STEPHEN K. LEE VS. XIAOPING LI (FM-18-0659-13, SOMERSET COUNTY AND STATEWIDE) ( 2018 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5063-15T3
STEPHEN K. LEE,
Plaintiff-Appellant,
v.
XIAOPING LI,
Defendant-Respondent.
_______________________________
SHUANG QI SUN,
Intervenor-Respondent.
_______________________________
Submitted February 12, 2018 - Decided September 4, 2018
Before Judges Messano, Accurso and Vernoia.
On appeal from Superior Court of New Jersey,
Chancery Division, Family Part, Somerset
County, Docket No. FM-18-0659-13.
Steven A. Caputo, attorney for appellant
Stephen K. Lee.
Respondent Xiaoping Li has not filed a
brief.
Wang, Gao & Associates, PC, attorneys for
respondent Shuang Qi Sun (Heng Wang and
Jeremy J. Jackson, on the brief).
PER CURIAM
This divorce action became, in essence, a contest between
plaintiff Stephen Lee and an intervenor, Shuang Qi Sun, a
businessman from China, who obtained a default judgment of
approximately $1,040,0001 against Lee's wife, defendant Xiaoping
Li, but whose complaint against plaintiff was dismissed on
summary judgment. After defendant defaulted in the divorce, the
trial court denied equitable distribution to both plaintiff and
defendant based on its finding that defendant acquired the
marital home and an apartment in Beijing through misuse of money
provided by intervenor for investment, and that the parties
transferred another property from plaintiff to defendant to
avoid its inclusion in plaintiff's bankruptcy. The court
granted intervenor power of attorney to sell all three
properties to satisfy his default judgment against defendant and
allowed him to retain any surplus based on its finding that
neither defendant nor plaintiff was "entitled to equitable
distribution from those assets and these sums represent
1
It is impossible to be more precise on this record. The
appendix does not contain a judgment entered on the Civil
Judgment and Order Docket, see R. 4:101, and the order dated
October 30, 2015 granting intervenor judgment by default,
included in the appendix, awards intervenor $900,000 and
¥919,091 (RMB). In its opinion from the bench, the court, using
an online calculator, noted that latter sum as the equivalent of
$139,703.
2 A-5063-15T3
intervenor's lost profits on amounts given to the defendant, in
any event."
Plaintiff appeals from those aspects of the final judgment
of divorce denying him equitable distribution, claiming, among
other things, that the court failed to accord him the benefit of
the summary judgment he obtained dismissing intervenor's
complaint and overlooked evidence in the record pointing to
intervenor's own unclean hands. Defendant has not contested
plaintiff's appeal. Intervenor opposes the relief, arguing
plaintiff is "trying to raise new issues on appeal" and "waived
his right to seek further discovery by moving for default
judgment against defendant."
Because the unusual procedural posture of this case
deprived plaintiff of the benefit of his judgment dismissing
intervenor's complaint and did not afford him the opportunity to
challenge intervenor's allegedly "unclean hands," we vacate the
court's ruling on equitable distribution and remand for
reconsideration.
Although our review has been somewhat hampered by the
parties' failure to include all parts of the record essential to
a proper consideration of the issues, see R. 2:6-1(a)(1), we
have been able to piece together what we believe to be the
essential facts and procedural history. Plaintiff filed for
3 A-5063-15T3
divorce in January 2013. Defendant filed a timely answer and
counterclaim, and her counsel apparently first raised the
specter of a potential claim by intervenor at the early
settlement panel.
Intervenor thereafter obtained leave to participate in the
parties' divorce action.2 He filed a complaint against both
defendant and plaintiff alleging defendant enticed him to enter
"a business venture" in 2007 claiming "she had experience
operating a furniture and carpet business" and "with her United
States permanent resident status, that she was able to acquire
commercial property easily." Intervenor claimed he and
defendant entered into an "oral agreement" in China to start a
new company in the United States of which they would be the only
two shareholders. Intervenor was to own fifty-one percent and
defendant forty-nine percent and each was to contribute capital
in proportion to his or her ownership interest "towards the
purchase of commercial property for the purpose of operating the
new company." Intervenor was to serve as chairman of the board
and defendant was to be in charge of business operations,
2
There is no indication in the record on appeal as to whether
defendant opposed the application. Although plaintiff's counsel
claimed intervenor never served him with the motion to
intervene, he ultimately acquiesced in the filing after "the
judge . . . suggested there was no way this was going to get
resolved without it."
