NANCY G. SLUTSKY VS. KENNETH J. SLUTSKYÂ (FM-14-1535-08, MORRIS COUNTY AND STATEWIDE)(CONSOLIDATED)
167 A.3d 660
| N.J. Super. Ct. App. Div. | 2017|
Check Treatment NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5829-13T1
A-2813-14T1
NANCY G. SLUTSKY,
Plaintiff-Respondent/ APPROVED FOR PUBLICATION
Cross-Appellant,
v. August 8, 2017
APPELLATE DIVISION
KENNETH J. SLUTSKY,
Defendant-Appellant/
Cross-Respondent.
_______________________________
NANCY G. SLUTSKY,
Plaintiff-Respondent,
v.
KENNETH J. SLUTSKY,
Defendant-Appellant.
________________________
DONAHUE, HAGAN, KLEIN &
WEISBERG, LLC,
Respondent.
_______________________________
Argued December 1, 2016 - Decided August 8, 2017
Before Judges Lihotz, Hoffman and Whipple.
On appeal from Superior Court of New Jersey,
Chancery Division, Family Part, Morris
County, Docket No. FM-14-1535-08.
Edward S. Snyder argued the cause for
appellant/cross-respondent in A-5829-13 and
appellant in A-2813-14 (Snyder, Sarno,
D'Aniello, Maceri & DaCosta, LLC, attorneys;
Mr. Snyder, of counsel and on the briefs;
Scott D. Danaher, on the briefs).
Ronald M. Abramson argued the cause for
respondent/cross-appellant in A-5829-13
(Winne, Banta, Basralian & Kahn, PC,
attorneys; Mr. Abramson, of counsel and on
the brief).
Donahue, Hagan, Klein & Weisberg, LLC, pro
se respondent in A-2813-14 (Francis W.
Donahue, of counsel and on the brief).
The opinion of the court was delivered by
LIHOTZ, P.J.A.D.
These two appeals arise from the parties' matrimonial
litigation. The court scheduled the matters back-to-back before
the same panel to address all issues in a single opinion.
In Docket No. A-5829-13, defendant Kenneth J. Slutsky
appeals from a May 30, 2014 final judgment of divorce (final
judgment). He challenges various aspects of final judgment;
most significantly, the rejection of evidence regarding the need
to repay family loans and the valuation and equitable
distribution of his interest as an equity partner in a large New
Jersey law firm. Additionally, defendant appeals from the
ordered equitable distribution of what he asserts were
premarital IRAs and the awarded counsel fees and expert costs to
plaintiff Nancy Slutsky. Defendant further challenges a July
2 A-5829-13T1
28, 2014 order denying his motion for reconsideration, and a
second order filed the same date, which implemented a payment
schedule for the ordered amount of equitable distribution and
fees.
Plaintiff cross-appeals, challenging the final judgment and
the July 28, 2014 orders. She argues the judge improperly
denied her claim for financial adjustments to account for
insufficient pendente lite support, and maintains the trial
judge abused his discretion in not ordering defendant to satisfy
the entirety of her counsel fees and expert costs, by allowing
defendant to satisfy ordered obligations over time.
In the second matter, Docket No. A-2813-14, defendant
appeals from a January 9, 2015 order denying his motion to
dismiss for lack of standing, a petition filed by plaintiff's
former counsel to enforce the order mandating defendant remit
payment to satisfy obligations owed to plaintiff. Defendant
argues counsel no longer represented plaintiff in the
application, making counsel adverse to her interests.
Before this court, defendant moved to supplement the record
with subsequent orders relating to the amount of plaintiff's
counsel fee obligation. The reviewing motion panel deferred the
matter for consideration in this opinion. We grant the motion.
3 A-5829-13T1
For the reasons discussed in our opinion, we affirm the
order rejecting defendant's request to require plaintiff to
contribute to the repayment of monies transferred from various
family trusts; we reverse the evaluation of the goodwill
attached to defendant's interest in his law firm, as well as the
percentage interest in this asset, granted to plaintiff; we
reverse the July 28, 2014 order subjecting defendant's Union
Central and Wells Fargo IRAs to equitable distribution; we
reverse the award of counsel fees, but affirm defendant's
ordered payment of expert costs. Additionally, we affirm the
final judgment provision denying plaintiff's request for an
allocation of additional support based on the pendente lite
award and reject as unavailing her claim for an award of
additional attorney's fees.
