Grunfeld v. Grunfeld

OPINION OF THE COURT

Casey, J.

An open-court stipulation of settlement in a matrimonial action purporting to equitably distribute the parties’ marital property, which is based in part upon erroneous findings of the trial court as to the value of certain marital property, and which results in an award of substantially all of the marital assets to one party while burdening the other party with virtually all of the marital debt, is patently unconscionable. The court has not only the power but the duty to relieve the burdened party from such a stipulation. The trial court, therefore, erred in granting defendant’s motion to enforce the stipulation and denying plaintiff’s cross motion to set aside the stipulation.

Prior to and throughout the parties’ marriage, plaintiff’s occupation was as publisher and sole proprietor of a local newspaper in Cortland County. Defendant actively participated in operating the newspaper until the parties’ separation. In this divorce action* commenced in January 1981, the parties stipulated that they could obtain cross-divorces by default, and then proceeded to the trial of contested issues of equitable distribution. Following four days of hearings, Trial Term rendered a written decision dividing their property. The court determined that the aggregate marital property should be apportioned equally, a ruling not challenged on this appeal. It was further determined that plaintiff had separate property of some $14,000, principally his original cost of acquisition of the building and equipment used for operation of the newspaper, and that defendant had separate property worth about $4,000.

Plaintiff was found to have held marital property in his name having an aggregate value of some $195,000 at the time the action was commenced. These assets consisted of the marital residence, worth $34,680 after deduction of the principal balance of a first mortgage, the newspaper building, valued at $17,000 after deduction of the premarital cost of acquisition, a real estate partnership interest of $27,400, and 45 of 105 outstanding shares of stock in a separate printing business, the value of which was fixed at $114,755. The latter valuation was based upon the sale of the husband’s shares in that amount, of which some $48,000 was paid in cash and the balance was to be paid in future installments, subject to being offset by a $60,000 trade debt owed by the newspaper to the printing business. As to the newspaper itself, because of the absence of profits over several preceding years and the existence of liabilities in excess of assets, the court ascribed a zero value to it. Marital property held by defendant consisted of insurance proceeds worth $8,000. Since plaintiff held title to assets aggregating $195,000 of the roughly $203,000 value of all marital property, the court directed transfer of some $93,500 from the husband to the wife, in order to effectuate an equal division of marital property, with interest on $67,578 thereof at the rate of 9% per year from the date of the commencement of the action. Trial Term retained jurisdiction to direct implementation of its award in the event that the parties were unable to agree upon the means of dividing the property as ordered.

Subsequently, defendant made a motion for a court-ordered distribution of assets in accordance with Trial Term’s decision. Plaintiff, through substituted counsel, cross-moved to modify the decision. On the date fixed for argument of the motions, the parties appeared with their respective attorneys and, after a conference in chambers, a stipulation of settlement was entered into in open court and spread upon the record. The stipulation provided for the withdrawal of the parties’ motions, the waivers of plaintiff’s right to appeal from the court’s decision and of defendant’s right to interest on the award, and the conveyance by plaintiff to defendant of the following property in full satisfaction of her claims to equitable distribution: (1) the marital residence, subject to the first mortgage; (2) the land and buildings containing the newspaper operations and a second-floor apartment, subject to an existing $12,000 mortgage and to the right of the husband to occupy the entire premises under a lease for a stated annual rental; (3) the husband’s interest in the real estate partnership; and (4) a promissory note representing the balance of the purchase price of the husband’s stock holdings in the printing concern, subject to the $60,000 offset for the debt owed by the newspaper to the printer. Some two months later, defendant moved for enforcement of the stipulation and the entry of judgment pursuant thereto. Plaintiff cross-moved to vacate the stipulation and the court’s earlier decision dividing the marital property. Trial Term denied the cross motion in all respects and granted judgment pursuant to the stipulation. This appeal by plaintiff ensued.

We first reject plaintiff’s claim that this case is controlled by Lischynsky v Lischynsky (95 AD2d 111), where we held that an open-court stipulation, which did not comply with the statutory requirements for an "opting out” agreement (Domestic Relations Law § 236 [B] [3]), could not be used as the basis for a judgment equitably distributing the parties’ marital property. This holding is based upon the explicit statutory requirements (1) that unless the parties enter into a formal "opting out” agreement, the court must determine the respective rights of the parties in their separate or marital property and provide for the disposition thereof (Domestic Relations Law § 236 [B] [5] [a]), and (2) that the court must set forth the factors it considered and the reasons for its decision, a requirement that may not be waived by either party (Domestic Relations Law § 236 [B] [5] [g]). In the case at bar, however, Trial Term rendered a written decision in substantial compliance with the requirements of Domestic Relations Law § 236 (B) (5). The record establishes that the stipulation was not intended as a substitute for Trial Term’s findings; rather, the stipulation constituted the parties’ attempt to effectuate an equitable distribution of marital property based upon those findings. We find no conflict between such a procedure and the requirements of the Domestic Relations Law.