4 A-5063-15T3
providing intervenor with monthly reports on the company's
operations and finances.
Intervenor also alleged in his complaint that the company
was incorporated in New Jersey in April 2007 and that he wired
$300,000 to defendant's account in a Chinese bank in July 2007
pursuant to the parties' agreement.3 The complaint further
alleged that intervenor "or his agents" purchased ¥918,991.19
(RMB) in carpet and furniture for the company in China in July
2007 at defendant's request, and that intervenor, using twelve
different individuals as surrogates, wired $600,000 to defendant
in sums of $50,000 each between August and October of 2007. The
complaint alleged the company never got off the ground, and
defendant never "purchased any commercial property to facilitate
[its] operation[s]." Intervenor pled counts alleging a
constructive trust, breach of contract and unjust enrichment
against both defendant and plaintiff as well as a fraud count
against defendant.
Following intervenor's entry into the case in late
September 2013, the parties appeared for a case management
conference, at which defendant represented herself, having
dismissed her counsel. On the record at that conference,
3
A translation of the fund transfer document in the appendix,
however, lists the funds as a loan.
5 A-5063-15T3
defendant told the judge she was "just wondering if they said
the marriage residential, that's really belong to us, where does
the money come from?" Defendant proceeded to explain to the
court that intervenor wired money to her to build a furniture
business but the economy in 2008 made that impossible. She
explained "they" gave up on that and bought the house out of
foreclosure with the idea of flipping it. She claimed when the
house did not sell, she and plaintiff moved there "to maintain
the house." She further claimed intervenor agreed they would
sell it when the market improved. She told the court that just
as she was readying the property to put it on the market,
plaintiff filed for divorce.
Defendant does not appear to have meaningfully participated
in the case after that conference. She never appeared for
deposition, and the court struck her pleadings, first on
intervenor's motion in November 2014 and then on plaintiff's
motion in January 2015.
Plaintiff obtained summary judgment dismissing intervenor's
complaint against him in May 2015. The court found intervenor
presented no proof that plaintiff knew where the funds to
purchase the marital residence had come from or had any
involvement in intervenor's dealings with defendant. Although
plaintiff acknowledged meeting intervenor with defendant, the
6 A-5063-15T3
court noted that intervenor and defendant conducted their
business in Chinese, which plaintiff does not speak or
understand. Another judge, the same one who entered the
judgment of divorce, subsequently granted intervenor's motion
for entry of default judgment against defendant on the papers.
When plaintiff appeared for the default hearing on the
divorce, defendant's third lawyer on the case made a motion to
withdraw on the record after defendant advised the court that
she would not appear. Although not objecting to counsel's
withdrawal, plaintiff's counsel vehemently objected to his
client being cross-examined by defendant's counsel in light of
her unwillingness to participate in discovery or be deposed.
Plaintiff's counsel represented that defendant failed to
disclose her ownership of the apartment in Beijing and between
$50,000 to $60,000 of income on her CIS, and that plaintiff had
not been able to locate two other properties defendant acquired
in China during the parties' marriage. He claimed permitting
defendant's counsel to do anything other than observe, simply
magnified the prejudice plaintiff had already suffered as a
result of defendant's contumacious conduct. Although the court
advised defendant's counsel it would grant his motion to be
relieved, counsel determined ultimately to stay "and participate
on [defendant's] behalf" after his client sent him an email
7 A-5063-15T3
"releas[ing] [him] from any liability for anything that happens
today."
At the default hearing, plaintiff testified at length about
the parties' thirteen-year marriage, what little he knew of
their finances, his paying over the entirety of his social
security check every month to defendant, defendant's bullying
behavior toward him, her use of the letterhead of a defunct
business he formerly maintained to issue fraudulent invitations
to Chinese citizens, including intervenor, to allow them to
obtain travel visas to the United States, and his care of their
daughter then in sixth grade. He was vigorously cross-examined
by counsel for intervenor and counsel for defendant, especially
over defendant's purchase of plaintiff's South Plainfield home
after the birth of their daughter in 2002 but approximately nine
months prior to their marriage in 2004.
