Opinion
No. 2778/2013.
12-01-2015
Courtney BOLENDER and CB Walker Stables LLC, Plaintiffs, v. RONIN PROPERTY PARTNERS, LLC and Gani Bajraktari, Defendants.
Burton I. Dorfman, Esq., Piermont, Attorney for Plaintiffs. Robert A. Weis, Esq., The Law Firm of William G. Sayegh, PC, Carmel, Attorneys for Defendants.
Burton I. Dorfman, Esq., Piermont, Attorney for Plaintiffs.
Robert A. Weis, Esq., The Law Firm of William G. Sayegh, PC, Carmel, Attorneys for Defendants.
VICTOR G. GROSSMAN, J.
INTRODUCTION
Plaintiff Courtney Bolender ("Courtney"), individually and as manager of CB Walker Stables, LLC, by her Amended Verified Complaint, alleges four causes of action arising from business dealings with Defendants, including her former husband, Gani Bajraktari ("Gani"), and his family members, who together operate Ronin Property Partners LLC. Plaintiff seeks a declaratory judgment, the imposition of a constructive trust and/or equitable lien, and injunctive relief.
The allegations involving Courtney and Gani span a time frame in which they dated, became engaged, married, and divorced. During those years, they executed an Antenuptial Agreement, a Modification of the Antenuptial Agreement and a Stipulation of Settlement (of the matrimonial action). The communications between, and among, the individuals were also affected by Gani's creation of Ronin Property Partners LLC ("Ronin") on August 7, 2006, after his marriage to Courtney; Gani's original status as Managing Member of Ronin; and Gani's creation of CB Walker Stables, LLC ("CB Walker") on February 26, 2007, as a birthday present to his bride. Gani also executed individually a Contract of Sale to purchase a parcel of real property together with approvals for a 50–stall barn, riding ring, paddocks and other facilities; however, title to the property was taken in the name of Ronin. With Gani's involvement and management, Ronin obtained a mortgage and other funds and built the facility, with the plan to have Courtney operate a horse farm on the property. Courtney believed, based on the promises made to her and her actions in reliance on those promises, that she would acquire ownership of the farm. The issues created by the parties' actions and transactions are numerous. The 17 days of trial testimony was augmented by more than 100 exhibits. The circumstances surrounding the events, the transfer of property or interests in property, including alleged oral promises, reliance and undertakings by the parties, were vigorously disputed. The record is replete with conflicting testimony regarding the existence, or non-existence, of promises, and actions taken, or not taken, in reliance on those promises.
A chronological sequence is helpful to understanding the development and evolution of the issues before the Court.
COURTNEY AND GANI
After meeting in 1999, Courtney and Gani dated for several years. At the time they met, Gani was 20 years old, and Courtney was 17 and still in high school. Her family had trained horses for show and dressage for five generations. She grew up around horses. She was, and is, an accomplished equestrienne, who makes a living giving riding and dressage lessons.
Prior to operating the Brewster barn, Courtney managed small stables where she did all the work herself. At one barn, she managed a lesson and camp program; at another she cared for the horses. She kept them fed on time with grain and hay, changed shavings, watered the horses, arranged veterinary care, and occasionally ordered supplies. She was familiar with the operation of a barn, and she could rely on the experience of her father.
Gani was a young college graduate, who worked for his father's real estate management company. Prior to their marriage, they lived together in a Yonkers apartment owned by Gani. Gani knew that Courtney was looking to purchase and operate a horse boarding and training facility. His interest piqued when he realized the large revenues such a facility could generate.
On September 2, 2005, in anticipation of their marriage, Courtney and Gani executed an Antenuptial Agreement, which provided in pertinent part (emphasis added):
"3.5 Notwithstanding the aforesaid, within One Year of the marriage of the parties, GANI shall transfer fifty percent (50%) of his ownership of the Apartment to COURTNEY so that the Apartment constitutes Joint Property. COURTNEY's interest in the Apartment shall be subject to any liens against the Apartment even if the liens are in GANI's name alone.
3.6 Notwithstanding the aforesaid, in the event that the parties purchase any other real property which constitutes the parties' primary residence (hereinafter referred to as "Other Property"), upon the sale of such Other Property or, in the event of the entry of judgment of divorce, dissolution, annulment or legal separation, the parties respective interests in such Other Property shall be as follows:
a. Each party shall be entitled to an interest in such Other Property equal to an amount calculated by multiplying a fraction, the numerator of which shall be that party's contribution to the original purchase of such Other Property and the denominator of which shall be the original purchase price of such Other Property times the net equity of such Other Property at the time of entry of judgment or times the net proceeds at the time of the sale of such Other Property, as appropriate pursuant to Paragraph 3.7 below; and
b. The remaining net equity in such Other Property, if any, shall be divided equally (50/50) by the parties;
c. For the purposes of Paragraph 3.5 and 3.6 of this Article III, the net equity of the Apartment and any such Other Property shall be the fair market value of such Other Property less any then liens against such Other Property. If fair market value cannot be agreed upon by the parties, each party shall select a licensed real estate broker and the two brokers shall appoint a third licensed real estate broker agreed upon by them to establish fair market value. The net proceeds shall be the sale price of such Other Property less any then liens against such Other Property and all costs of sale."
Courtney and Gani married on October 2, 2005. During the first year of their marriage, Gani did not transfer title to the Apartment as required by the Antenuptial Agreement. He did, however, refinance the debt on the Apartment prior to April 25, 2006, without Courtney's knowledge. Instead, on April 27, 2006, he presented Courtney with a Modification of Antenuptial Agreement, which provided:
"Article III, paragraph 3.5 is hereby deleted in its entirety and the following substituted in its place and in its stead;
3.5 Notwithstanding the aforesaid, GANI shall transfer fifty percent (50%) of his ownership of the Apartment to COURTNEY on or before June 1, 2006 so that the Apartment thereafter constitutes Joint Property. Prior to such transfer, however, GANI may refinance the Apartment and use a portion of the equity not to exceed ninety [sic] thousand ($93,000) dollars to pay personal debts, which portion shall constitute Separate Property of Gani." COURTNEY's interest in the apartment after transfer shall be subject to any liens against the apartment even if the liens are in GANI's name alone.
All of the other terms and conditions of the Agreement remain in full force and effect."
The parties signed the Modification, but Gani never transferred one half of the co-op to Courtney, nor did he provide her with one-half of the net proceeds of sale.
Meanwhile, in the preceding months, Gani and Courtney looked for properties where they could own and operate a horse boarding and training facility. They located such a property in Brewster, New York. Courtney claimed Gani wanted to purchase the property for her to own and operate the horse farm, while occupying the residence. He promised that she would own the farm in five years.
CONTRACT OF SALE—ACQUISITION OF 199 STARR RIDGE ROAD
On or about May 1, 2006, Gani executed a Contract to purchase the parcel of vacant land at 199 Starr Ridge Road in Brewster, New York, together with plans and approvals for a 50–stall horse boarding facility with stables, riding ring, paddocks, storage buildings, and a large, single-family residence. The purchase price for the land was $1,150,000.00, and Gani provided the down payment. The estimated construction costs were $3,174,000.00. Although the Contract provided that title could be taken by Gani, or "his immediate family," it did not define "his immediate family," and it did not provide for title to be taken in a corporate form. Courtney and Gani saw other farms but preferred this location. She, and her father, also an accomplished trainer, felt a 50–stall barn was too large, and a barn with a capacity of 30–40 stalls made more sense. The plan, according to Plaintiff, was that she would own the business that would run the farm, and she and her father would operate the farm.
Courtney also testified that many horses are transported to Florida during the winter months for the competition and show circuit.
According to Plaintiff, Gani told her the proceeds of the co-op sale would go into the farm. Courtney did not object, as she considered the farm to be their asset. After the Contract was signed, they discussed the mortgage, and that Plaintiff would pay the mortgage and taxes. They also discussed ownership of the farm, and Gani repeated his promise that Courtney would own the farm within five years. Courtney never discussed the payment of "rent." Based on her discussions with Gani, she believed she would have partial ownership going forward, and she would be paying the mortgage and taxes until the mortgage was satisfied. Courtney made payments, in the interim, based on this understanding. Between August 2008 and December 2013, Plaintiff paid the mortgage, taxes, insurance, and other items, such as equipment costs and grass seed, totaling $1,702,530.92.
Specific mortgage and tax figures were unknown at the time of the signing of the Contract.
