Opinion
No. 301952/12.
2013-06-3
Jeffrey TARRANT, Plaintiff, v. Cornelia TARRANT, Defendant.
Peter Bronstein, Esq., Bronstein Van Veen LLC, appeared for Plaintiff. Mara Thorpe, Cohen Claire Lans Greifer & Thorpe LLP, appeared for Defendant.
Peter Bronstein, Esq., Bronstein Van Veen LLC, appeared for Plaintiff. Mara Thorpe, Cohen Claire Lans Greifer & Thorpe LLP, appeared for Defendant.
LORI S. SATTLER, J.
In this post-judgment matrimonial motion, Defendant former wife (hereinafter “Defendant”) seeks to enforce a provision of the parties' Marital Settlement Agreement (hereinafter “Agreement”) requiring the distribution to her of a share of Protégé Partners LP (hereinafter “PPLP” or “Protégé”), an investment fund Plaintiff former husband (hereinafter “Plaintiff”) co-founded in 2002 and of which he is the CEO. Defendant contends that pursuant to the terms of the Agreement entered into in June 2011, Plaintiff was to pay the sum of $26,012,709 in cash into her preexisting capital account at PPLP on or before December 31, 2012 and that he failed to do so. She seeks that payment and, in the event the cash payment is not timely made, that she be granted a money judgment in the amount of $26,012,709, with interest from January 31, 2012. She further seeks an order prohibiting Plaintiff from transferring a limited partnership interest into her PPLP account, contending that he is required to transfer dollars into that account. Defendant further seeks payment of $1,500,000 purportedly owed pursuant to the Agreement that she alleges has not been paid, or immediate entry of a money judgment with interest from July 1, 2011. Finally, Defendant seeks an order directing Plaintiff to pay her usual and ordinary living expenses for the year 2012 and to continue such payment until the PPLP payments are made, and for counsel fees incurred in enforcing the Agreement.
Plaintiff opposes the motion, contending that he performed all of his obligations under the Agreement well before the outside date for such performance. In September 2011, Plaintiff transferred Defendant's portion of his PPLP investment valued at $27,508,702.34, effective March 1, 2011, into an account for the benefit of Defendant (hereinafter the “FBO account”). He asserts that this was done to equalize the parties' PPLP holdings as of February 28, 2011, the date selected by the parties as the valuation date for their PPLP interests. Plaintiff further claims that the obligation to pay Defendant $1,500,000 upon her request was satisfied by a series of payments, despite the fact that Defendant made no demand therefore. They included an advance of $47,000 that Plaintiff extended to Defendant in 2011 pursuant to her request, payments made for her living expenses in 2012 after Plaintiff's obligation to pay those expenses ended, and a final deposit of $601,860.34 into Defendant's checking account on October 3, 2012.
Plaintiff cross-moves for an order requiring that Defendant authorize the transfer of the PPLP interest held in the FBO account into Defendant's existing account with the transfer to be effective as of January 1, 2012, a money judgment for $81,970.46 to reimburse him for extraordinary expenses that he paid in 2011 on behalf of Defendant that were not contemplated in the Agreement, and for counsel fees on the motion. An application regarding the residence of the parties' daughter Fabienne has been resolved and withdrawn.
Defendant's first contention is that, pursuant to the terms of the Agreement, she was entitled to a cash payment of $26,012,709 including $1,500,000 that she was authorized to withdraw from her share of PPLP on demand, all to be paid on or before December 31, 2012. This is in contrast to Plaintiff's proffer of an interest in the PPLP fund valued at $27,508,702.34.
