Steven J. Cohen v. John Raymond & A

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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Merrimack
No. 2014-0762
STEVEN J. COHEN
v.
JOHN RAYMOND & a.
Argued: September 24, 2015
Opinion Issued: November 17, 2015
Shaheen & Gordon, P.A., of Concord (Steven M. Gordon and Benjamin T.
Siracusa Hillman on the brief, and Mr. Hillman orally), for the plaintiff.
Orr & Reno, P.A., of Concord (Robert S. Carey on the brief and orally), for
defendant John Raymond.
HICKS, J. The plaintiff, Steven J. Cohen, appeals an order of the
Superior Court (McNamara, J.) ruling that $250,000 that Cohen deposited into
an investment account in the name of defendant John Raymond was an
unconditional gift. Cohen argues, among other contentions, that the trial court
erred by: (1) finding that the $250,000 was an unconditional gift, rather than a
loan or a conditional gift; and (2) presuming that the $250,000 was a gift,
thereby placing the burden on Cohen to show that it was not a gift. Defendant
Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch), as trustee, did not
participate in this appeal. We vacate and remand.
The trial court found the following facts. Cohen met Raymond when
Raymond began dating Cohen’s stepdaughter, Molly, whom Raymond
eventually married. Cohen owned a successful scrap metal company and
offered Raymond a job. Cohen assigned Raymond the company’s “tough dirty
jobs,” which Raymond successfully performed. Cohen soon regarded Raymond
as one of his most valuable assistants.
In 2006, Cohen sold his company to a corporation named Schnitzer.
Schnitzer gave Cohen and Raymond three-year employment contracts. Both
were also constrained by noncompete agreements. Raymond’s agreement was
set to expire after six months, but Cohen’s was to last for a number of years.
The pair quickly grew restless at Schnitzer, and began to discuss new business
opportunities. These discussions resulted in several trips, including a trip to
Germany, to observe other scrap metal operations. During these trips, Cohen
and Raymond frequently spoke about investment ideas.
Cohen knew a broker and private wealth manager at Merrill Lynch, and
Cohen testified that he wanted to help Raymond learn about investment
through that broker. To set up an investment account, Merrill Lynch required
a minimum deposit of $250,000. In January 2010, Cohen deposited this
amount into an account in Raymond’s name. Cohen testified that he
considered the money to be “seed money” for a business that he planned to
open with Raymond. Although Raymond testified that he never intended to go
into business with Cohen, the trial court found that “the parties had decided to
enter the recycling business together . . . in some fashion after Cohen’s non-
compete [agreement] expired.”
In the fall of 2012, Raymond and Molly decided to divorce. Raymond
then withdrew $50,000 from the Merrill Lynch account, which he used for
“personal purposes.” Upon learning of the divorce and withdrawal, Cohen
demanded that Raymond repay him the $250,000, and then sued Raymond in
superior court. Cohen claimed that the money was a loan, and that he was
entitled to repayment with interest at 5% or 6%. In the alternative, Cohen
claimed that Raymond had been unjustly enriched, and that he was entitled to
restitution.
The trial court conducted a bench trial on November 18, 2013, and
received post-hearing memoranda from the parties. In his argument on unjust
enrichment, Cohen suggested, for the first time, that the $250,000 was a
conditional gift. The condition, the trial court later determined, was that
Raymond use the $250,000 toward a joint business venture with Cohen.
According to Cohen, when Raymond withdrew the money, he violated that
condition. On January 7, 2014, the trial court ruled that the $250,000 was a
conditional gift and ordered restitution.
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Raymond moved for reconsideration, asserting that the trial court had
“decided the case on a theory Mr. Cohen had never pleaded.” Raymond argued
that, if Cohen had included the conditional gift claim in his original complaint,
Raymond would have engaged in additional discovery and presented additional
evidence to refute it. On February 28, 2014, the trial court granted Raymond’s
motion and set aside its January order.
The court conducted a second bench trial on October 14, 2014. Cohen
testified again, insisting that the $250,000 was a loan. When asked about gifts
on cross-examination, Cohen stated that “[a] gift is a gift,” and that he had
never made a gift with strings attached.