Because various provisions in the final judgment are
vacated, the order under review in A-2813-14 is reversed. The
matter must be reviewed on remand by a different Family Part
judge.
I.
After thirty years of marriage, plaintiff filed a complaint
for dissolution of the parties' marriage and review of her
related requests for alimony, equitable distribution, and
satisfaction of debts, counsel fees, and costs. The litigation
4 A-5829-13T1
was difficult and protracted. Some delays in the final
disposition occurred from June 2009 to April 2013, to abide the
conclusion of a guardianship proceeding and another delay
resulted in 2011, to accommodate one party's medical concerns.
Ultimately, trial commenced on January 6, 2014, and was
conducted over nineteen days. The judge issued a written
opinion, addressing all disputed issues. Final judgment was
filed on May 30, 2014.
Post-trial cross-motions sought to modify certain
provisions of the final judgment and the judge issued an amended
final judgment, correcting clerical errors. On the same date,
two other orders were filed. These orders effectuated
provisions of the amended final judgment, and included a payment
schedule for defendant's satisfaction of the ordered
obligations. Motion practice continued. Subsequent orders
denied defendant's request to stay pending appeal the financial
obligations set forth in the final judgment; denied defendant's
request for additional findings of fact and conclusions of law;
and granted a limited stay to allow defendant to request this
court stay execution of the amended final judgment. We denied
defendant's stay motion.
The parties challenged various provisions of the final
judgment arguing the judge's insufficient factual findings could
5 A-5829-13T1
not sustain the legal conclusions reached, and contended legal
error and abuse of discretion require reversal. We recite the
well-settled standards guiding our review of Family Part orders
and judgments.
In our review of a non-jury trial, we defer to a trial
judge's factfinding "when supported by adequate, substantial,
credible evidence." Cesare v. Cesare, 154 N.J. 394, 412 (1998). We also note proper factfinding in divorce litigation involves the Family Part's "special jurisdiction and expertise in family matters," which often requires the exercise of reasoned discretion.Id. at 413.
In our review, "[w]e do not weigh the evidence, assess the credibility of witnesses, or make conclusions about the evidence." Mountain Hill, LLC v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App. Div. 2008) (alteration in original) (quoting State v. Barone,147 N.J. 599
, 615 (1997)), certif. denied,199 N.J. 129
(2009). Consequently, when this court concludes there is satisfactory evidentiary support for the trial court's findings, "its task is complete and it should not disturb the result." Beck v. Beck,86 N.J. 480
, 496 (1981) (quoting State v. Johnson,42 N.J. 146
, 161-62
(1964)).
In bench trials, our "[d]eference is especially appropriate
when the evidence is largely testimonial and involves questions
6 A-5829-13T1
of credibility." Cesare, supra, 154 N.J. at 412 (quoting In re Return of Weapons to J.W.D.,149 N.J. 108
, 117 (1997)). We recognize a trial judge who observes witnesses and listens to their testimony, develops "a feel of the case" and is in the best position to "make first-hand credibility judgments about the witnesses who appear on the stand." N.J. Div. of Youth & Family Servs. v. E.P.,196 N.J. 88
, 104 (2008). In contrast, review of the cold record on appeal "can never adequately convey the actual happenings in a courtroom." N.J. Div. of Youth & Family Servs. v. F.M.,211 N.J. 420
, 448 (2012).
Reversal is warranted when the trial court's factual
findings are "so manifestly unsupported by or inconsistent with
the competent, relevant and reasonably credible evidence as to
offend the interests of justice." Rova Farms Resort, Inc. v.
Inv'rs Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen,78 N.J. Super. 154
, 155 (App. Div.), certif. denied,40 N.J. 221
(1963)). All "legal conclusions, and the application of those conclusions to the facts, are subject to our plenary review." Reese v. Weis,430 N.J. Super. 552
, 568 (App. Div. 2013).