Plaintiff testified the house was in foreclosure and there
was an outstanding tax sale certificate. Although the testimony
was far from clear about how much plaintiff owed on the mortgage
when he sold the property, he eventually testified he owed
$110,000 on the mortgage, that defendant purchased the property
for $115,000, although the property was worth $300,000, and he
did not declare an expected interest in the property when he
filed for bankruptcy in August 2005, despite an oral agreement
8 A-5063-15T3
with defendant that she would put his name on the deed after he
completed his bankruptcy, which she reneged on.
Plaintiff sought fifty percent of the marital home, valued
by his expert between $750,000 and $780,000 and fifty percent of
the South Plainfield property, which his expert testified he
would list at $310,000, expecting a sale price between $298,000
and $300,000. As to the property in Beijing, an apartment
valued at $1,953,000, plaintiff offered to have his share of the
property placed in trust for their daughter's education.4 The
two New Jersey properties are titled solely in defendant's name,
as apparently is the apartment in Beijing.
Defendant's counsel argued in summation that the South
Plainfield property was a pre-marital asset not subject to
equitable distribution. Counsel conceded plaintiff was entitled
to a share of the marital home but argued giving him "fifty
percent of everything with the million dollar judgment"
4
Although an appraisal, of sorts, of this property translated
from the Chinese and listing defendant as the owner was admitted
in evidence, no one produced a deed, and there was no testimony
as to when defendant purchased the property, purportedly built
in 2005, or for how much. The appraisal does not list a
mortgage encumbering the property. Plaintiff testified to
sending a $400,000 wire transfer at defendant's direction to an
account in China in her name in January 2010, but had no
knowledge of where the money came from or what it was to be used
for. There was no evidence linking that transfer to this
property.
9 A-5063-15T3
intervenor had against her would result in "a situation where
the net to . . . [defendant] is going to work out to be zero or
around there."
Intervenor's counsel argued that "plaintiff should be
jointly liable for the repayment of all monies paid on that
house." Acknowledging plaintiff succeeded in having
intervenor's complaint against him dismissed in its entirety,
counsel argued "the court still can hold him liable under the
theory of marital liabilities." He claimed plaintiff "kept
himself willfully ignorant of his wife's dealings" with
intervenor and suggested based on their "past collu[sion] to
hide assets from a trustee in a bankruptcy proceeding" that the
two were working together "in an attempt to try to do the same
thing here." Intervenor asked that the court transfer title to
the marital home to him or alternatively that all the properties
be liquidated, the proceeds placed in counsel's or the court's
trust account to permit satisfaction of the judgment and
distribution of the remaining funds as the court would order.
Counsel for plaintiff reminded the court that another judge
had already ruled that plaintiff "had no liability whatsoever"
for the sums owed intervenor, and that the court could not
accept intervenor's argument and "procedurally or equitably
. . . reinstate[s] those claims and hold [plaintiff] liable for
10 A-5063-15T3
this after [plaintiff] already won the motion for summary
judgment." Although taking no "position as to what [plaintiff
and defendant] were trying to do" with regard to the South
Plainfield property in plaintiff's bankruptcy, counsel argued
defendant received a windfall in the conveyance, a portion of
which should equitably be awarded to plaintiff. Finally,
plaintiff's counsel argued that defendant should not be rewarded
for her successful efforts in preventing plaintiff from
discovering her assets in defiance of multiple court orders.
Following summations, the court questioned the lawyers for
intervenor on the ability to execute on the property in Beijing
should the court "address liquidation of that property to
satisfy a judgment." Counsel responded that they had been in
contact with intervenor's counsel in China, and "[a]ccording to
her, it's extremely difficult to get it liquidated unless
[defendant] is physically there to sell that property. Things
in China work very differently." Counsel expressed the view,
again based on his discussions with his counterpart in China,
that "to the extent that that property can be turned into money,
I think it's not going to happen right away[,] and I doubt if it
will ever happen at all. . . . [I]t's generally very difficult
to enforce a U.S. judgment in China."
