendant's Handwritten Notes (Pl. Ex. 24), the Gross Income and Assets Memorandum and the Supplemental Information Sheet (Pl. Exs. 25, 26), as well as copies of the tax returns from 1987 through 1992 (including both the $1.3 million and $5.5 million returns from 1990). (Bothe Tr. 117; Harding Tr. 491; Def. Ex. RRRR [mailing receipts].)
In a cover letter that Bothe sent accompanying the documents, dated January 20, 2006, Bothe wrote that:
I think that you will agree that when you and David did your property settlement back in 1993 there were significant assets that you knew nothing about. Yet his letter (enclosed) to you stresses his "fairness" to you. It is apparent to me that David [Defendant] has been lying at least since 1990.
The $1.3 million tax return reflected only the $54,502 in interest income earned from the Joint Republic Account. (Pl. Ex. 13 at TH453.)
In his deposition the other day David . stated that you knew that the return was for $5.5 [million] and that you signed it knowing that it was $5.5. He accused me of "copying or scanning" his name to the other 1990 return that shows an amount of $1.3 [million].
I was a small business owner and had a CPA complete my Schedule C every year -- so I don't know how he can even think that anyone would believe that I could come up with figures for a $1.3 return! I have never copied or scanned anyone's signature, including my own. Ludicrous for him to suggest that I did and why would I want to do that anyway? Sounds like something maybe he has done don't you think? (Def. Ex. VVVV [Bothe letter] at TH6239-40.)
In August 2007, Defendant and Bothe divorced. (Bothe Tr. 101.)
2. The Evidence Demonstrates that Defendant Created the $1.3 Million 1990 Tax Return
It is undisputed that Defendant and Plaintiff filed a joint 1990 tax return with the IRS and the New York State tax authorities reflecting an income of $5,561,728.19. (Pl. Exs. 12 [1990 federal tax return], 14 [1990 New York State tax return].) It is similarly undisputed that Plaintiff and Defendant both signed the parties' genuine 1990 $5.5 million tax return (Naseman Tr. 782; Harding Tr. 464),*fn8 which was authored by Defendant (Naseman Tr. 203), and that the signature block of the false 1990 $1.3 million federal tax return was copied from the parties' genuine $5.5 million 1990 federal return and placed there by some form of mechanical reproduction (i.e. scanning, copying, or cutting and pasting). (Speckin Tr. 638; Lesnevich Tr. 40.) The parties dispute who created the false $1.3 million tax return. (Pl. Ex. 13.) Plaintiff claims that Defendant created the tax return to trick her into believing that they had earned approximately $4 million less than they had in 1990. (Pl. PFF ¶¶102-116.) Defendant unequivocally denies creating the $1.3 million return (Naseman Tr. 791-92); instead, Defendant pins the blame on Marcia Bothe, alleging that she created the $1.3 million by tracing various numerals from a number of different documents to produce the $1.3 million return. (Def. PFF ¶¶142-166; Def. Ex. VVVV.) Defendant denies having ever seen the $1.3 million return until it was produced by Bothe in relation to this action. (Naseman Tr. 791.)
At trial, both sides presented expert witnesses -- Gus Lesnevich for Plaintiff and Erich J. Speckin for Defendant. Lesnevich testified that the "written text" on the $1.3 million 1990 tax return by the same individual who completed the $5 million tax return. (Lesnevich Tr. 27.) In contrast, Speckin testified that "several of the numbers" from the $1.3 million tax return had been traced from the $5.5 million return. (Speckin Tr. 644-45.) Speckin did testify, however, that if "there was no tracing of the numerals [on the tax form], then [the $1.3 million return] would be written by the same author" as the $5.5 million return. (Speckin Tr. 680.) For the reasons discussed below, the Court credits the testimony of Lesnevich. Accordingly, as Defendant acknowledged at trial that he drafted the $5 million return, the Court concludes that Defendant created the $1.3 million return.