Payments made after commencement of the action, pursuant to the orders of the Court were $91,500.00 through April 2015, for a combined total of $1,794,030.92.
Gani acknowledged discussing with Plaintiff the purchase of a horse farm, in 2005, after they married. Gani said the down payment came from his bank account with money from his father. When asked if the money was a loan, Gani responded "I don't know what he called it." Gani had no prior experience in running a horse farm, and he was unaware of construction issues or managing the expenses, forcing him to rely on Plaintiff's experience. Gani, along with his father and siblings, testified that prior to entering the contract, he and Courtney discussed that Gani would purchase and build the property, and then lease it to Plaintiff. According to Gani, this allowed Plaintiff to save money and profits for four to seven years in order to accumulate enough cash for a down payment to purchase the property. He claimed he and Courtney had an understanding, and therefore, he did not need to reduce it to writing as they were Husband and Wife. At the time of the signing of the Contract, neither CB Walker Stables LLC nor Ronin Property Partners LLC had been formed.
After the farm's construction completed, Gani did not provide a lease to Courtney, because, according to Gani, "we had an understanding." Gani never sent a "rent bill" because he lived in the marital residence on the farm, and he could simply ask "where is the rent?" which he claims he did on multiple occasions. Gani also helped set up the computer aspects of the business operations.
Gani claimed that prior to signing the contract, he and Courtney discussed specific expenses she would be responsible for paying, referring to them as "the cost of ownership" (for Ronin). These expenses included mortgages, taxes, and insurance. No specific amount of a mortgage (or mortgages) was stated, no mortgage application had been submitted, and no inquiries had been made about a mortgage. At trial, Gani frequently referenced "the cost of ownership," but often left it vague and undefined. Gani acknowledged there were no notes, no documents, and no writings, evidencing this understanding because Courtney was his wife during this period. In subsequent months, Plaintiff was charged for grass seed at an owner's cost, as well as equipment costs, for equipment used by CB Walker. A tax escrow deficiency and start-up costs, prior to Plaintiff's occupancy, were also charged to Plaintiff. The monies paid by CB Walker Stables may have covered the costs of ownership, but that would be different from the payment of rent—although Gani claimed that Plaintiff bore the "cost of ownership" as "rent."
RONIN PROPERTY PARTNERS, LLC
Although the Contract of Sale was executed by Gani, individually, Ronin took title to the property by Deed dated October 18, 2006.
Ronin had been created on August 7, 2006, using Gani's business address as its principal place of business. Gani had a 24.75% interest in Ronin, as did his two brothers and sister, while his father had a 1% interest. The Operating Agreement was executed on September 23, 2006. The Agreement recited Gani's capital contribution of $139,275.00. It also recited the same amount for each of his siblings, Naim, Florim, and Muland. The recital of his father, Hajdar Bajraktari ("Harry"), reflected a contribution of $5,628.00. Notwithstanding the recitals, Defendants later claimed the actual contributions came from Harry and from third-party loans received by Gani. The Operating Agreement conferred managing authority of the "business and affairs of the Limited Liability Property" upon Gani. According to Plaintiff, Gani told her that he "owned" Ronin, failing to refer to his family's involvement in it.
In order to acquire the property, Gani sought a mortgage from Mahopac Bank. The cost of the land with approvals was $1,150,000.00. Gani met with John Krauss, a Senior Vice–President and Senior Commercial Loan Officer of Mahopac National Bank, and explained the basic concept and how costs would be met. Gani testified that Mahopac National Bank did not require that a tenant be in place before the loan was made. However, in a June 21, 2006 e-mail, Krauss specifically asked for "the basic lease terms" between Ronin and CB Walker, the latter of which had not yet been created. Harry testified that the Bank would not loan the money without a tenant. Gani could not say whether he advised the Bank about the existence of a lease. He never provided a signed lease to the Bank, despite its requests. The mortgage commitment was issued on August 15, 2006, and, at the October 6, 2006 closing, Ronin executed a land acquisition and construction loan in favor of Mahopac National Bank in the amount of $3,025,000.00. Permanent financing was obtained in December 2008. There was also a second "mortgage" loan, in the amount of $250,000.00, with a monthly payment of $3,033.19. The Bank was never told of the second "mortgage" loan.
This second "mortgage" loan is an anomaly. According to the trial testimony, the funds were borrowed in October 2006 from Monica and Eileen McCabe, who were long-time friends of Defendant and his family. The check was made payable to Gani, not Ronin. The "Mortgage Note" was not executed until March 31, 2008 in favor of Monica and Eileen McCabe notwithstanding the fact that Monica McCabe died prior to March 31, 2008. Contrary to its terms, the Note was not secured by a Mortgage. The loan proceeds were deposited into Gani's account and he made some payments on the loan. He acknowledged it was his obligation, but it was passed onto Ronin, and paid with funds received from Courtney.
After the closing, Gani repeated to Courtney that she would own the stables in five years. Construction began in July 2007 and ended in late August or September 2008. Gani, Courtney, and Ronin were all involved in the construction. In August 2008, Gani and Courtney moved into a new single family home built on the premises, described on the building plans as the "Manager's Residence." After construction was completed, Gani told Courtney the money she expended for improvements and expenses would go towards her ownership of the property at the end of five years. They continued to reside in the Manager's Residence, as husband and wife, until marital difficulties arose, and, in 2012, they executed a Stipulation of Settlement.
THE FARM–OPERATION AND REVENUES
CREATION OF CB WALKER STABLES, LLC
On February 26, 2007, as a birthday present for Courtney, Gani created CB Walker Stables, LLC, paying the filing fees with a Ronin check. At the time, the barn was uncompleted, and Courtney was unaware that anyone other than Gani was involved in Ronin because Gani told her he owned Ronin.
In September 2008, Courtney made the first payment of $24,000.00 directly to Mahopac National Bank, the Mortgagee. The memo portion of the check recited "Sept. payment," not "rent." Thereafter, at Gani's request, she deposited checks into Ronin's account. When the payment amount changed from time to time, Gani told her the mortgage went up, or the taxes changed. He was her husband; she trusted him and paid the amount.
On October 11, 2008, Ronin executed a $250,000.00 Promissory Note with Mahopac National Bank for construction cost overruns. The payment of this obligation was also passed onto Plaintiff.
Consistent with an informal arrangement, Plaintiff was allowed the freedom to make payments throughout any given month, rather than on a fixed date. Although Gani claimed Plaintiffs were behind in their rent in 2011, this claim was unsubstantiated by Ronin. Gani did not send any notice of non-payment of rent bill because Plaintiffs "knew they didn't pay." Gani testified that "[t]he [record of] payments that CB Walker was behind in rent was kept by CB Walker." There is no record between the parties of a fixed amount of monthly rent of $32,660.00 beginning in May 2010, despite the record of payments in that amount. There is no record of Ronin informing CB Walker that the cost of operating was $32,660.00 per month. When asked why no record existed, Gani replied, "I don't understand why there would be one." It was Gani's father, Harry, who set the payment in that amount, and Ronin was always paid before other operating expenses, such as hay, shavings, and grain for horses.
Plaintiff had little involvement in managing the books and records of CB Walker Stables. She hired a bookkeeper, Robin, who worked with Gani. Gani helped create an Excel spreadsheet and showed Robin how to input information. Robin and Courtney continued to rely on Gani's involvement in record-keeping and financial activities. In early 2009, Gani suggested they also utilize Quickbooks, as it was easier to import data and print reports. Gani helped to set up the categories for boarders, vendors, etc., and he regularly assisted the office staff.
During the marriage and prior to the Judgment of Divorce, Gani had regular access to the CB Walker records on Quickbooks, and he also had the password to CB Walker's bank account, as well as knowledge of the account balance and available funds. Gani, on behalf of Ronin, often asked for money in different amounts and he would be paid as money came in. Those payments to Ronin varied in dates and amounts, depending on cash flow. Courtney trusted Gani as her husband and paid what she could. Gani's visits to the office varied from twice weekly to every other weekend. The marital residence was on the grounds of the stables and the office was a short walk from the residence. In conversations with Courtney, Gani acknowledged his awareness of what was in the accounts, and his conversations with the office staff, leading to the payment of various amounts on different dates. He knew enough about the operation of CB Walker to advise Mahopac National Bank, in an August 2010 e-mail, that CB Walker would not turn a profit.