11 A-5063-15T3
Two weeks after the hearing, the judge put his opinion on
the record. The judge found plaintiff a credible witness,
ignorant of his wife's misdeeds. Based on plaintiff's
testimony, the court found the marital standard of living for
the family was $6358 per month, and that plaintiff was without
property or savings other than the $1000 per month he received
in social security, $300 of which he received on behalf of the
parties' daughter. In light of the considerable difference in
the parties' incomes and ages, plaintiff was sixty-eight when
the court entered judgment and defendant fifty-four, the court
awarded plaintiff term alimony and required no child support
beyond the $300 derivative payment from social security.
Determining, however, that the marital property and the
property in Beijing5 were "illegally acquired and the court can
only distribute assets that were legally acquired," relying on
5
Although defendant admitted in her CIS filed with the court
that she used a portion of the funds supplied by intervenor to
purchase the marital property, prompting the court's finding in
the default judgment entered in favor of intervenor that
defendant used $636,000 of the $900,000 wired to her by
intervenor for that purpose, there is nothing in the record
linking the funds used to purchase the Beijing apartment to the
$264,000 of intervenor's funds remaining after defendant's
purchase of the marital residence in 2008. The trial judge
found he could not determine where the funds came from for that
purchase. The court found only that there was no evidence that
defendant "had the means" to acquire either the marital
residence "or the China property, except by way of ill-gotten
gains, namely, by using the money given to her by intervenor."
12 A-5063-15T3
Sheridan v. Sheridan, 247 N.J. Super. 552, 562 (Ch. Div. 1990),
the court declined to make any equitable distribution of those
assets to the parties and instead ruled "intervenor will be
permitted to satisfy his judgment from these assets."
The court ruled the South Plainfield property "stands on
similar but slightly different footing." Finding "the parties
operated to hide [the] asset from the bankruptcy trustee," the
court determined "to notify the United States bankruptcy trustee
of plaintiff's admission to the fraud on the record." The court
further ordered:
Until the bankruptcy trustee notifies
this Court of his or her intent to act or
not, vis a vis this asset, the asset shall
not be equitably distributed or liquidated.
If the trustee declines to act, the
intervenor shall be permitted to liquidate
the asset to the extent his judgment has not
been satisfied from the other assets.
The intervenor is granted power of
attorney, therefore, to liquidate the
[marital residence] to satisfy his judgment.
Next, the intervenor is granted power of
attorney to liquidate the China property to
satisfy his judgment. Third, and in this
order, if the bankruptcy trustee declines to
act, the intervenor will then be permitted
to liquidate the [South Plainfield]
property, to the extent that the
intervenor's judgment is not satisfied from
the [marital residence] and the China
property.
The intervenor shall satisfy the
[attorney fee] debt owed by defendant from
13 A-5063-15T3
the [South Plainfield] property, as well as
any counsel fees owed to [plaintiff's
counsel] from that asset. If after the
liquidation of the China property and the
[marital residence], there are funds left,
the intervenor shall keep them, because the
plaintiff and the defendant are not entitled
to equitable distribution from these assets
and these sums represent intervenor's lost
profits on amounts given to the defendant,
in any event.
Plaintiff appeals, arguing, among other things, that the
court erred in ignoring evidence of intervenor's unclean hands,
in awarding intervenor approximately $3,000,000 in assets to
satisfy a judgment against defendant for approximately
$1,100,000, in making intervenor defendant's attorney in fact to
liquidate those assets and in reporting the parties to the
bankruptcy trustee.
Intervenor counters that plaintiff is "trying to raise new
issues on appeal," and that we should disregard plaintiff's
allegations of money laundering and decline to apply the defense
of "in pari delicto" as neither was ever raised in the trial
court. Intervenor contends the judgment was fair and equitable
because plaintiff was unjustly enriched by defendant's
fraudulent conduct. Intervenor contends the court's dismissal
of all his claims against plaintiff, including those for unjust
enrichment, is "not dispositive of a finding of unclean hands"
14 A-5063-15T3
because "[t]he doctrine of unclean hands is a legal principle,
not a cause of action."