Next, we find no merit in the argument that our scope of review in this case is severely limited by the principle that stipulations of settlement, particularly those made in open court, may only be set aside for "cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident” (Hallock v State of New York, 64 NY2d 224, 230). This list of grounds for granting relief from an open-court stipulation is merely illustrative and not intended to exclude other appropriate grounds. More importantly, Hallock did not involve a stipulation between parties in a matrimonial action. Such a stipulation is an agreement between spouses which, unlike an ordinary business contract, involves "a fiduciary relationship requiring the utmost of good faith” (Christian v Christian, 42 NY2d 63, 72), and there is no indication that Hallock was intended to change the general principles applicable to transactions between spouses. The Christian court explained (supra, at p 72): "To warrant equity’s intervention, no actual fraud need be shown, for relief will be granted if the settlement is manifestly unfair to a spouse because of the other’s overreaching”. The court also noted (supra, at p 71) that equity will take cognizance of unconscionable conduct "when warranted” and that an unconscionable bargain is one that no sensible person " 'not under delusion’ ” would make and that no " 'honest and fair’ ” person would accept. Although Christian dealt specifically with a separation agreement, the court emphasized (supra, at p 72): "There is a strict surveillance of all transactions between married persons”; and the courts generally have recognized that there is no appreciable difference between separation agreements and stipulations of settlement spread on the record in matrimonial actions (see, e.g., Busetti v Busetti, 108 AD2d 769; Pintus v Pintus, 104 AD2d 866; Mutinelli v Mutinelli, 114 Misc 2d 511, 514). Indeed, this court has applied the principles set forth in Christian v Christian (supra) in reviewing a stipulation entered in a matrimonial action (Matter of Collyer v Proper, 109 AD2d 1010, 1012, affd 66 NY2d 382), as have other courts (e.g., Miller v Miller, 104 AD2d 403, 404, lv dismissed sub nom. Robert M. v Angela M., 63 NY2d 952). The courts, therefore, have the power, and indeed the duty, under Christian v Christian (supra) to relieve a party from an unconscionable open-court stipulation entered in a matrimonial action.

Such a holding is essential to the proper administration of justice. A litigant, in the highly charged atmosphere of a matrimonial action, when faced with the immediate choice of extended public proceedings or stipulation of settlement, will ofttimes opt for the latter course. Once reached, however, the open-court stipulation should not serve to spring the trap that will catch the unwary or the uninformed and bind the litigant forever in an unconscionable situation from which our courts will not relieve him or her. If no relief for unconscionability is available from an open-court stipulation in a matrimonial action, which by its very nature should be concerned with "equitable distribution”, stipulations of settlement will be few indeed, for the competent attorney will not allow his or her client into a potential trap.

Although neither the papers in support of plaintiff’s motion to vacate the stipulation nor his brief on appeal use the word unconscionable, we should not exalt form over substance to evade the type of judicial scrutiny called for by the Court of Appeals in Christian v Christian (supra). Plaintiff’s motion papers allege that certain errors were made by Trial Term in its findings of facts, upon which the stipulation was based, and that the stipulation was unjust and entered into in an atmosphere not wholly free from undue haste and pressure. These allegations are, in our view, sufficient to raise the issue of unconscionability, particularly in view of plaintiff’s consistent expressions of dissatisfaction during the proceeding at which the stipulation was spread upon the record. On appeal, plaintiff again argues that Trial Term’s decision contains certain errors and omissions, resulting in a property settlement that is "factually and legally unfair and inequitable”, with consequences that are "devastating and catastrophic to plaintiff”.

The stipulation was entered into after a trial of the contested issues of equitable distribution and after Trial Term had rendered its decision, which determined, inter alia, the value of the parties’ separate and marital property. As noted above, the stipulation constituted the parties’ attempt to effectuate a distribution of the marital property based upon Trial Term’s findings, and the record establishes that, given the court’s findings, plaintiff believed he had no choice other than to accept the property settlement embodied in the stipulation. The record also establishes that certain of these findings are erroneous. Thus, in valuing certain shares of stock, found to be marital property, Trial Term used the unadjusted price at which the stock was sold and not the market value of the stock at the time the action was commenced some two years before the sale (see, Rywak v Rywak, 100 AD2d 542); Trial Term failed to take into account a second mortgage on the marital residence, concluding that it represented a business debt; and in valuing the parties’ business at zero, despite having found that business debts substantially exceeded business assets, Trial Term failed to take into account all of the business debts (see, Reiner v Reiner, 100 AD2d 872, 874-875).

As a result of these errors, the stipulation appears on its face to award defendant substantially all of the marital assets and to burden plaintiff with virtually all of the marital debt. Based upon the record in its present stage of development, however, we are unable to determine whether the stipulation is, in fact, so one-sided and unfair that no rational person, exercising common sense, would make such an agreement and that no fair and honest person would accept it (see, Christian v Christian, supra). We conclude that Trial Term erred in summarily denying plaintiffs motion to vacate the stipulation without holding a hearing on the question of whether the stipulation is unconscionable.