Gani's assistance with the record-keeping enabled him to obtain information which was used for the preparation of the tax returns for CB Walker Stables, Ronin, and the parties' joint returns. The same accountant prepared all the returns for several years. Courtney was often asked to sign documents while working with horses, and she did not read them. She claimed that she was unaware the tax returns contained a deduction for "rent," when she was paying the mortgage and taxes, only first learning about that "rent" deduction in open court in January 2014. At that time, she also discovered that a Quickbooks report contained a category of "rent." She was unaware of how, or when, that category was created, as she never asked or directed her staff to put a "rent" category in the Quickbooks system.
Between September 2008 and December 2012, from her discussions with Gani, Courtney placed a priority on paying the mortgage and taxes; other bills had to wait, as the operation was not profitable. In addition to paying the mortgage and taxes, the premises needed to be maintained and repaired, including: fixing paddock and stable boards; painting; seeding and re-seeding grass paddocks; re-doing the sand paddocks; pump replacement; and equipment repair and replacement. Courtney testified, "There were no profits. We ran a boarding facility, you don't make money in boarding. From the beginning everything I made, even in my own personal training, went right back into the farm to try to pay for everything that was required of us."
As Ronin's Manager from 2008–2010, Gani was responsible for collecting money from Courtney, so Ronin could pay its bills. He was also obligated to provide financial statements to Mahopac Bank. In addition to Ronin's statements, he also obtained and provided the statements of CB Walker Stables to Mahopac Bank.
Effective January 5, 2010, Ronin's Operating Agreement of Ronin Property Partners was amended, reducing Gani's and his siblings' individual interests in Ronin from 24.75% to 6%, while Harry's interest increased from 1% to 76%. Harry testified this change was made to reflect the substantial loans and advances he made to Ronin. However, the Amendment conflicted with the prohibition contained in Paragraph 7 of the Operating Agreement, which stated:
"If any Member shall loan or advance any funds to the Limited Liability Company in excess of the capital contribution of such Member prescribed herein, such loan or advance shall not be deemed a capital contribution to the Limited Liability company and shall not in any respect increase such Member's interest in the Limited Liability Company."
Harry claimed his initial capital contribution was a gift, though no records support that claim.
Moreover, Gani's records showed capital contribution amounts of $260,566.00 in 2007, and $112,925.00 in 2010, even though Gani claimed he made no capital contributions in those years. Although his total reported capital contribution in 2010 was $506,105.00, Gani denied it. A $58,000.00 capital contribution made by Gani in 2008, which does not appear on his tax form as a capital contribution, was equal to the amount of net proceeds that arose from the sale of Gani's cooperative apartment that the parties held as Joint Property pursuant to Article III of their Antenuptial Agreement, originally, and as modified. To the extent the tax returns were offered to support an increase in Harry's interest and a decrease in Gani's interest, the Court is skeptical.
By treating Courtney's payments as "rent", Ronin was entitled to substantial depreciation benefits, which, in turn, provided corporate and personal tax benefits to Harry, Gani and his siblings. Ronin's tax returns also reflected deductions for mortgage and tax payments.
Harry took over as Manager Member of Ronin in 2010. The Amendment provides in part:
"The Business and affairs of the Limited Liability Company shall be conducted and managed by Hajdar Bajraktari in accordance with the terms of this agreement and the laws of New York. Except as expressly provided elsewhere in this Agreement, all decisions respecting the management, operations and control of the business and affairs of the Limited Liability Company and all determinations made in accordance with this Agreement shall be made by Hajdar Bajraktari ..."
Notwithstanding this change in management, and Harry's claims that he directed and approved Gani's actions, Gani continued to act as a Manager. For example, on December 10, 2010, Gani filled out a Building Permit application. Gani also continued to sign checks on behalf of Ronin until March 2014. In February 2011, he also signed Promissory Notes on behalf of Ronin. Courtney was not aware of the change in management of Ronin. She continued to operate the farm and make the payments she was told to make.
DINNER AT AVERSANO'S
In 2010, Courtney and her father attended a dinner at Aversano's restaurant with Gani, Harry, and Gani's brother, Florim. During the course of the dinner, they discussed selling the farm. Harry told Courtney and her father that they were partners in the farm, and that if the property was sold, and there was money left over, Courtney and her father would share in the proceeds. Courtney did not believe Harry was speaking on behalf of Ronin, but rather as a family member. Discussing it later with Gani, he reassured her, telling her not to worry about it, that "[w]e'll go forward."
At trial, however, Harry denied telling Plaintiff and her father they would get a share of the proceeds if the property was sold. He said he wanted to sell the farm and offered them a finder's fee if they produced a buyer. On cross-examination, when confronted with his deposition testimony, Harry acknowledged a reference only to the sharing of proceeds, a position consistent with ownership, and not a finder's fee.
To make matters worse, when Gani was asked about the dinner and the conversation, he had no recollection. Florim testified on Defendant's behalf, but he was not asked about the conversation or the dinner meeting.
COURTNEY AND GANI DIVORCE, BUT THE FARM OPERATION CONTINUES
Gani's and Courtney's marital difficulties continued. The parties retained counsel and executed a Stipulation of Settlement on March 8, 2012, which provided, in its recitals and in relevant part:
"WHEREAS, on or about September 5, 2005, the parties executed an Antenuptial Agreement and thereafter on or about April 27, 2005 [2006] they executed a Modification of Antenuptial Agreement which documents addressed and resolved all of the financial issues which could arise out of the marital relationship and whereas the parties by way of this Stipulation of Settlement wish to reconfirm and settle all of the issues and disputes existing between them and to settle and resolve all aspects of their respective marital rights and obligations, including but not limited to property, and support and maintenance, as permitted by Section 236, Part B, Subdivision 3and 240 of the Domestic Relations Law of the State of New York."
Paragraph E, of ARTICLE III of the Stipulation entitled "EQUITABLE DISTRIBUTION" provided in part as follows:
"The parties acknowledge that CB Walker Stables, LLC, is a business owned by the Wife and operated at the marital premises, which property is owned by a corporation of which the Husband holds an interest. The parties further acknowledge, as set forth herein in Paragraph A of Article VIII, that the two referenced corporate entities are in the process of negotiating a lease arrangement whereby the Wife shall continue to reside in the marital residence as a corporate tenant and shall be authorized to manage the business of CB Walker Stables, LLC at said location. In the event the corporate entities do not reach agreement by August 1, 2012, the Husband agrees the Wife shall be permitted to reside in the marital residence and to continue to manage the business of CB Walker Stables, LLC at the said location for a minimum of twelve (12) months from August 1, 2012, and the Wife agrees to vacate the premises and to remove her business from the location no later than the last day of the twelve (12) month period. The parties acknowledge that the corporate agreement now being negotiated is independent of and separate from this Stipulation of Settlement, and neither is in any way contingent or dependent upon the other."
Harry testified he neither authorized the agreement nor authorized anyone to bind Ronin. He further testified he was unaware of the terms of the divorce between Gani and Courtney. Neither CB Walker nor Ronin signed the Stipulation of Settlement.
Gani and Courtney divorced on April 16, 2012, but Courtney continued to reside in the marital residence. She also continued the horse boarding operation and training of horses. At various times, she had as many as 15–20 horses using the facility. She also continued making payments to Gani and Ronin. These payments included mortgage, real estate taxes, insurance, maintenance and property improvements.
The Stipulation provided that Courtney, in the corporate capacity of CB Walker Stables LLC, and Gani, in the corporate capacity of Ronin Property Partners, LLC, were negotiating a "lease arrangement" in which Courtney would remain in the residence as a corporate tenant and operate CB Walker Stables at that location. They agreed that in the absence of an Agreement by August 1, 2012, Courtney could remain in the residence for another twelve months, or July 31, 2013, at which time, she would vacate the premises. No agreement was reached prior to August 1, 2012, and Courtney did not vacate the premises on July 31, 2013. She remained on the premises while negotiations continued.
Courtney claimed she first learned of the involvement of Gani's family in December 2013, when she received a letter from Harry directing her to leave the property or to pay rent in the amount of $32,660.00. At no time prior to December 2013 did she receive a rent bill. The payments she had been making were for mortgage and taxes based on statements made to her by Gani.