Following the second trial, the trial court issued its order on November 4,
2014. First, the court found that the parties did not intend to enter into a loan
agreement. The court then applied a “weak” presumption that Cohen had
given Raymond the $250,000 as a gift, placing on Cohen the burden of proving
the transfer was not a gift. Finally, quoting Cohen’s testimony that “[a] gift is a
gift,” the court found that Cohen had not met his burden, and that the
$250,000 was an unconditional gift. Cohen appealed.
We begin with the trial court’s application of the “weak” gift presumption.
Whether to apply a particular presumption, and thereby place the burden of
proof on a particular party, is a question of law, which we review de novo. Cf.
Estate of Abraham v. C.I.R., 408 F.3d 26, 35 (1st Cir.) (“We review the
allocation of the burden of proof, a question of law, de novo.”), amended by 429
F.3d 294 (1st Cir. 2005). We hold that the gift presumption does not apply to
transfers of property solely to in-laws. We also clarify that, although a “weak”
gift presumption may apply to transfers from parents to their children and in-
laws jointly, no such presumption applies when, as here, the transfer of
property was for an in-law’s sole benefit. Thus, we conclude that the trial court
erred in applying the gift presumption. Finally, we acknowledge Raymond’s
argument that, without the gift presumption, he would still satisfy his burden
of proving that the $250,000 was a gift. However, we leave this argument,
along with Cohen’s breach of contract and unjust enrichment claims, for the
trial court to address on remand.
In applying the “weak” gift presumption, the trial court relied upon
Chamberlin v. Chamberlin, 116 N.H. 368, 370-71 (1976). There, we discussed
the presumption in a case in which a mother and father took title to a piece of
property along with their son and daughter-in-law as joint tenants, and then
sued to “impress a resulting trust . . . and for a decree that [the] real estate
[was their] sole property . . . .” Chamberlin, 116 N.H. at 368-69. Cohen argues
that Chamberlin should be distinguished from the instant case because,
although in both cases an in-law was “involved” in the conveyance of a property
interest, the daughter-in-law in Chamberlin, unlike Raymond, was not “the
sole grantee.” We agree.
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At the outset, we note that many of the gift presumption cases cited by
both parties, including Chamberlin, deal with claims to impose resulting
trusts, not breach of contract or unjust enrichment claims like Cohen’s.
Neither party comments on the differences among these kinds of claims. But,
because we hold that the gift presumption does not apply in this case, we need
not determine, as a general matter, whether the presumption applies to claims
of breach of contract or unjust enrichment. Cf. Hornyak v. Sell, 629 A.2d 138,
140-41 (Pa. Super. 1993) (questioning whether the gift presumption applies to
a breach of contract claim).
Generally, the burden of proving that a transfer of property is a gift is on
the grantee or the party who asserts that a gift has been made. Bean v. Bean,
71 N.H. 538, 541 (1902); 38 Am. Jur. 2d Gifts § 79, at 836 (2010). However,
we have held that “[a] transfer of property between family members creates a
rebuttable presumption that a gift was intended.” Murano v. Murano, 122 N.H.
223, 228 (1982). This “presumption is strongest when the grantee is the wife of
the payor or a minor child[,] . . . less strong in the case of an adult son and
weaker when a daughter-in-law is involved.” Chamberlin, 116 N.H. at 371
(citations omitted). In Chamberlin, we described the presumption in the
context of the transfer of a piece of property held in joint tenancy by two
parents, a son, and a daughter-in-law, not a transfer of property to a daughter-
in-law alone. See id. We noted in Chamberlin that the daughter-in-law was
“involved.” See id. She was “involved” because she was a joint beneficiary of a
property interest along with the parents’ own child. See id. Chamberlin
therefore offers little guidance about the presumption’s application in cases,
like this one, that involve a transfer of property exclusively to an in-law.
Three reasons justify limiting the gift presumption to transfers of
property between or among close family members. The first is “common
practice.” See R. Chester & G. Bogert, Trusts & Trustees § 460, at 455 (3d ed.
2005). Parents routinely make gifts to their minor and adult children. See id.
at 455, 461-65. Many of these transfers occur without formalities; frequently
there is no accompanying documentation reflecting the parent’s intent to make
a gift. But, because of their routine nature, it is usually safe to presume that
transfers of property from parents to their children are intended as gifts. This
presumption is, of course, rebuttable. Murano, 122 N.H. at 228. When the
presumption is rebutted, then the burden shifts to the parents to show, by
words or actions, that they did not intend to make a gift. See id. But gifts from
parents to in-laws, who are the sole beneficiaries, are not similarly common.