In urging that she is entitled to receive her share of PPLP via a cash payment into her PPLP account, Defendant relies on the appearance of the word “Dollars” at several points in ¶ 60 of the Agreement. Defendant does not dispute that she is required to leave her capital distribution invested in PPLP under ¶ 61 of the Agreement, but suggests that the parties intended that at some date between April 2011 and January 31, 2012, Plaintiff would redeem a sufficient portion of his PPLP investment to cover a transfer of $26,012,709 to her account in cash, which she would then reinvest. She contends that had Plaintiff done this as of January 1, 2013, instead of transferring the interest held in the FBO account, she could have acquired a larger percentage interest in PPLP, as the value of the fund had declined between February 28, 2011 and the date of the final transfer. According to Defendant, the value of the FBO account as of January 1, 2013, was only $24,838,819–$1,173,828 less than the $26,012,709 to which she was entitled. Defendant further objects that because the investment held in the FBO account retained its original tax basis of $25,025,000, embedded capital gains decreased the value of that investment.
Plaintiff asserts that Defendant's interpretation does not reflect the terms of the Agreement or the parties' intent. He states that from the outset of negotiations, he was focused on preserving the value of PPLP and that the Agreement was always intended to provide that Defendant receive her share of the PPLP investment distributed in kind. For the same reason Defendant is required to retain her interest in the fund and withdraw sums only gradually over the course of 10 years. Plaintiff asserts that the scenario now proposed by Defendant was never contemplated by the parties as it would jeopardize the entire fund. Plaintiff, as co-founder and CEO, was obliged to notify other investors of the liquidation of 25% or more of his holdings. According to Plaintiff, the redemption Defendant now proposes would cause other investors to lose confidence in the fund and withdraw their investments.
Plaintiff further explains that Defendant's proposal that she make a new investment in fulfillment of her obligation under ¶ 61, would eliminate various income advantages extended to Plaintiff's early investments and would increase Defendant's management fees. He also notes that as a holder of new investments, Defendant would be precluded by the fund's rules from making any withdrawals for a year, contrary to the provision in the Agreement whereby she was authorized to withdraw 10% of the value of her holding each year. The provision of the Agreement granting Defendant $1,500,000 of her investment immediately upon request would also violate the fund's restrictions on funds invested for less than a year.
The Agreement details the terms of the parties' capital settlement in ¶ 60. It provides:
Protégé Partners. Wife is a limited partner in Protégé Partners, LP (“PPLP”) and has a capital account with PPLP valued at $268,268 as of February 28, 2011. Husband is a limited partner in PPLP and has a capital account with that fund valued at $49,573,486 as of February 28, 2011. On or before January 31, 2012, Husband will transfer into Wife's account at PPLP Twenty–Seven Million, Eight Hundred Thousand dollars ($27,800,000), less the total of:
a) Any amount up to One Million, Five Hundred Thousand dollars ($1,500,000) that shall be transfrred directly to the Wife pursuant to her instructions as part of her capital settlement hereunder, and to which the Wife shall immediately be entitled;
b) The combined value as of December 31, 2011 in Wife's Crown Banking checking account no. 1010059266554, Wells Fargo f/k/a Wachovia Money Market checking account no. 1010142309425, and the Wife's capital account with PPLP.
¶ 61 limits Defendant's control of the funds in her PPLP account as follows:
Wife to Maintain Funds at Protégé. Except as otherwise set forth herein, Wife shall not make withdrawals from her account at PPLP including the new amounts deposited therein by the Husband pursuant to the preceding paragraph, in any calendar year [in] an amount greater than 10% of the annual opening value of her account as of the start of that calendar year without the written consent of the Husband, which consent shall not be unreasonable withheld. This paragraph shall not restrict Wife's ability to open other accounts at Protégé using funds from other sources than the current capital account at PPLP as augmented pursuant to the Capital Settlement in the preceding paragraph or, in the event she does, from making withdrawals from such other accounts. In the event that the Wife wishes to make a withdrawal from her account at PPLP for the purchase of purchasing a house for up to $5 million prior to the realization of the proceeds of the sale of Tegernsee, or for reasons of financial hardship, it shall be deemed unreasonable for the Husband to withhold consent to such requests.
¶ 67 provides that:
The Husband will continue to pay for all of the Wife's usual and ordinary expenses incurred by the Wife for the balance of the 2011 calendar year and until the payment of the capital settlement set forth in paragraph 60 above. Such sums shall not be deductible from the gross income of the Husband nor includable in the gross income of the Wife as alimony, but shall be received free of United States income tax by her.