On December 16, 2013, Courtney commenced the instant action. Four days later, Defendants served a "Notice of Termination", stating her "tenancy at will" would be terminated as of January 31, 2014, and demanded possession. Plaintiff moved to restrain Defendants from commencing any action or proceeding to evict Plaintiff. Defendants moved, inter alia, to require Plaintiff to pay the sum of $31,945.00 for mortgage, taxes and insurance, and to allow Gani's entry onto the premises to show the property to prospective purchasers. The Court allowed entry by Gani and directed payment of $7,000.00/month. Defendants also moved for summary judgment, and Plaintiff cross-moved to amend the Complaint to add a cause of action alleging a constructive trust. Summary judgment was denied and leave to amend was granted.
HARRY BAJRAKTARI
Harry Bajraktari is the patriarch of his family. He has been involved in commercial and residential real estate for thirty years. His activities include purchasing, renting, managing, developing, renovating and constructing various residential properties. He operates through various companies, all from the same location. He uses a property management computer software program known as BJ Murray, which maintains records and accounts, and mails hundreds of notices on a monthly basis.
After Ronin was created, it operated from the same location; however, Ronin's records were never maintained on the BJ Murray system. Instead, from 2006 until 2010, Gani personally kept Ronin's records. Prior to December 2013, Ronin did not send rent bills. According to Harry, "We never put the rental on the BJ Murray system, due to the fact that she was married to my son, they lived together. During the time they lived together, my son asked for the rent. When they divorced, we have asked for the rent." But, even after the parties separated, the property was not included in the BJ Murray system. The lack of record-keeping, writings, and documents led to inconsistencies and misunderstandings as to events, payments, obligations, and the significance of these items. And, at one point, Harry testified, "I don't know what Gani did." The lack of records also invited an absence of recollection and responses that invited self-serving statements, and evasion. From the start, confusion abounded:
1. Harry claimed he lent money to purchase the property, stating, "I had given money to Gani but it was in the form of a LLC to purchase the property on behalf of the children." But, Harry did not know if it was a loan, stating, "I don't recall as to, I know that I have lent him money for my four children to buy this piece of property. And sometime in May ... the end of April ..., I had lent the money and gave some money to Gani and put the money so they could buy the property" (emphasis added). Harry did not recall the method of transfer, or if the money he "loaned" went into Gani's account, and no bank records were offered to support the claim.
2. Despite his years of experience in the real estate field, he did not review the plans, did not investigate the costs of construction, and neither he nor his children had any experience with a horse farm.
3. He had no conversation with Courtney in which she said she would pay all the expenses of the farm.
4. No rental amount was discussed prior to signing a contract.
5. He claimed he was not aware that Gani told Courtney the farm would be hers.
6. There was a discussion in 2006–2007 that "down the road," Plaintiff would buy the farm from Defendant.
7. He claimed he loaned his children $139,275.00 for their capital contributions to Ronin, but no loan documents were provided, as the loans were all verbal.
8. He claimed that Plaintiff agreed to make the monthly payments for mortgage, taxes, insurance and all expenses "by making the payments."
9. He never notified Plaintiff in writing of any changes in real estate taxes.
10. In 2012, he did not know the amount of the monthly payments.
11. Ronin and CB Walker used the same accountant.
12. Harry advised Mahopac National Bank of a tenant paying rent, despite the absence of a tenant, signed lease, or known rental amount. However, on cross-examination, Harry conceded that the Bank would "probably not" have loaned the money without a tenant.
13. There was conflicting testimony concerning whether Plaintiff was notified of a rate reset. Harry did not recall if he told Gani to tell Plaintiff of a new interest rate and Harry did not do so.
14. Harry did not recall if Gani included the monthly lease payments for equipment in the payments he told Plaintiff to pay.
15. Harry testified to different amounts being paid as "rent."
16. While Harry signed a rent bill for $32,660.00 in December 2013, he stated he did not know the rent in November 2013.
17. He claimed he made verbal requests for rent, but did not know the exact amount of those verbal requests.
18. Harry did not recall if he ever asked for rent from January 2012 to December 2013.
19. When Harry was told that Plaintiff paid $441,100.00 in payments for 2012, he denied surprise, claiming there were arrears going back to 2009–2011. When asked about records of these claimed arrears, he responded that "she knew about the rent arrears ... that's why she made extra payments."
20. Harry claimed the figure of $32,660.00 was based on a verbal agreement between "Gani and her when they were married ... It was between CB Walker and Ronin all along." However, Gani testified that Harry set the figure.
21. Before signing the Contract, Gani told Harry that Plaintiff would pay the mortgage, taxes and insurance, once the farm was built and operating. Harry told Gani that that was not correct, and that Plaintiff would pay rent, in an amount that would be determined after the place was built.
22. At times, if payments were insufficient, Harry would pay the "shortfall."
23. Ronin's rent demand in December 2013, as prepared by Gani, included arrears dating back to 2008. In addition to mortgage, taxes and insurance, Harry claimed the monthly payments included a second mortgage, a loan, and equipment expenses.
24. When Harry was the Manager from 2010–2013, Gani continued to run the property "under my [Harry's] authorization."
25. Harry admitted he did not know what the rent was when he signed a notice demanding it.
26. When confronted with payments of $20,000.00 and records showing no arrears, Harry explained that "at some point we agreed to receive $20,000.00 in rent until they catch up."
27. Harry relied on verbal agreements, stating "[v]erbal agreements were made from the beginning toward the process of the farm being finished, towards the process of-this whole process, this whole process."
28. While Harry claimed his son made rent concessions with Plaintiff, Harry did not know when they were made, where they were made, which son made the concession, or how the concession was reached.
29. Harry acknowledged the 2006 McCabe loan, and the commencement of those loan payments in 2006. But, the Note evidencing that loan was dated March 2008. Plaintiff was asked to cover this obligation; the re-payment of the Note was not made by Ronin.
30. At trial, Harry denied telling Plaintiff and her father that if the property was sold, they would get a share of the proceeds. He said he wanted to sell the farm and offered them a finder's fee if they procured a buyer. However, in his deposition testimony, Harry referred to the sharing of proceeds, and not to a finder's fee.
These examples of Harry's testimony and contradictions lead to two conclusions. One, Harry's testimony, as a whole, seemed to be carefully tailored to suit Defendants' narrative of events. Two, Defendants individually, and as Ronin Property Partners, had no clear support for their claim that Plaintiff was paying "rent." Their treatment of events, records and transactions, lead to the conclusion that they saw the revenues generated by Plaintiff as a mechanism to meet their financial obligations, as they willingly received any amount, at any time, for any reason, without regard to the obligations of a (unwritten) lease. Considering that Defendants were experienced real estate owners and managers, their reliance on verbal arrangements, and the apparently purposeful absence of record-keeping can be explained by two factors: (1) the confidential relationships between Courtney and Gani, Gani and Harry, and Courtney and Harry (see Marini v. Lombardo, 79 A.D.3d 932, 912 N.Y.S.2d 693 [2nd Dept.2010]); Nastasi v. Nastasi, 26 A.D.3d 32, 805 N.Y.S.2d 585 [2nd Dept.2005]); and (2) Defendants' desire to be able to maintain flexibility in their operations.
The complex combination of statements, actions and behaviors among the parties was unusual. The parties also performed different and conflicting roles, with the potential for dual loyalties. Unfortunately, the parties never considered a divorce that forced them to confront these issues. The abandonment of the trust and confidence between, and among, them, in favor of self-dealing and personal gain, is evident.
BECKMAN
Plaintiff's expert, William Beckman, testified about the issue of "market rent." His background as an expert included: (1) more than 22 years as the Tax Assessor in Spring Valley and Stony Point; (2) owner of Beckman Appraisers; and (3) having been qualified as an expert numerous times. Beckman defined "market rent" as the "most probable rent that a property should bring in the competitive open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation of permitted uses, use restrictions and expense obligations ..." On the basis of comparisons to three other horse farm operations with adjustments made, Beckman opined that the annual market rent for this property "as improved" was as follows:
1/1/2008 $85,000.00
1/1/2009 $90,000.00
1/1/2010 $90,000.00
1/1/2011 $90,000.00
1/1/2012 $95,000.00
1/1/2013 $95,000.00
1/1/2014 $100,000.00
1/1/2015 $100,000.00
Considering these amounts with the definition of "excess rent," Beckman concluded that CB Walker Stables LLC paid "excess rent" in the amount of $1,143,030.92 (total payment of $1,794,030.92 less market rent of $652,000.00 from September 2008 through April 30, 2015 $1,143,030.92).