The presumption of a gift in such a case is, therefore, not warranted.
Second, limiting the gift presumption to transfers between or among
close family members makes it easier to apply. Raymond argues that the trial
court’s application of the presumption was correct because, given the parties’
personal history, Raymond was “like family” to Cohen. According to Raymond,
“Cohen hired [him], trained [him], mentored [him], [and] traveled with [him].”
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In other words, Raymond urges us to rule that the gift presumption’s
application depends less upon the parties’ actual familial relationship, and
more upon the grantor’s particular affection for the grantee. We decline to do
so. If affection were the measure of the gift presumption’s strength, the
presumption may extend well beyond in-laws to close friends and other more
distant relations.
Alternatively, Raymond urges us to uphold the gift presumption’s
application here because Raymond, as Cohen’s son-in-law, was the “natural
object of Cohen’s bounty.” The natural-object concept is generally associated
with the four-part test for determining a person’s capacity to make a will. See
Restatement (Third) of Property § 8.1(b), at 106-07 (2003). It also appears in
Restatement (Third) of Trusts § 9(2) at 124 (2003):
Where a transfer of property is made to one person and the
purchase price is paid by another and the transferee is a spouse,
descendant, or other natural object of the bounty of the person by
whom the purchase price is paid, a resulting trust does not arise
unless the latter manifests an intention that the transferee should
not have the beneficial interest in the property.
(Emphasis added.) But the natural-object concept is as expansive as the
affection rationale discussed above:
Relatives by affinity do not take by intestacy but could be counted
as natural objects of a testator’s bounty in the case in which the
testator was close to them . . . . The natural objects of the
testator’s bounty might [also] include nontraditional as well as
traditional family members.
Restatement (Third) of Property, supra § 8.1(b) cmt. c at 108. Because the
natural-object approach, like the affection approach, is too uncertain a
standard for application of the gift presumption, we choose not to adopt it.
Finally, we note that other states have declined to extend the gift
presumption to property transfers involving in-laws. See, e.g., Ryan v. Ryan,
267 So. 2d 700, 702 (Ala. 1958) (“The only relationship which the evidence
shows to have existed between Lydia Roberts, deceased, and the appellant was
that of mother-in-law and son-in-law; no presumption of a gift therefore
arises.”); Jocoy v. Jocoy, 562 S.E.2d 674, 676 (S.C. Ct. App. 2002) (“In our
view, the better approach is that no gift is presumed to a son-in-law or
daughter-in-law.”). Raymond cites four out-of-state cases that apply the gift
presumption to transfers of property to in-laws. But of those four, two concern
gifts from parents to children and in-laws together and thus are
distinguishable from the instant case. See In re Marriage of Kendra, 815
N.E.2d 22, 23-26 (Ill. App. Ct. 2004) (applying the gift presumption to a
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transfer of a “40-acre tract of undeveloped land” from parents to a daughter
and son-in-law jointly); cf. Hornyak, 629 A.2d at 141 (finding that “even if [the
presumption] did apply, it was rebutted,” where parents transferred $5,000 to
a son-in-law for use toward a down payment on a home for both the parents’
daughter and the son-in-law). The other two cases involve gifts to in-laws
alone. See Somer v. Bogart, 749 S.W.2d 202, 203-04 (Tex. App. 1988);
Exadaktilos v. Cinnaminson Realty Co., 400 A.2d 554, 558 (N.J. Super. Ct.
Law Div. 1979), aff’d, 414 A.2d 994 (N.J. Super. Ct. App. Div. 1980). For the
reasons stated above, we do not find these decisions persuasive.
Here, Raymond was Cohen’s son-in-law. Thus, the gift presumption
does not apply, and the burden should have been on Raymond to prove that
Cohen intended to give him the $250,000 as a gift. We, therefore, vacate the
trial court’s November 2014 order and remand for further proceedings as the
trial court deems necessary, including consideration of the evidence relating to
Cohen’s breach of contract and unjust enrichment claims absent the gift
presumption.
Vacated and remanded.
DALIANIS, C.J., and CONBOY, J., concurred.
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