Speckin's conclusion that the $1.3 million tax return was traced by a third-party from the genuine $5.5 million return is flawed for a number of reasons. First, Speckin testified that due to the fact that the $1 million return involved different sets of numbers than the $5 million return, the $5 million tax return could not have been the only source the tracer used to trace the numerals onto the $1 million tax return. (Speckin Tr. 654-55.) However, no other potential source for the tracing has ever been identified. (Id.) Simply put, for this Court to credit Speckin's testimony, it would have to conclude that some other, as yet undiscovered document, was used by the tracer. The Court is not willing to engage in such speculation.
Next, while Speckin ascribed the numerals on the false $1.3 million return to tracing, Speckin had no explanation for the handwritten words on the tax returns (i.e. the names and addresses appearing at the top of the first page of the $1.3 million return). (Speckin Tr. 670, 679.) In fact, Speckin testified that it was not his opinion that the words on the $1.3 million return were traced from the $5 million return, "even in piecemeal." (Speckin Tr. 670.) Notably, Defendant's counsel never asked Speckin to render an opinion as to whether the handwritten names and addresses on the top of the $1.3 million tax return -- which he conceded were not traced from the $5 million return and could have been "naturally written" -- were written by the same person as the $5.5 million return. (Speckin Tr. 679.) The obvious inference from this is that Defendant did not want Speckin to provide an answer to that question. Accordingly, to accept Speckin's analysis as true, either the tracer used an entirely undiscovered source to create the handwritten words on the top of the $1.3 million tax return, or the tracer miraculously discovered tax returns that had already been partially completed by Defendant, and used those returns to create the false $1.3 million return. Again, the Court is not willing to engage in such speculation.
Additionally, the ASTM has established standards for document analysis, which are, in descending order of certainty: positive, highly probably, probable, indications, and no opinion. (Speckin Tr. 667-68; Lesnevich Tr. 13-14.) Speckin testified at trial that it would have been "misleading" to testify that it was "probable" that the $1.3 million return had been traced (Speckin Tr. 668-69), but he did not want to use the "indications" standard, as that would have been too weak. (Speckin Tr. 669.) Speckin instead developed his own "more likely than not" standard, which is not accepted by ASTM. (Speckin Tr. 669.) Lesnevich, on the other hand, credibly testified that under the ASTM standards there was a "positive" match; the same person who wrote the $5.5 million tax return also wrote the $1.3 million return.*fn9 (Pl Exs. 300-302 [Lesnevich's analysis of 1990 tax returns].) Accordingly, Lesnevich, who had more than 40 years of experience as a forensic document examiner (Lesnevich Tr. 10),*fn10 and who this Court believes to be a highly credible and competent witness, was far more certain about his conclusions than Speckin.
Further mitigating against a finding that the $1.3 million return was traced was Lesnevich's credible testimony that the numbers on the $1.3 million return were not "tracings," and that he saw no evidence of tracing. (Lesnevich Tr. 77, 79.) A more plausible explanation for similarities between the numbers on the $5.5 million return and the $1.3 million return, which Defendant claims shows tracing, is that Defendant has a very limited range of variation in his handwriting; he has a "unique ability to write almost the same every time he writes." (Lesnevich Tr. 28-29, 50; Speckin Tr. 661.) At trial, Lesnevich demonstrated this by showing that numbers from within the $5 million return, which Defendant admitted that he wrote, were written with such a limited range of variation that they could have appeared to have been traced from other numbers from within the $5 million return.*fn11 (Pl. Ex. 300 at p. 4; Lesnevich Tr. 31-32.)
Of course, there would have been no reason for Defendant to trace numbers that he himself had previously written within the same document. Lesnevich also compared known examples of Defendant's signature, which showed a high degree of overlap in the writings (Pl. Ex. 300 at p. 3; Lesnevich Tr. 30-31). From this, Lesnevich credibly concluded that Naseman's signature had such limited variation that it appeared that Defendant had been using a rubber stamp. (Lesnevich Tr. 30.)
Accordingly, this Court concludes that Defendant created the false $1.3 million tax return found by Bothe in her ...