In this matter, the trial judge issued a written opinion,
identified the undisputed facts, related aspects of expert
testimony, and stated his conclusions. Noting not all decisions
7 A-5829-13T1
set forth in the final judgment are challenged on appeal, we
limit our discussion to facts underlying discrete challenges,
which we include in the discussion of each individual issue.
II.
We start with the nine issues raised by defendant on
appeal. Where appropriate, we have combined arguments directed
to similar matters.
A.
Initially, defendant argues he was denied a fair trial
because plaintiff engaged in "willful, contumacious behavior
that made a mockery of justice," for which the judge declined to
sanction her. Defendant contends, "no reported case in New
Jersey has recited facts demonstrating more of an affront to the
justice system than the actions of this plaintiff" during the
pendency of this case. Review of defendant's argument recites
plaintiff's obstreperous behavior "effectively precluded [him]
from cross-examining plaintiff . . . the key witness on the
issue of family loans." Defendant maintains the judge should
have sanctioned plaintiff, followed through on his threats to
strike her pleadings, and, at the very least, draw an adverse
inference on the loan issue "instead of placating plaintiff" and
treating her in a solicitous manner. Defendant's argument in
Point I strikes only at his request to equitably allocate monies
8 A-5829-13T1
borrowed from several family trusts; a related issue is raised
in Point V.
Defendant testified regarding the nature and amount of the
loans from various family trusts. He explained plaintiff's
spending resulted in a "tsunami" of credit card debt, which
could only be met by borrowing, and asserted approximately $1.9
million was loaned by the trusts to maintain the marital
lifestyle, between the years 1987 and 2008. When received, the
monies were deposited into a joint account with plaintiff and
all must be repaid. The trustees did not intervene in the
litigation to seek repayment.
Admitted into evidence was a "revolving promissory note,"
dated June 15, 1998, executed by defendant and issued to the
June Slutsky Trust. June Slutsky is defendant's mother and this
testamentary trust was created by her mother, Rose Gross. The
trust granted a lifetime interest to June and her sisters. The
remainder of June's interest passes to defendant. The note
contained a grid of blank boxes, which were to be completed with
amounts borrowed on stated dates. A similar note, also dated
June 15, 1998, was executed by defendant to borrow money from a
credit shelter trust established by his late father. 1 June
Slutsky was the sole trustee and defendant held her power of
1
The notes were not included in the appendix on appeal.
9 A-5829-13T1
attorney. The third trust was an inter vivos insurance trust.
The insurance policy pays a death benefit to the named
beneficiary, defendant, upon the death of both insureds,
defendant's parents. Defendant is the trustee and borrowed
against the cash value of the insurance policy. There was no
documentation for borrowings from the life insurance trust.
Defendant testified he received permission for each trust
withdrawal and insisted he must repay the obligations.
Defendant's testimony differentiated these borrowed sums from
gifts made by June.
In addition, defendant presented a legal pad containing his
and plaintiff's handwriting, which he explained was prepared
while they engaged in estate planning. Defendant urged
plaintiff falsely testified she knew nothing about the loans
because he told her each time he borrowed money and the notes
demonstrated her knowledge of the debts and the requirement for
repayment. The legal pad notes purportedly calculated
additional life insurance purchased to assure plaintiff's
financial security in the event defendant predeceased June, who
required the debts be repaid and essentially "pull the rug out
from her [plaintiff] right away."
In her scattered testimony, plaintiff did not agree she
knew of the obligation for repayment of the monies borrowed.
10 A-5829-13T1
She also denied understanding the debts were accounted for
during estate planning discussions. In fact, in the course of
her cross-examination on this subject, plaintiff was non-
responsive, ignored questions asked, as well as the judge's
instructions to answer "yes" or "no."
Plaintiff's expert, Gary Phillips, analyzed the documents
and opined the facts raised risks these trust transfers
triggered tax consequences and would not be considered loans,
but rather a trust distribution to June, which were followed by
a gift to defendant. Phillips acknowledged the trustees of all
three trusts were empowered to engage in loans; however, he
stated the notes executed by defendant lacked an interest
component, the instruments' grids were not completed when
borrowings were made, so amounts stated on the notes were
significantly less than totals claimed by defendant. For
example, the June Slutsky Trust note reflected borrowing of
$56,000, yet defendant claimed the actual amount loaned was
$256,000; the credit shelter trust note reflected loans of
$275,500, yet defendant claimed $700,000 was borrowed. Phillips
further challenged the claimed loan status for all trust
borrowings because he found no record defendant made repayments.