¶ 82 provides in relevant part that:
.... The parties will file a joint federal, state, and local tax return for calendar year 2010 and the Husband will pay the income taxes due on such return. The parties will file a joint federal, state and local tax return for calendar year 2011, and any tax due on the parties' income will be paid by the Husband.
The terms of a separation agreement, like those of a contract, must be interpreted within the four corners of the agreement if they are plain in their meaning. Laurence v. Rosen, 228 A.D.2d 373, 374 (1st Dept 1996). Where terms are indefinite, ambiguous, or otherwise subject to more than one interpretation, the court must construe the intentions of the parties at the time they entered into the agreement by looking to the “construction placed upon the agreement by the parties themselves.” Id. Here, Defendant relies on the use of the word “dollars” in ¶ 60 to support her claim that the parties intended that she receive a cash payment. Plaintiff urges, on the contrary, that the parties intended to transfer an interest in PPLP equal to an interest that, on February 28, 2011 was worth 27.5 million dollars and to thereby equalize the parties holdings.
It is uncontroverted that the value of the parties' interest in PPLP fluctuated daily and that the parties selected the dollar value of that investment as of February 28, 2011 as the basis for their negotiations. The use of the dollar value on a given date as a measuring unit of value does not necessarily, however, mean that dollars were to be transferred. In resolving the issue at hand, the court should “construe the agreement so as to give full meaning and effect to the material provisions.” Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 NY3d 577, 582 (2004). Nor should any portion be rendered meaningless. See God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Assoc., LLP, 6 NY3d 371, 374,(2006). It should be “read as a whole, and every part will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose.” Matter of Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 358 (2003).
Here, the most general purpose of the Agreement was to divide the parties' assets which primarily consisted of a limited partnership interest in PPLP, while maximizing their value. To preserve the value of the investment in PPLP, which constitutes the bulk of the parties' wealth, withdrawals were limited. Plaintiff states without contradiction that transfer, as opposed to liquidation and reinvestment, preserved preferential income opportunities and diminished expenses. The provision permitting Defendant to withdraw $1,500,000 of her interest on request further suggests that the bulk of the fund was to remain invested and intact.
Plaintiff notes that PPLP is a fund of funds structured as a limited partnership. He indicates that it is not a bank and does not hold cash for its investors. The court notes that a cash payment of the balance of the $1,500,000 to which Defendant was entitled was placed into an account at Charles Schwab. In negotiating the equal division of their PPLP investment, Plaintiff indicates that he also sought to insure that the fund would not be suddenly drained of assets and Defendant's right of redemption was accordingly curtailed. At the time the Agreement was reached, no benefit to either party would have been gained by requiring that half of the investment be redeemed and then reinvested in Defendant's account. Only in hindsight, after PPLP's value has decreased, does it appear that Defendant might benefit from her current interpretation of the Agreement and receive more than 50% of this holding.
Viewing the Agreement as a whole, the court concludes that the reference to dollars in ¶ 60 did not signify that Defendant's interest in PPLP was to be made in cash as she now suggests, but rather was a convenient unit pegged to the investment's value on a specific date, that was used to describe the equal division of this asset. Defendant's interpretation would serve no purpose, would render the additional provision for withdrawal of $1,500,000 unnecessary, and might ultimately diminish the value of the interest as a whole. The court therefore concludes that Defendant was entitled to transfer of a percentage share of the limited partnership interest in PPLP valued as of February 28, 2011, the valuation date chosen by the parties, rather than the dollar value she seeks.