Beckman used the definition of excess rent found in the Dictionary of Real Estate Appraisal, used by the American Institute of Real Estate Appraisal, to wit: the amount by which contract rent exceeds market rent at the time of the appraisal, created by a lease favorable to the landlord (lessor) and may reflect unusual management, unknowledgeable parties, or a lease execution in an earlier, stronger real estate market. Due to the higher risk inherent in the receipt of excess rent, it may be calculated separately and capitalized at a higher rate in the income capitalization approach.
Beckman stated that market rent had nothing to do with cost of ownership. Cost of ownership was property specific, varying from property to property, while market rent was market specific, theoretically encompassing all similar properties within a market. Stated another way, the cost of ownership was the cost to the owner, not the tenant. Beckman testified further that in a triple net lease, the tenant typically would pay all real-estate related expenses such as rent, taxes, insurance and cost of repairs, but not the owners' financing costs.
Beckman did not include the cost of a mortgage in determining his market rent figure. He was not provided with the owner's actual mortgage costs. Beckman stated that he would not consider an arrangement to be fair where an owner charges its tenant taxes, insurance, cost of repairs, and its actual cost in paying the mortgage, explaining that the focus would be on market rent because an owner might have various reasons, all independent of the market, for securing a large mortgage, a small mortgage, or no mortgage at all.
Beckman also testified that market rent is determined differently than market value, and therefore, market value would be unrelated to fair rental. Similarly, acquisition and construction costs should not affect the determination of a fair rental.
CONSTRUCTIVE TRUST
The constructive trust is a broad remedy designed to respond to the various forms of human behavior in a transaction, so as "to give expression to the conscience of equity and to satisfy the demands of justice." Iwanow v. Iwanow, 39 A.D.3d 476, 477, 834 N.Y.S.2d 251 (2nd Dept.2007). The range of behavior it is asked to address is as broad as human imagination, and the remedy is not contingent upon an " 'unyielding formula which limits a court's freedom to fashion this equitable remedy.' " Byrd v. Brown, 208 A.D.2d 582, 583, 617 N.Y.S.2d 192 (2d Dept.1994), quoting Bontecou v. Goldman, 103 A.D.2d 732, 733, 477 N.Y.S.2d 192 (2nd Dept.1984).
"A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee."
Beatty v. Gugenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378 (1919), superceded by statute on other grounds N.Y. Gen. Oblig. Law § 15–301, as recognized in Israel v. Chabra, 12 N.Y.3d 158, 878 N.Y.S.2d 646, 906 N.E.2d 374 (2009). The requirements [for a constructive trust] are not to be rigidly applied." Byrd v. Brown, supra. The purpose is to prevent unjust enrichment. " 'It is not the promise only, nor the breach only, but unjust enrichment under cover of the relation of confidence, which puts the court in motion.' " Foreman v. Foreman, 251 N.Y. 237, 167 N.E. 428 (1929), quoting Sinclair v. Purdy, 235 N.Y. 245, 253, 139 N.E. 255 (1923).
In order to impose a constructive trust, a plaintiff must establish "(1) a confidential or fiduciary relation, (2) a promise, (3) a transfer in reliance thereon and (4) unjust enrichment." Sharp v. Kosmalski, 40 N.Y.2d 119, 121, 386 N.Y.S.2d 72, 351 N.E.2d 721 (1976); see Simonds v. Simonds, 45 N.Y.2d 233, 241–42, 408 N.Y.S.2d 359, 380 N.E.2d 189 (1978); Weiss v. Weiss, 186 A.D.2d 247, 249, 588 N.Y.S.2d 308 (2d Dept.1992); cf. Modica v. Modica, 15 A.D.3d 635, 791 N.Y.S.2d 134 (2nd Dept.2005); Cerabono v. Price, 7 A.D.3d 479, 480, 775 N.Y.S.2d 585 (2nd Dept.2004); Levy v. Moran, 270 A.D.2d 314, 315, 704 N.Y.S.2d 609 (2nd Dept.2000); Ostreicher v. Ostreicher, 238 A.D.2d 392, 393, 657 N.Y.S.2d 357 (2nd Dept.1997).
Here, the existence of a confidential relationship, indeed several confidential relationships, is not seriously in dispute. The confidential relationship is not based solely on marital or familial status. The confidential relationship between Courtney and Gani, initially as an engaged couple and later as husband and wife, is not in dispute, and it predated the contract and acquisition of the horse farm. The confidential relationship between Gani and his father is not in dispute. However, it is not surprising that these two relationships would yield conflicting testimony on the existence of a promise with respect to ownership of the farm. What Gani said to his Wife does not appear to be the same that said to his Father. Gani's interactions on behalf of Ronin and on behalf of CB Walker Stables further support the confidential relationship. The relationship between Courtney and Harry is also a confidential relationship. Size v. Size, 276 A.D.2d 329, 714 N.Y.S.2d 266 (1st Dept.2000).
Gani's testimony suffered from a consistent evasiveness. Gani had a tendency to rephrase questions and suit his answers to his rephrasing, rather than answer the questions asked of him. On at least two significant issues, his testimony fell far short of convincing. At one point, he claimed that, in order to purchase the property, Courtney and her father provided numbers establishing the profit they would make, which was written on a "pro-forma" that Gani sent to Mahopac National Bank. Upon a demand for the production of the document, and an interruption in the proceedings to locate it, counsel conceded the document did not exist. Gani then claimed he prepared the document with verbal information from Courtney and her father and he provided it to the Bank. The document was never produced. At another point, Gani was evasive about a request for a lease from John Krauss on behalf of Mahopac National Bank. A written lease would support the position taken by Defendants, but none was produced. Gani also used the phrase "cost of ownership" which he defined in various ways to mean rent and related expenses as if it was a talismanic formula, when it was no more than a shorthand substitute capable of many meanings.
Moreover, it is evident that the parties interacted on a regular basis in the apparent belief of mutually beneficial goals. They did so as individuals, companions, spouses, siblings, parents, and in the guise of corporate identities and status. A young bride and groom pursuing their dreams, with the help of the groom's family, would give rise to different interactions than one would find in the marketplace or the world of commerce. Those behaviors substitute trust and affection for technical details and clarity of language. Unfortunately, they do not consider the possibility of a broken relationship when the trust and affection is replaced by accusations and recrimination, and the Courts are often asked to sort out the residue.
There was testimony that the parties marital difficulties arose from their inability to conceive a child.
Courtney established Gani's promise to convey the property to her—the second part of the constructive trust. That promise was neither limited in form nor precise language. It was after Gani signed the Contract of Sale, when he, and she, as a result of their marriage, had an interest that could be conveyed. Subsequent statements and actions repeated or reinforced the promise. Their combined efforts and participation in the constructive process are but one example—"a promise may be implied or inferred from the very transaction itself." Sharp v. Kosmalski, supra at 122, 386 N.Y.S.2d 72, 351 N.E.2d 721.
Indeed, in some instances, a promise is not always required. Latham v. Father Divine, 299 N.Y.2d 22, 26–27 (1949).
One component of the constructive trust was Plaintiff's showing that she "had some interest in the property prior to obtaining the promise that the property would be conveyed." Eickler v. Pecora, 12 A.D.3d 635, 636, 785 N.Y.S.2d 126 (2nd Dept.2004), quoting Bontecou v. Goldman, 103 A.D.2d 732, 733, 477 N.Y.S.2d 192 (2d Dept.1984). Exactly how the "interest in the property prior to the promise" of conveyance would be determined has been inconsistent. While Eickler v. Pecora recites such a requirement, it also relies on Lester v. Zimmer, 147 A.D.2d 340, 542 N.Y.S.2d 855 (3rd Dept.1989), which suggests the "promise" is satisfied and demonstrated by the expenditures of funds and time and effort "in reliance on a promise to share in the result." Lester v. Zimmer, supra at 342, 542 N.Y.S.2d 855. In Ladone v. Ladone, 121 A.D.2d 512, 503 N.Y.S.2d 831 (2nd Dept.1986), as here, such an interest arose on the signing of a contract of sale. Here, unlike the plaintiff in Eickler v. Pecora, Courtney did not contribute to the purchase price. Her interest stems from her marital status at the time of the signing of the Contract of Sale and the promises made to her. She acquired her interest in the property through marital funds used in the acquisition of the property and prior to Gani's promise of her ownership.