Plaintiff also presented de bene esse deposition testimony
of a bank loan officer responsible for reviewing documentation
11 A-5829-13T1
submitted to obtain mortgage loans secured by the marital home.
The loan officer testified the family trust debts were not
disclosed on the loan applications completed by defendant and
plaintiff.
On appeal, defendant asserts plaintiff's failure to respond
to questions regarding her handwritten notes, showing she
understood the debts, required the judge to draw an adverse
inference. He highlights plaintiff's extensive higher
education, which includes a bachelor's degree in economics from
an Ivy League institution, a master's degree in finance from New
York University, and certifications as a public accountant and a
financial planner, as belying her claims of ignorance and lack
of understanding. He also argues the judge erroneously
misapplied the law.
"Generally speaking, in dividing marital assets the court
must take into account the liabilities as well as the assets of
the parties." Monte v. Monte, 212 N.J. Super. 557, 567 (App. Div. 1986); see also N.J.S.A. 2A:34-23.1(m) (requiring "debts and liabilities of the parties" to be considered when determining equitable distribution). Where marital debts are proven, courts should deduct marital debts from the total value of the estate, or allocate the obligations between the parties. See Pascarella v. Pascarella,165 N.J. Super. 558
, 563 (App.
12 A-5829-13T1
Div. 1979) (holding the trial judge was required to deduct debt
incurred during the marriage between husband and his mother);
Ionno v. Ionno, 148 N.J. Super. 259, 262 (App. Div. 1977)
(holding obligations should be allocated between the husband and
wife).
These matters are fact sensitive. When a particular debt
is claimed to be owed to a member of one spouse's family, the
burden of proof rests on the claiming spouse to establishing a
bona fide obligation to repay the monies asserted as loans.
Monte, supra, 212 N.J. Super. at 567-68.
In Monte, the defendant questioned whether the loans to the
plaintiff's family were "bona fide." Id. at 568. This court
stated:
Under these circumstances it would not be
equitable to require [the] defendant to be
charged with any portion of the loans if
[the] plaintiff is not likewise required to
pay. Moreover, absent a finding as to
whether the debts to [the] plaintiff's
relatives did or did not exist, it may be
necessary for those relatives to establish
the basis and amount of the debts.
[Ibid.]
Following review of the facts at hand, we are not persuaded
defendant suffered prejudice by plaintiff's non-responsiveness
during cross-examination or her disruptive behavior tolerated by
the trial judge warranted a new trial. We are hard-pressed to
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criticize the trial judge's attempts to control the courtroom.
In hindsight, one reading the trial transcripts might suggest
things should have been done differently. However, we are not
convinced possible errors when dealing with plaintiff prevented
defendant from presenting his case.
We understand defendant argues plaintiff's claimed lack of
understanding of family finances and estate planning is
incompatible with her extensive financial and tax educational
achievements. This may be true. In the trial judge's words,
plaintiff's testimony was scattered and, "tenuous at best." His
credibility findings imply some of plaintiff's conduct aligned
with her "fixed agenda," which included among other things
"'getting back' at [d]efendant." The judge further
characterized plaintiff as "belligerent" and "fixated."
That said, we also cannot overlook plaintiff suffered
health and emotional problems. Early in the litigation
defendant asserted the necessity to appoint a guardian ad litem
for plaintiff. In the companion guardianship matter a different
judge conducted a trial and concluded plaintiff was competent.
In our view, the trial judge is in the best position to
discern whether plaintiff feigned ignorance. He did not make
such a finding. Rather, his opinion conveys plaintiff was
14 A-5829-13T1
fixated on a given set of results on somewhat specific issues,
and "she clearly was stressed beyond her limits."
