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Yao v. Kao-Yao

Supreme Court of New York, First Department

February 23, 2017

Ning-Yen Yao, Plaintiff-Appellant,
Karen Kao-Yao, Defendant-Respondent, Chemtob Moss & Forman, LLP, Intervenor-Appellant.

          Blank Rome LLP, New York (Caroline Krauss-Browne and Heidi A. Tallentire of counsel), for Ning-Yen Yao, appellant.

          Chemtob Moss & Forman, LLP, New York (Nancy Chemtob of counsel), for Chemtob Moss & Forman, LLP, appellant.

          Julie Hyman, P.C., Bronx (Julie Hyman of counsel), for respondent.

          Friedman, J.P., Renwick, Saxe, Gische, JJ.

         Judgment, Supreme Court, New York County (Laura E. Drager, J.), entered March 10, 2015, to the extent appealed from as limited by the briefs, awarding defendant equitable distribution of 10% of plaintiff's enhanced earning capacity, maintenance of $5, 000 per month, retroactive to June 1, 2009 and for one year following entry of the judgment of divorce, and counsel fees of $200, 000, unanimously modified, on the law and the facts, and the matter remanded to Supreme Court for entry of an amended judgment that conforms with the court's decision dated October 15, 2013 and is in accordance herewith, and otherwise affirmed, with costs.

         Although plaintiff appeals from several aspects of Supreme Court's judgment of divorce, the single most divisive issue between the parties is the court's decision to distribute an equitable share of plaintiff's enhanced earning capacity, due to his attainment of a medical license during the marriage. [1] Plaintiff contends there was a failure of proof because defendant's expert was unreliable, and even if reliable, plaintiff's enhanced earnings are solely due to his own efforts without any contribution whatsoever, whether economic or noneconomic, by defendant. We conclude that Supreme Court correctly relied upon defendant's expert in determining the value of plaintiff's enhanced earnings. We conclude further that the Supreme Court did not abuse its discretion in awarding defendant 10% of this marital asset for her noneconomic contributions (Holterman v Holterman, 3 N.Y.3d 1, 8 [2004]; see O'Brien v O'Brien, 66 N.Y.2d 576');">66 N.Y.2d 576 [1985]).

         The parties were married on May 27, 2000. They have two children, born in August 2002 and November 2004. This divorce action was commenced on October 11, 2007. By the time the parties met in December 1998, plaintiff had completed medical school and was in the middle of a one year internship at a local hospital in New York. He had already completed one year of his residency at a hospital in Boston. Plaintiff completed two out of three parts of the United States Medical Licensing exam during medical school, and passed the third part in February 2001, nine months after the parties married. Although plaintiff enrolled in an unaccredited fellowship program after graduation, he did not complete the program. In July 2003 he accepted employment with Lenox Hill Anesthesiology PLLC (LHA). Plaintiff has yet to pass the oral component of his medical boards for anaesthesiology, although he has taken the exam twice. LHA was aware of this fact when they offered him partnership track employment. Plaintiff remains employed by LHA and although his employment agreement expired in 2007, he works under an "evergreen" renewal of the agreement, meaning he is working under the same terms and conditions.

         Defendant took some college courses before marriage, but did not complete her bachelor's degree (in East Asian Studies) until May 2007. She has sporadically worked at various office jobs that pay $15 or less an hour. She also works as a Mandarin language tutor and for which she is paid $30 per hour. Throughout the marriage, however, defendant did not work outside the home. The parties maintained a fairly frugal lifestyle and vacations consisted mostly of visiting family. Frequently, defendant took the children on extended visits to China and on at least one occasion spent the summer there. Plaintiff did not always accompany the family on these visits.

         Issues of equitable distribution, maintenance, and counsel fees were referred to a Special Referee to hear and report. This appeal involves the court's decision and order dated October 15, 2013, confirming in part and partly modifying and rejecting the Referee's recommendations in her January 22, 2013 report.

         Witnesses at trial included the parties, their parents, James Richter, M.D., LHA's manager, and David Gresen, CPA/ABV, who was qualified as an expert in forensic accounting. Gresen was called as defendant's expert witness to value that part of plaintiff's enhanced earning capacity attained during the parties' marriage. Plaintiff did not call any expert on this valuation issue.

         In preparing his report, Gresen relied on various documents, including plaintiff's W-2 forms, information about plaintiff's license to practice medicine, and his employment agreement with LHA dated July 14, 2003. Much of this information is not in dispute. Plaintiff obtained his New York State medical license on May 5, 2003 and he had income of $122, 516 in 2003; $258, 210 in 2004; $454, 492 in 2005; $715, 313 in 2006; and in 2007 his income was $837, 253. Plaintiff was on a partnership track at LHA and was compensated the first year at an amount equal to 50% of what a representative full member of that partnership would receive; the second year, his compensation was 70%; the third year at 90%; and the fourth year and final year of the contract, which was 2007, also his earning year as of the date of trial, he received compensation equal to 100% of what a representative partner of LHA was paid. In valuing plaintiff's enhanced earnings, Gresen stated in his report and testified at trial, that he was not provided with information regarding how plaintiff is paid or a breakdown between his basic compensation and any bonuses. Gresen could only state that plaintiff's compensation was determined by the accumulation of "points."

         Gresen used a methodology commonly employed in determining the value of a medical license earned during a marriage (Grunfeld v Grunfeld, 94 N.Y.2d 696, 702 [2000]). He first determined that plaintiff would have earned $173, 000 per annum as a typical family practitioner, without the enhancement (baseline earnings). He then determined what plaintiff's earnings were with the license (topline earnings). Although Gresen proposed two different possibilities for topline earnings, the court accepted the lower value of $733, 000, based upon a three-year weighted average of plaintiff's earnings from 2005 to 2007. Gresen deducted baseline earnings from topline earnings, detailed how tax impacted the amount, and made other adjustments, including a calculation of earnings over a work life expectancy, which was then reduced to reflect present value. He also applied a coverture fraction to reflect the fact that the enhancement was attained partly during the marriage and partly before. Based upon his mathematical calculations, Gresen valued plaintiff's enhanced earning capacity as $3, 740, 000.

         At trial, plaintiff challenged some of Gresen's assumptions and Gresen made some further adjustments to his calculations. He reduced the coverture fraction from 75% to 69%, to account for the incomplete fellowship and a seven month leave of absence that plaintiff took from his residency (July 2000 - February 2001) when he decided to explore a nonmedical career path. Gresen acknowledged that he had not known about the leave of absence, or realized plaintiff had not completed his fellowship. These adjustments resulted in a lower valuation of $3, 440, 000, which was ultimately accepted by the court.

         At trial, plaintiff's employer, Dr. Richter, was called to testify about plaintiff's work habits and compensation. Apparently a primary purpose of Dr. Richter's testimony was to establish that Gresen's topline earnings calculation was incorrect. Dr. Richter testified that LHA doctors are compensated according to a formula using "units" and "compensation points, " rather than straight hours worked, resulting in unpopular shifts, such as holidays, nights and weekends being worth more, and earning higher compensation, than more conventional days and hours. Dr. Richter also testified that he could not continue to employ plaintiff if he does not become board certified, and that plaintiff is the only doctor on staff at LHA who is not board certified. Dr. Richter testified, however, that he has afforded plaintiff flexibility, because plaintiff is a valuable asset to the group. Plaintiff remains employed with LHA on the same employment terms and conditions, notwithstanding ...

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