In McGrath v. Hilding, 41 N.Y.2d 625, 394 N.Y.S.2d 603, 363 N.E.2d 328 (1977), an oral pre-marital promise to create a tenancy by the entirety was followed by a subsequent contribution of funds to construct a two-bedroom addition to the home. The tenancy by the entirety was never created, and a constructive trust was found to exist. In ordering a new trial, Judge Breitel recognized the need to view the transaction realistically in its human setting. Id. at 605. Judge Breitel's observation is consistent with the caution that the criteria for a constructive trust and guidelines need not be applied rigidly in pursuing the goal of unjust enrichment. Matter of Wieczorek, 186 A.D.2d 204, 205, 587 N.Y.S.2d 755 (2nd Dept.1992), lv. dismissed 81 N.Y.2d 990, 599 N.Y.S.2d 798, 616 N.E.2d 153 (1993). The caution is a reminder that the "constructive trust doctrine is not rigidly limited." Simonds v. Simonds, 45 N.Y.2d 233, 241, 408 N.Y.S.2d 359, 380 N.E.2d 189 (1978).
Plaintiff also established a transfer in reliance on the promise by Gani and Harry to convey the property. See Depena v. Shocker, 83 A.D.3d 885, 887, 922 N.Y.S.2d 119 (2nd Dept.2011); Marini v. Lombardo, 79 A.D.3d 932, 934, 912 N.Y.S.2d 693 (2nd Dept.2010); Matter of Lefton (Bedell), 160 A.D.2d 702, 703–04, 553 N.Y.S.2d 783 (2nd Dept.1990). In the years since September 2008, Courtney generated $1.7 million in revenues used to meet the obligations of the Ronin mortgage held by Mahopac National Bank and other obligations. She did so while paying far in excess of the market rent. Her payments also significantly reduced Defendants' mortgage principal. She had use of the facility as her customers boarded their horses and/or took lessons from her. By paying substantially more than market rent, the opportunity to generate profit to buy the facility, as contended by Gani and Harry, was effectively eliminated. In essence, it may be said the "profit" was paid with the excess payments.
She also paid $50,000.00 in insurance premiums.
The Court is satisfied that Plaintiff has met her burden although the testimony is not without question. Tomaino v. Tomaino, 68 A.D.2d 267, 416 N.Y.S.2d 925 (4th Dept.1979). Plaintiff's subsequent payments of mortgage, taxes, insurance, etc. satisfy the "transfer in reliance" element. Eickler v. Pecora, supra; Lester v. Zimmer, supra. Plaintiff's claim of acquiring an ownership interest through the payment of mortgage, taxes, and insurance, is not without some uncertainty as to its terms, but it is Gani's promise, not its specific terms, that must be examined.
In Sinclair v. Purdy, 235 NY, supra at 253, the promise was formed from all of the circumstances although a specific promise was not recalled. Id. at 253, 139 N.E. 255. Here, the period of time payments is unclear. The suggestion of five to seven years of payments before Plaintiff would "take over" the mortgage (in her words) or re-finance it to pay the mortgage in her (and her husband's) name, or just in the name of CB Walker Stables is unclear, and it does not specifically address the funds Defendants raised and spent in acquiring and constructing the facility.
At the same time, Defendants assert that Plaintiff agreed to pay rent as a tenant, and no ownership interest was involved. This assertion has some appeal, yet, it ignores the expectation that would normally exist between husband and wife—the promotion of an emotional and economic partnership. In addition, the failure to document that alleged landlord-tenant relationship by a lease or other writing may have its origins in the confidential relationship between Courtney and Gani, but the obligation to do so has its origins in the relationship between Gani and Harry. This is especially true where Harry, who it is claimed advanced the funds for acquisition of the property, continued to fund "shortfalls" in the payment of rent. Given Harry's thirty-year career in real estate, if he had an interest in real estate to protect, he was free to do so and he would be expected to do so. Moreover, the acceptance of payments in varying amounts, on an irregular schedule, and alleged carrying and forgiveness of arrears in rent, are all contrary to customary leasehold obligations, though they may be consistent with family-based confidential relationships. "Though a promise in words was lacking, the whole transaction, it might be found, was instinct with an obligation' imperfectly expressed." Wood v. Duff–Gordon, 222 N.Y. 88, 91, 118 N.E. 214 (1917), cited in Djamoos v. Djamoos, 153 A.D.2d 871, 873, 545 N.Y.S.2d 596 (2nd Dept.1989), relying on Forano v. Stephanelli, 7 A.D.2d 420, 425, 183 N.Y.S.2d 707 (1st Dept.1959)and Sinclair v. Purdy, 235 N.Y. 245, 254, 139 N.E. 255 (1923).
Defendants' claims that Plaintiff's payments of mortgage, taxes, and insurance was "rent" for the use of the facility finds support in Plaintiff's tax returns with deductions taken for "rent." Support for this position can be found in Wilson v. LeVan, 22 N.Y.2d 131, 291 N.Y.S.2d 344, 238 N.E.2d 738 (1968); Marini v. Lombardo, 79 A.D.3d 932, 912 N.Y.S.2d 693 (2nd Dept.2010). In Wilson, the Court of Appeals, in a narrow 4–3 decision rejected, in an action for specific performance, the claim of an oral contract for the conveyance of farmland owned by the defendants where the plaintiff made expenditures of mortgage, taxes, and building maintenance for 18 years. There, the Court recognized that mortgage and tax payments could be considered as the plaintiff's rent for the use of the land, and the plaintiff listed the mortgage and tax payments as "rent" on his tax returns. The strong dissent noted that the defendant "helped" with the tax returns, not unlike Gani's involvement in the financial record-keeping for CB Walker Stables. The plaintiff in Wilson, did not seek to impose a constructive trust or an equitable lien. Nevertheless, while the majority did not find part performance sufficient to establish an oral contract, it found a basis for equitable relief in entitling the plaintiff to "reimbursement for any improvements made in reliance upon the oral contract," which enhanced the value of the property. Wilson v. LeVan, supra at 135, 291 N.Y.S.2d 344, 238 N.E.2d 738. Exactly how the oral contract was found to exist for improvements, but not for the full transaction, is not clear. Nor is it clear how the proof was sufficient for one equitable remedy but not another. Thus, even under a payment of "rent" theory, the plaintiff would appear entitled to some recovery.
Here, neither Plaintiff nor Defendant claimed knowledge of the content of tax returns, nor did they by their testimony, adopt them. Gani denied making capital contributions in excess of $500,000.00 as his tax returns show, and Courtney has denied that deduction for "rent" was, in fact, rent. While "[a] party to litigation may not take a position contrary to a position taken in an income tax return", Mahoney–Buntzman v. Buntzman, 12 N.Y.3d 415, 422, 881 N.Y.S.2d 369, 909 N.E.2d 62 (2009), the treatment of business deductions for rent is not the same as classifying settlement proceeds as business income, pursuant to an agreement, nor does it automatically create inconsistent positions. The circumstances here, including agreements between closely-related parties, are not the product of arms length negotiations and must be examined more closely. That examination must include the fact that the same accountant prepared tax returns for the parties, Ronin and CB Walker Stables, presumably with the goal of maximizing the tax benefit for all parties, but no testimony was offered regarding the preparation of the returns. The issues are not always clear to the Internal Revenue Service. Whether the parties intend payments as "rentals" and therefore deductible, or whether the "rentals" are actually payments by which a party is taking title or acquiring equity in the property is not resolved by using the term "rent" and labeling it as such "does not control the legal consequences of the parties conduct, if in fact, the transaction amounts to a sale". Arkansas Bank and Trust Co. V. United States of America, 224 F.Supp. 171 (W.D. Arkansas 1963). The issue of whether an expense was taken as a deduction differs from the issue of whether the deduction was properly taken. So too, whether certain payments may be treated as maintenance or property division may be characterized differently by parties on their tax returns but such difference is evidence of their intent regarding the transaction, not a complete estoppel. Brody v. Brody, 196 A.D.2d 308, 609 N.Y.S.2d 191 (1st Dept.1994), Sorrentino v. Pearlstein, 55 A.D.3d 901, 867 N.Y.S.2d 113 (2nd Dept.2008), Mina v. Mina, 170 Misc.2d 639, 652 N.Y.S.2d 492 (Fam. Ct., Suffolk Co.1996), Matter of Dapuzzo, 1997 WL 713970 (N.Y. Div. Tax App.1997). In Angelo v. Angelo, 74 A.D.2d 327, 428 N.Y.S.2d 14 (2d Dept.1980), Justice Hopkins' words recognized the significance of the economic partnership among married couples:
The Court is unfamiliar with how the parties treated these issues in the resolution of their matrimonial dispute. These specific issues are not addressed in the Stipulation of Settlement. If their matrimonial resolution enabled Defendant to retain all capital contributions, his interests in Ronin, etc. and left Plaintiff with nothing to show for her efforts and expenditures in excess of $1.7 million, the issues of fairness and overreaching would have to be considered. Matter of Grieff, 92 N.Y.2d 341, 680 N.Y.S.2d 894, 703 N.E.2d 752 (1998); Christian v. Christian, 42 N.Y.2d 63, 396 N.Y.S.2d 817, 365 N.E.2d 849 (1977).