We ordinarily accord deference to the Family Part based on
its special jurisdiction and expertise. Cesare v. Cesare, 154
N.J. 394, 411-13 (1998). We defer to the court's factual
findings if "supported by adequate, substantial, and credible
evidence in the record." D.A. v. R.C., 438 N.J. Super. 431, 451
(App. Div. 2014). We owe no deference, however, to rulings not
based on witness testimony or credibility findings. Yueh v.
Yueh, 329 N.J. Super. 447, 461 (App. Div. 2000). Our review of
questions of law is, of course, de novo. Nicholas v. Mynster,
213 N.J. 463, 478 (2013); Manalapan Realty, L.P. v. Twp. Comm.
of Manalapan, 140 N.J. 366, 378 (1995).
The law is well settled that "[a] court of equity can never
allow itself to become an instrument of injustice." Rolnick v.
Rolnick, 262 N.J. Super. 343, 362 (App. Div. 1993) (quoting
Sheridan, 247 N.J. Super. at 556). "Thus, where the bad faith,
fraud or unconscionable acts of a petitioner form the basis of
his lawsuit, equity will deny him its remedies." Ibid. (quoting
Sheridan, 247 N.J. Super. at 556). Courts of equity applying
the maxim of unclean hands must, of course, "use just discretion
in determining under what circumstances, to what extent and what
policy reasons will constitute cause to banish a litigant or to
15 A-5063-15T3
bar her relief." Sheridan, 247 N.J. Super. at 569. The Supreme
Court has long acknowledged "[i]t is the effect of the
inequitable conduct on the total transaction which is
determinative whether the maxim shall or shall not be applied.
Facades of the problem should not be examined piecemeal."
Untermann v. Untermann, 19 N.J. 507, 518 (1955).
We begin our analysis by making clear we have no quarrel
with the court's referral of plaintiff's failure to have
disclosed his expected interest in the South Plainfield property
in his 2005 bankruptcy to the bankruptcy trustee. We reject
plaintiff's arguments that the language barrier to clear
testimony and the uncertainty as to whether plaintiff had an
obligation to report his expectation as to that property, which
was ultimately not fulfilled in any event, should have stayed
the judge's hand.
"When a court becomes aware that the parties appearing
before it are, or may be, involved in illegal conduct, it has an
ethical obligation to act." State v. V.D., 401 N.J. Super. 527,
537 (App. Div. 2008). Although we have not hesitated to act
ourselves when we believe a judge has overstepped his bounds in
that regard, see id. at 538 (reversing special condition of
probation requiring defendant contact immigration officials to
notify them of her conviction), we have no cause to do so here.
16 A-5063-15T3
It is up to the bankruptcy trustee to determine whether
plaintiff had an obligation to disclose whatever interest he had
in the South Plainfield property and, if so, whether the
interest would have or should be abandoned. See id. at 537.
We are not so sanguine, however, about the court's
disposition of that asset in the event the trustee determined to
abandon it,6 or the court's conclusion that plaintiff should
forfeit any interest in that property or the other two
properties owned by defendant without any inquiry as to whether
intervenor was entitled to equitable relief vis-á-vis plaintiff.
In other words, it does not appear the judge assessed
intervenor's conduct with the same gimlet eye with which it
appraised plaintiff's.
Plaintiff testified that defendant used old letterhead of
his to make up phony invitations to Chinese citizens, including
intervenor, permitting them to obtain visas to travel to New
Jersey to conduct business, and to his belief that intervenor
violated Chinese law in transferring $900,000 out of China to
defendant. Intervenor apparently admitted in a deposition, not
6
Indeed, even under the trial court's expansive view of
Sheridan, we can discern no reason why the South Plainfield
property, to the extent the court determined it a marital asset,
would not be subject to equitable distribution should the
bankruptcy trustee determine to abandon it.
17 A-5063-15T3
included in the appendix, that he transferred $600,000 of that
amount in sums of $50,000 through twelve proxies to avoid
detection and that doing so was a violation of Chinese rules,
or, as plaintiff claims, currency regulations.
There are other facts apparent on the record that raise
further questions as to intervenor's good faith in this matter.