In disputing Plaintiff's claim that he has performed all of his obligations under the Agreement, Defendant states that Plaintiff “failed to transfer the $26,012,709 or any other amount into my PPLP account.” In addition to seeking cash, Defendant apparently contends that the FBO account established as of March 1, 2011, the day after the agreed-upon valuation date, did not satisfy the obligation to make that transfer on or before January 31, 2012. The Agreement is clear that if Plaintiff is correct that this transfer fulfilled his contractual obligation, his further obligation to pay Defendant's reasonable living expenses ceased, pursuant to ¶ 61, as of December 31, 2011. Additionally, if the FBO account constituted a transfer to Defendant as of the effective date, then her share of the fund's capital losses incurred in the balance of year 201l, as well as the tax obligation for income earned in 2012, became hers.
Plaintiff asserts that in September of 2011, he set up the FBO account effective as of March 1, 2011, funding it with an interest valued at $27,508,702 as of March 1, 2011, to identify and separate the parties' interests. Accordingly, after the valuation of the division, each would have the benefit of any subsequent gains and the risk of any subsequent losses. The question then becomes whether this transfer into an account for the benefit of Defendant, satisfied the contractual requirement that the transfer be to Defendant.
Plaintiff states that he was of the belief that his contractual obligation to transfer Defendant's interest “into Wife's account” was satisfied, as of March 1, 2011, by the transfer into the FBO account. He contends that the FBO transfer, which was actually accomplished on September 11, 2011, but was made effective as of March 1, 2011, was the equivalent of a transfer on the “as of” date. Plaintiff and Jessica Davis, General Counsel for Protégé both state, without contradiction, that it is common industry practice to select an effective date for the transfer of an investment interest that is different from the execution date and that, as long as a transfer is accomplished within the same calendar year as the effective date, tax complications are avoided. Defendant raises no specific objection to the backdated transaction, nor does she contend that her share was in any way diminished by the practice that was followed.
The question still remains as to whether the transfer into the FBO account was the equivalent of a transfer into Defendant's PPLP account, as required by the Agreement. The contract provision requiring the deposit into Defendant's account is clear. “[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” Greenfield. v. Philles Records, 98 N.Y.2d 562, 569 (2002). PPLP's General Counsel asserts that, upon the creation of the FBO account, Defendant received “most of the advantages of ownership,” in that she was thereafter entitled to receive all information concerning the fund and that Plaintiff relinquished the ability to transfer that interest back to himself without Defendant's authorization.
Although the FBO account may have been “earmarked” for Defendant, however, Plaintiff retained sufficient control of the account to enable him to redeem $1,500,000 in April 2012, and use part of that fund to reimburse himself for Defendant's 2012 living expenses. The account reflected Plaintiff's social security number and the income was reported in his K–1. Under the circumstances, Plaintiff cannot be said to have made the required deposit into Defendant's account by creating the FBO account. The deposit into Defendant's existing PPLP account did not occur and was not effective until January 1, 2013, eleven months after the outside date required for the transfer under Agreement.
Plaintiff contends that even if the transfer into the FBO account did not constitute specific performance of his obligation under the Agreement, Defendant waived any right to object because the account now challenged as ineffective was created with Defendant and her counsel's full knowledge and acquiescence, to preserve the children's inheritance rights. His counsel states that the FBO account was also established to accommodate Defendant's desire, upon her move to Italy, to avoid Italian income, wealth and inheritance taxes. According to counsel, the further transfer into Defendant's own account did not become feasible until she moved from Italy to Zurich. According to Plaintiff, his lawyer, and the parties' bookkeeper, Defendant and her lawyers learned as early as December of 2011 that the transfer into the FBO account occurred and that Plaintiff's considered it the fulfillment of his contractual obligation.
Contractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned. Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7 NY3d 96(2006); Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 N.Y.2d 1751982]. “To establish waiver under New York law one must show that the party charged with waiver relinquished a right with both knowledge of the existence of the right and an intention to relinquish it.” Voest–Alpine Intl. Corp. v. Chase Manhattan Bank, 707 F.2d 680, 608–83 (2d Cir.1983)citing City of New York v. State of New York, 40 N.Y.2d 659, 669 (1976). Abandonment of a contract right “may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage.” General Motors Acceptance Corp. v. Clifton–Fine Cent. School Dist., 85 N.Y.2d 232, 236, (1995).