"Each case must be decided on its own facts, and the Court should not be fettered in achieving an equitable apportionment of assets on the dissolution of a marriage by the iron clasp of a mechanical formula ... We should look beyond the simple execution of the [tax] return to the circumstances of the marriage" Id. 333, 428 N.Y.S.2d 14
There is also an issue whether Gani, individually, or even as Ronin's manager, could make such a promise. He had, at most, a minority interest in Ronin, and it is not clear whether he could bind Ronin on a transaction of this nature. Certainly his statements to Courtney suggest a promise, and an ability, to convey the property, yet his actions suggest a duality of promises and fidelity. Still, she is not without a remedy.
The Court is satisfied that Defendants are being, and have been, unjustly enriched by Plaintiff's expenditures of time, money, sweat and toil. She has generated income in excess of $1.7 million dollars for Defendants' benefit, which has served to reduce their mortgage balance from $3.0 million to $2.8 million. She has paid rent far in excess of the market rent. While Plaintiff established the elements of a constructive trust, the uncertainty of the terms of the "promise" remains troubling, especially when the authority to make such a promise is questionable. Whether the conveyance was to be subject to Plaintiff's ability to refinance the mortgage, or whether the conveyance was at fair market value less the equity established by Plaintiff, or whether the refinance would be based on the current principal balance, or whether the conveyance was unconditional, was not established, and this failure affects the Court's ability to fashion appropriate relief. In addition, the precise timing of Plaintiff's acquisition of her interest and the promise made to her is not free from doubt.
However, there is an alternative theory that also provides for a remedy. Plaintiff has alleged the existence of an equitable lien, which is similar to a constructive trust.
"A court of equity may give restitution to the plaintiff and prevent the unjust enrichment of the defendant not only by imposing a constructive trust and compelling the surrender to the plaintiff of property held by the defendant (see § 160), but also by imposing an equitable lien upon the property in favor of the plaintiff. In some situations the plaintiff is entitled only to force an equitable lien; in others he can at his option enforce either an equitable lien or a constructive trust. Thus, where a person makes improvements upon the land of another under circumstances which entitle him to restitution, he may have an equitable lien upon the land, but he cannot charge the owner of the land as constructive trustee of the land for him and compel the owner to transfer the land to him (see § 170; compare § 206)."
Restatement (First) of Restitution § 161 (1937).
The equitable lien reflects judicial recognition of an intention that specific property is "to be held, given, or transferred as security for an obligation." 75 N.Y. Jur.2d Liens § 15. Such intention usually must arise from an agreement involving the property in question, or where relief would not exist but for the property that was purchased, preserved, or enhanced as a result of monies advanced.
The promise required for an equitable lien may be expressed or implied and does not require any specific language. See Matter of Friedlander, 178 Misc. 65, 32 N.Y.S.2d 991 (Surr.Ct.1941). Like the constructive trust, a confidential relationship must exist. The combination of the confidential relation and an express or implied promise to convey an interest in property, resulting in the expenditure of money to improve real property, gives rise to an equitable lien. See Farr v. Covert, 34 A.D.3d 1204, 824 N.Y.S.2d 515 (4th Dept.2006); Petrukevick v. Maksimovich, 1 A.D.2d 786, 147 N.Y.S.2d 869 (2nd Dept.1956).
As recently as 2012, the Second Department affirmed the award of an equitable lien in the father's property based on expenditures made by the son over many years as a result of an alleged promise by the father to convey the property to him. See Rock v. Rock, 100 A.D.3d 614, 953 N.Y.S.2d 165 (2nd Dept.2012). The court analyzed the similar, but distinct, principles of promissory estoppel, constructive trust and an equitable lien. Promissory estoppel was rejected because the promise by the father was not "clear and unequivocal." The court considered, but rejected, the payments of the son as a form of "transfer," one of the required elements of a constructive trust.
While the "transfer concept extends to instances where funds, time and effort were contributed in reliance on a promise to share in the result" (Rock v. Rock, supra at 616, 953 N.Y.S.2d 165, citing Sylvester v. Sbarra, 268 A.D.2d 424, 702 N.Y.S.2d 90, quoting Terille v. Terille, 171 A.D.2d 906, 908 [3rd Dept.1991]), where as here, Plaintiff has no actual interest in the property, she is required to show that an equitable interest developed through the expenditures of money, labor and time in the property. Rock v. Rock, supra, at 616, 953 N.Y.S.2d 165, citing Marini v. Lombardo, 79 A.D.3d 932, 912 N.Y.S.2d 693 (2nd Dept.2010). In Marini, the defendant's claimed expenditures for improvements were for the benefit of the defendants. Similar factors in Rock led the court to conclude there was no "transfer' in reliance on the promise by the father to convey the property." Rock v. Rock, supra at 618. However, the Court affirmed the granting of an equitable lien, stating:
"The Supreme Court has the discretion to grant any type of relief within its jurisdiction appropriate to the proof whether or not demanded, imposing such terms as may be just' (CPLR 3017[a]; see Schwartz v. Miltz, 60 A.D.3d 928 [2009]. An equitable lien may be granted in favor of a person, who, due to the nature of his or her relationship with a property owner, has relied upon that owner's unfulfilled promise to convey the property, and as a result has expended funds to preserve or improve it in anticipation of the conveyance' ( Fallica v. Manzolillo, 210 A.D.2d 660, 661 [1994]. Moreover, a court may award an equitable lien to a plaintiff in the interests of justice even though other remedies are unavailable to that party (see Badami v. Badami, 29 A.D.2d 645, 646 [1968]).
Even if proof of a transfer in reliance on a promise is lacking for the constructive trust, an equitable lien will result from an " 'express or implied contract concerning specific property wherein there is a clear intent between the parties that such property be held, given or transferred as security for an obligation.' " Liselli v. Liselli, 263 A.D.2d 468, 469, 693 N.Y.S.2d 195 (2nd Dept.1999), quoting Datloff v. Turetsky, 111 A.D.2d 364, 365, 489 N.Y.S.2d 353 (2d Dept.1985).
Here, the future acquisition of the farm property requires it be viewed as security for an obligation especially with the substantial funds expended by Plaintiff. On the facts as found here, the Court is compelled to prevent the unjust enrichment that would follow from Defendants' retention of the property and the monies paid by Plaintiff. "It is not the promise only, nor the breach only, but unjust enrichment under cover of the relation of confidence, which puts the court in motion." Sinclair v. Purdy, 235 N.Y. 245, 253, 139 N.E. 255 (1923). The proof that falls short of a constructive trust is strong enough to support the alternative remedy of an equitable lien. Millin v. Millin, 36 N.Y.2d 796, 369 N.Y.S.2d 702, 330 N.E.2d 650 (1975); Towner v. Berg, 5 A.D.2d 481, 172 N.Y.S.2d 258 (3rd Dept.1958). And, under the facts of this case, Plaintiff has established her entitlement to an equitable lien.
STIPULATION OF SETTLEMENT
On March 8, 2012, Gani and Courtney executed a Stipulation of Settlement resolving their marital dispute. The Stipulation conforms to the requirements of DRL § 236B(3). The Stipulation was incorporated in, but did not merge with, the Judgment of Divorce. One of the recitals to the Stipulation and Settlement referred to the September 5, 2005 Antenuptial Agreement and an April 27, 2006 Modification of Antenuptial Agreement, which the parties also sought to "reconfirm, including their Joint Property' as they defined the term."
The parties' corporate identities arose after their marriage and after the Modification of the Antenuptial Agreement. Throughout the marriage, they were not only husband and wife, but also business associates. The marital residence was also the "Managers Residence." They functioned with ease in these dual roles. Their Stipulation of Settlement did not bring an end to the business relationship; instead, it expressly provided for the continuation of that business relationship, and the parties remained in a confidential relationship at the time of the Stipulation. Simonds v. Simonds, 45 N.Y.2d, supra at 242.