They include: the absence of any written agreement between
intervenor and defendant, two individuals, seemingly not well-
acquainted; intervenor's having visited defendant at the marital
residence in 2008; intervenor's almost six-year delay in
instituting suit to recover the money he claimed defendant
misappropriated; and his having done so only after plaintiff
filed his complaint for divorce. Indeed, there is nothing in
the record on appeal indicating how intervenor learned of the
parties' divorce action.
None of those facts, either singly or in combination,
proves, of course, plaintiff's allegations that defendant and
intervenor were engaged in a money laundering scheme or that
they colluded to deprive plaintiff of his interest in the
marital property. But we reject intervenor's assertion that we
should disregard plaintiff's claims of intervenor's inequitable
conduct because they were not raised in the trial court — for
the simple reason that intervenor does not explain when
18 A-5063-15T3
plaintiff should have asserted such claims, or, indeed, had the
opportunity to do so. See State v. Witt, 223 N.J. 409, 419
(2015) (quoting State v. Robinson, 200 N.J. 1, 20 (2009))
("[O]ur appellate courts will decline to consider questions or
issues not properly presented to the trial court when an
opportunity for such a presentation is available.") (emphasis
added).
The record makes very apparent, as two judges found, that
plaintiff knew absolutely nothing about defendant's dealings
with intervenor. Plaintiff secured summary judgment dismissing
intervenor's complaint against him for a constructive trust,
breach of contract and unjust enrichment based on intervenor's
inability to marshal any evidence of plaintiff's knowledge of
defendant's business affairs. Plaintiff had no need, or likely
ability, to establish anything beyond the absence of any
evidence against him in intervenor's suit. Further, the trial
judge granted intervenor's motion for default judgment against
defendant in that suit on the papers. Although intervenor's
counsel participated in the default hearing, we see no reason
for plaintiff to have been prepared to mount a defense to
intervenor's claims against him at that time in light of the
summary judgment he had already secured.
19 A-5063-15T3
Intervenor's argument that plaintiff chose to enter default
against defendant instead of pursuing discovery ignores the
multitude of discovery and case management orders defendant
defied in the divorce action, which was over three years old at
the time of the entry of the judgment. Intervenor's claim that
the court was correct to ignore another judge's order finding
that plaintiff was not unjustly enriched at intervenor's
expense, an order intervenor did not appeal, because the
equitable doctrine of unclean hands "is a legal principle, not a
cause of action," is without basis in the facts or the law.
A review of the record makes clear the court weighed the
equities of intervenor's claims against plaintiff's right to
equitable distribution without critical assessment of
intervenor's good faith, without acknowledging that intervenor's
claims against plaintiff had been dismissed, including the claim
for unjust enrichment, and without ever hearing intervenor's
testimony. The court never required intervenor to appear before
it to testify to his claims under oath and thus never had the
opportunity to assess his credibility before deciding that
intervenor's claims rose higher than plaintiff's right to
equitable distribution.
That circumstance makes the court's decision to award
intervenor assets of over $3,000,000 on a claim of less than
20 A-5063-15T3
$1,100,000, expressly permitting him to retain any sums he
collects in excess of his judgment, while awarding plaintiff
zero in equitable distribution, especially troubling. It is
highly unlikely that intervenor could have obtained such relief
in the Law Division, see Bell Atl. Network Servs., Inc. v. P.M.
Video Corp., 322 N.J. Super. 74, 97-101 (App. Div. 1999) (noting
New Jersey courts do not generally award lost profit damages for
new businesses because of the inability to prove such profits
with reasonable certainty), especially the right to liquidate
the South Plainfield and Beijing properties, which intervenor
produced no proof were purchased with his funds, see Flanigan v.
Munson, 175 N.J. 597, 608 (2003) (explaining the test for
imposition of a constructive trust requires a wrongful act which
"must result in a transfer or diversion of property that
unjustly enriches the recipient"); he should not receive greater
relief simply because he intervened in the parties' divorce.