Plaintiff presents additional evidence to indicate Defendant's awareness of the FBO account in 2011 and 2012. The parties' bookkeeper reported that pursuant to Defendant's long-standing instructions, she retrieves the statements for all of Defendant's PPLP accounts, including Defendant's individual account, the FBO account and two accounts that Defendant holds for the benefit of the parties' daughters. She stated that she discussed the FBO account extensively with Defendant and her estate attorney in December 2011, and forwarded a list of Defendant's assets to counsel reflecting that the FBO account constituted the bulk of Defendant's estate. The bookkeeper also discussed the FBO account with Defendant's matrimonial attorney in February of 2012, and forwarded financial documents to Defendant reflecting the balance in the FBO account in September of 2012.
Allegations that the FBO account was established as an accommodation to Defendant to avoid Italian taxes, or to protect the parties' estate plan, would, if demonstrated, support Plaintiff's claim that Defendant and her counsel knowingly waived any objection to what would otherwise constitute a failure of performance. The existence of Defendant's intent to forgo her right to a deposit into her own PPLP account is a question of fact, however, for which a hearing is required. Jefpaul Garage Corp. v. Presbyterian Hosp. in City of NY, 61 N.Y.2d 442, 446 (1984).
Plaintiff further contends, however, that he would have timely transferred the interest in the FBO account into Defendant's existing account as of January 1, 2012, but for Defendant's refusal to cooperate. Starting in September of 2012, Plaintiff attempted to transfer the FBO account into Defendant's account effective as of January 1, 2012, but was thwarted by Defendant's refusal to execute a necessary assignment agreement. Plaintiff asserts that on September 27, 2012, he brought the assignment form required by PPLP with him to Switzerland for Defendant's signature. When he was unable to meet with her, he left the form with their daughter.
Defendant signed the form Plaintiff had prepared and it was forwarded to Protégé on November 2, 2012. At that time, the parties' bookkeeper learned that the form erroneously stated that the transfer was to be effective as of January 1, 2013 instead of 2012. Defendant was subsequently contacted repeatedly between November 5, 2012 and December 31, 2012 and asked that she initial a correction authorizing the transfer as of January 1, 2012, but she declined to do so. In the absence of her authorization that the FBO account be transferred as of January 1, 2012, Plaintiff was unable to complete this transfer until January 1, 2013 or declare its effective date to one in 2011.
Plaintiff further contends that Defendant refused for two months to execute a corrected assignment form in an attempt to shift the payment of her 2012 living expenses to Plaintiff as well as 2012 income taxes on the FBO account, and to avoid European wealth and U.S. capital gains taxes in 2012. Plaintiff contends that this refusal to execute the necessary transfer document was in breach of the Agreement and that Defendant is therefore estopped from objecting that the transfer to her was late.
Estoppel “is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party's words or conduct, has been misled into acting upon the belief that such enforcement would not be sought.” Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 N.Y.2d 175, 184 (1985). To raise a defense of estoppel, the party raising the defense must prove by clear and convincing evidence the elements, which are conduct, reliance, and harm. Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P. supra at 106–07.
Plaintiff contends that he relied on Defendant's knowing acquiescence in the creation and continuance of the FBO account for more than a year, and that Defendant's subsequent refusal to execute the corrected transfer authorization caused him to bear significant expenses that were not contemplated in the Agreement. In light of the prima facie evidence that Defendant, by her conduct or that of her counsel, waived the rights she now asserts and/or is estopped from asserting them now, a hearing is necessary to resolve the motion.
Accordingly, the parties and counsel are directed to appear in Part 9 on July 10, 2013 at 3:15 p. m. for a pre-hearing conference on the factual issues raised by Plaintiff's assertion of these defenses to Defendant's claim of breach. The hearing will also include the damages claimed by each side as well the applications for counsel fees. The balance of the motion and cross-motion, to the extent not previously withdrawn, are held in abeyance pending the hearing.
This constitutes the Order and Decision of the court.