Article III(E) provides:
"E. The parties acknowledge that CB Walker Stables, LLC, is a business owned by the Wife and operated at the marital premises, which property is owned by a corporation of which the Husband holds an interest. The parties further acknowledge, as set forth herein in Paragraph A of Article VIII, that the two referenced corporate entities are in the process of negotiating a lease arrangement whereby the Wife shall continue to reside in the marital residence as a corporate tenant and shall be authorized to manage the business of CB Walker Stables, LLC at said location. In the event the corporate entities do not reach agreement by August 1, 2012, the Husband agrees the Wife shall be permitted to reside in the marital residence and to continue to manage the business of CB Walker Stables, LLC at the said location for a minimum of twelve (12) months from August 1, 2012, and the Wife agrees to vacate the premises and to remove her business from the location no later than the last day of the twelve (12) month period. The parties acknowledge that the corporate agreement now being negotiated is independent of and separate from this Stipulation of Settlement, and neither is in any way contingent or dependent upon the other."
Courtney was going to continue and operate CB Walker Stables, LLC, which was negotiating a lease arrangement with Ronin Property Partners, LLC, in which Gani had an interest. Notably, the Stipulation does not acknowledge the nature of the prior business relationship. There was no testimony about the intent of the parties set forth in the Stipulation and whether or not it altered the prior relationship. The parties to the Stipulation acknowledged the "corporate agreement" was "independent of and separate from this Stipulation of Settlement. The Court cannot conclude from the Agreement to negotiate a lease in the future that the prior relationship was that of landlord-tenant as opposed to a promise of a conveyance premised on paying mortgage, taxes and insurance. The fact that no lease was ever agreed upon suggests the parties had different understandings in mind. In discerning the parties' intent, the Court is generally limited to the intent that is evidenced by their writing. Rainbow v. Swisher, 72 N.Y.2d 106, 531 N.Y.S.2d 775, 527 N.E.2d 258 (1988); Clark v. Clark, 33 A.D.3d 836, 827 N.Y.S.2d 159 (2nd Dept.2006). A settlement agreement in a matrimonial action is a contract subject to principles of contract interpretation. Matter of Meccico v. Meccico, 76 N.Y.2d 822, 559 N.Y.S.2d 974, 559 N.E.2d 668 (1990).
The parties further excepted their business dealings from the Stipulation of Settlement. Article VIII(A) provides (emphasis added):
"Except as otherwise expressly provided herein, each party hereby releases, remises, and forever discharges the other, of and from all causes of action, claims, rights, or demands, whatsoever, in law or in equity (including, but not limited to, claims for equitable distribution, distributive award or claims against the separate property of the other spouse), which either of the parties hereto ever had, or now has, against the other, except (a) nothing herein contained shall be deemed to prevent either party from enforcing the terms of this Agreement or from asserting such claims as are reserved by this Agreement to each party against the estate of the other; provided, however, that the claims so asserted arise out of a breach of this Agreement; and (b) nothing herein contained shall impair or waive or release any and all causes of action for a divorce, annulment or separation, or any defenses which either may have to any divorce, annulment or separation action which may hereafter be brought by the other. This paragraph should not be construed to limit, enlarge or otherwise effect in any manner whatsoever, any Agreements entered into between corporate or other business entities in which the parties hereto are officers, stockholders, members or otherwise, and the parties acknowledge that corporate entitles of which each is a shareholder and/or officer and/or member are in the process of negotiating an Agreement whereby the Wife will continue to reside in the marital residence as a corporate tenant which will also be authorized and responsible to manage the business at that location. The parties acknowledge that said corporate agreement is independent of this Stipulation of Settlement and neither is in anyway contingent or dependent upon the other."
To be sure, there is, and must be, some overlap between the parties as individuals, spouses, and business associates. Parsing those roles would be difficult, if not impossible, requiring exact words and their context. The Stipulation of Settlement was silent as to any resolution of any claims arising from the business relationship. This silence is important where it has been claimed in this litigation that Plaintiff was deficient in her payments and arrears were significant. The silence is also important where it is claimed in this litigation that a conveyance of the property was to occur. The conclusion to be drawn from this silence is that the release of claims was not intended to cover the business dealings of the parties, as the language suggests. The parties released claims arising out of their marital relationship but did not release claims arising out of their business relationship.
However, a release may not be read to cover matters which the parties did not intend to cover. Desiderio v. Geico Gen. Ins. Co., 107 A.D.3d 662, 663, 967 N.Y.S.2d 392 (2d Dept.2013); see Cahill v. Regan, 5 N.Y.2d 292, 299, 184 N.Y.S.2d 348, 157 N.E.2d 505 (1959); Wechsler v. Diamond Sugar Co., Inc., 29 A.D.3d 681, 682, 815 N.Y.S.2d 639 (2d Dept.2006). "[I]ts meaning and coverage necessarily depend, as in the case of contracts generally, upon * * * the purpose for which the release was actually given." Cahill v. Regan, 5 N.Y.2d, supra at 299; see Burnside 711 LLC v. Amerada Hess Corp., 109 A.D.3d 860, 861, 972 N.Y.S.2d 604 (2d Dept.2013).
CONCLUSION
Plaintiff has established her right to relief. The confidential relations that gave rise to the promises, undertakings, transfer, and benefits cannot be seriously disputed. Through these actions, Courtney generated $1,702,530.92 in reliance on Gani's promise to convey ownership of the farm. The benefit to Defendants was further enhanced by tax deductions and depreciation available to them as a result of Plaintiff's efforts. Plaintiff's payments reduced Defendants' mortgage principal balance, creating equity in the property. The payments made on Defendants' behalf exceeded market rent by $1,143,030.92.
This amount does not include an additional $91,500.00 paid pursuant tot he Orders of the Court after commencement of the action, nor does it include insurance payments for the farm made by CB Walker in an additional amount of $49,124.62.
While the Court is satisfied that Gani's promise of a conveyance to Courtney should be enforced by a constructive trust, there are issues surrounding this remedy. The Court simply does not know the scope of the interest Gani promised. Was it sole ownership? Half-ownership with Gani? Gani's interest in Ronin? One-half of Gani's interest in Ronin? All of Ronin? Gani's promise of convenience before Ronin was created is necessarily limited by his interest after Ronin was created. The promise gave rise to the continued interactions between CB Walker and Ronin and survived the marriage's termination. Could Gani's promise bind Ronin, and if not, how is his fraud rectified? Further, there is the issue of the amount of money invested by Ronin for acquisition and construction totaling approximately $5,000,000.00. Acquisition costs were $1,150,000.00. A construction loan of $3,025,000.00 and two additional loans of $500,000.00 together with some equipment loans and other costs. The mechanics of the conveyance and the outstanding indebtedness are not clearly established, and there is another avenue available.
The equitable lien is based on the extent to which Courtney's efforts led to Ronin's unjust enrichment. It is an amount that reflects the ownership interest Courtney created by her efforts and payments, even if it is not equal to sole, or half, ownership. Courtney should no more be unjustly enriched than should Ronin. The Court determines that Courtney is entitled to an equitable lien in an amount equal to the excess rent paid by her, or $1,143,030.92. That excess rent increased the equity in the property by reducing the mortgage. The reduction of mortgage principal reflects an increase in equity in the property separate from market forces, and directly related to Courtney's contributions. The Court is aware of certain "shortfalls" in monthly payments paid by Harry, but declines to credit the shortfall to the mortgage payments for several reasons. First, Harry failed to protect himself in a manner appropriate with his experience in real estate management. Second, there was testimony that some alleged arrears were forgiven or postponed. And third, the expenses Courtney was asked to absorb were neither certain nor clear; instead, it appears that anything that could fit under the phrase "cost of ownership" was shifted to her.
At one point, Harry claimed Courtney was responsible for accounting and legal costs.
The equitable lien serves another salutary purpose. The parties are not joined in ownership issues or disputes. Their battle is over and they can move forward. Ronin may do what it wishes with the subject property. Courtney and CB Walker will have the lien secured by the property, and the lien will earn interest at the statutory rate. To facilitate the transition, Courtney may remain in possession of the property at 199 Starr Ridge Road, including the residence, until March 31, 2016, conditioned on payments of $10,000.00 per month to Ronin Property Partners, LLC. The Judgment may be entered against all Defendants, as well as against the real property.
Submit Judgment on Notice.
The foregoing constitutes the Decision and Order of the Court.