We think it plain from this discussion that the "equitable"
award to intervenor the trial court fashioned cannot stand and
must be remanded for reconsideration. We do not contend the
court erred in seeking to apply the doctrine of unclean hands to
this matrimonial action. As the Court many years ago observed
in responding to criticisms of the doctrine's applicability to a
divorce, "in many instances involving a rule of law or equity it
21 A-5063-15T3
is not the rule but the application of the rule which raises the
various problems." Untermann, 19 N.J. at 517. As the Court
explained, "the principles upon which the maxim rests are
equitable and, if properly administered with consideration of
the total situation, are instrumental in the preservation of
justice and the integrity of the courts." Ibid. The problem
here is that the court looked only to defendant's conduct and
plaintiff's but not intervenor's in weighing the equities; that
error must be corrected on remand.
We offer the following for guidance on remand. Intervenor
has a default judgment for approximately $1,100,000 against
defendant only, plaintiff having obtained a final judgment
dismissing intervenor's claims, which intervenor did not appeal.
As far as we can tell, intervenor presented no proof that
defendant used intervenor's funds to purchase either the South
Plainfield property or the Beijing apartment. The default
judgment against defendant limits its findings regarding any
constructive trust to the marital residence. Thus there was no
basis for the court to order conveyance of either the South
Plainfield property or the Beijing apartment to intervenor. See
Flanigan, 175 N.J. at 611 ("caution[ing] courts generally that a
constructive trust is a powerful tool to be used only when the
equities of a given case clearly warrant it"). The question for
22 A-5063-15T3
the court on remand is to determine, viewing all the equities,
whether plaintiff has a right to equitable distribution of some
or all of the marital residence vis-á-vis both defendant and
intervenor, whose default judgment against defendant impressing
a constructive trust on that property to the extent of at least
$636,000 was made expressly subject to plaintiff's right to
equitable distribution.
The court must also determine plaintiff's right to
equitable distribution of the South Plainfield property, in the
event the bankruptcy trustee determined to abandon it, as well
as the Beijing apartment. In that regard, we make two points
about Sheridan. The first is that the parties to the divorce in
that case were, for purposes of equitable distribution, in pari
delicto, 247 N.J. Super. at 562, which, with the exception of
the South Plainfield property, is not the case here. And second
is the Sheridan court's belief that the sums over which it
imposed a constructive trust would likely be consumed to satisfy
the Sheridans' federal and state tax liabilities; meaning that
the court leaving them "where the court found them" would not
reward either one. Id. at 562, 566-67. Of course, when the
parties to a divorce are not in pari delicto, the court could
face a more difficult task in ensuring it does not "become an
instrument of injustice," Rolnick, 262 N.J. Super. at 362
23 A-5063-15T3
(quotation omitted), in attempting to equitably distribute the
parties' assets. Care must be taken in applying the doctrine of
unclean hands to "not worsen a thoroughly bad situation and give
an economic advantage" to a party not deserving it. Untermann,
19 N.J. at 519.
Finally, should the court determine that liquidation of
some or all of the properties is appropriate, the court must
consider whether the remedy it chooses is a realistic one and
take steps to assure the proceeds of any liquidation are
properly accounted for. Judging from the responses of
intervenor's counsel to the court's questions about enforcing a
New Jersey judgment in China, the judgment the court fashioned
could well have the perverse effect of leaving the largest asset
in defendant's possession, a decidedly inequitable result. The
court has other tools, notably the power in aid of litigant's
rights, to compel compliance with its orders. See R. 1:10-3; R.
4:59-2(a); In re N.J.A.C. 5:96 & 5:97, 221 N.J. 1, 17-19 (2015)
(discussing alternatives available to the trial court for
enforcing a party's rights); see also Roselin v. Roselin, 208
N.J. Super. 612, 616 (App. Div. 1986) (same). It should further
consider whether investing the power to liquidate assets
belonging to the parties in an individual beyond the reach of
the court's process and without requiring payment of the
24 A-5063-15T3
proceeds into the Superior Court's or an attorney's trust
account for final disbursement in accordance with the judgment
is appropriate.
We reverse the equitable distribution award to plaintiff
and those provisions of the divorce judgment granting intervenor
exclusive power to sell or liquidate the three properties
identified in the judgment and remand to the Family Part for
reconsideration and further review. To the extent that the
court's reconsideration of the equitable distribution award
affects other financial aspects of the judgment, such as
alimony, child support or counsel fees, it may reconsider such
aspects of the judgment as well.
Reversed in part and remanded.
25 A-5063-15T3