Importantly, despite his general finding defendant was
credible,2 and although there is no serious challenge to the fact
the parties' living expenses exceeded defendant's earnings
necessitating supplemental funds unquestionably provided by the
family trusts, the judge rejected defendant's position seeking
plaintiff to share in the obligation to repay the loans. This
decision turned on a conclusion defendant did not satisfactorily
meet his obligation to prove he must repay the debts. This
conclusion is supported by the record.
In finding defendant's proofs deficient, the judge noted:
the notes contained no specific terms for interest or repayment;
the trust did not intervene in the litigation to protect its
interest; documents produced lacked specificity as to the total
amounts distributed, which were asserted only by defendant; and
defendant generally held a beneficial interest in the trusts.
Most significant among the judge's findings was the absence of
disclosure of the debts on the 2002 and 2004 mortgage loan
2
The judge found defendant to be "cooperative, forthcoming
and credible." He "responded in a candid, straight forward,
direct, non-evasive manner to questions on direct and cross-
examination."
15 A-5829-13T1
applications and the loan officer's lack of recollection to
corroborate defendant's testimony he orally revealed the debts.
Even if plaintiff were aware of the borrowings, as
defendant now argues, the judge determined defendant's claim of
required repayment was neither binding nor determinative.
Rather, he scrutinized the evidence and found defendant's
assertions of necessary repayment was "not credible." We defer
to these supported factual findings, including this credibility
assessment. Cesare, supra, 154 N.J. at 412. Accordingly, we
discern no basis to interfere with the conclusion plaintiff was
not obligated to reimburse these monies.
B.
Next, in Points II, III, and IV, defendant raises several
arguments attacking the trial judge's valuation and equitable
distribution of his interest in the law firm. Defendant
suggests there are factual flaws in the findings and further
seeks reversal based on a misapplication of the law. For the
reasons discussed below, we conclude the calculation of the
value of defendant's law practice and percentage interest
granted to plaintiff must be reversed.
We first recite the pertinent facts. Defendant joined his
firm in 1978 when he graduated from Harvard Law School. He
specialized in complex tax matters and billed over 2000 hours
16 A-5829-13T1
each year. He was named an equity partner on January 1, 1984,
and owned one share of stock. The firm modified its structure
on January 1, 2013, changing from a professional corporation to
a limited liability partnership. Defendant was required to
provide a $300,000 capital contribution, financed through a
four-year note.
Detailed and lengthy testimony from the firm's chief
administrative officer (CAO) and the parties' respective
forensic accounting experts — Ilan Hirschfeld for plaintiff, and
Thomas J. Hoberman for defendant — described defendant's annual
compensation, and offered opinions on the fair value of his
interest in the law firm as of May 20, 2008, the date plaintiff
filed her complaint for divorce.
Defendant is a party to a shareholder's agreement with the
firm. The agreement includes the firm's obligation to purchase
a shareholder's stock when he or she ceases to be employed by
the firm, and defines the formula fixing the amount of payment
for the interest.
The CAO explained the firm's compensation system for equity
partners, including the calculation of each partner's interest
in the firm, known as the termination credit account (TCA).3
3
The CAO testified as of the date of trial, based on the
firm's status, partners no longer received W-2s, no longer
(continued)
17 A-5829-13T1
Throughout the year, partners received a draw and expenses and
benefits, such as pension contributions, professional dues and
associations, medical claims, as well as professional liability
and life insurances. These payments reduced an individual's
TCA. Then, at year-end, the firm's nine-member compensation
committee computed the firm's excess income, which is allocated
among the equity partners, based on a defined formula
replenishing the TCA as of December 31. The allocation
considered billable hours, "evaluated time," that is, collection
of billings, and origination of new business. Seniority does
not affect compensation, and past performance may be
subjectively considered in a specific allocation. In essence,
the TCA represents the equity partner's interest in the firm.
Much of defendant's workload is originated by fellow
partners. He was not a significant originator of new clients;
rather, he worked many hours in his highly specialized practice
area. Defendant received a gross bi-monthly draw, a quarterly
distribution and a variable amount of excess distributions,
based on his allocation of firm's year-end net income, or
profit. There also was an interest component attached to the
TCA.
(continued)
participate in the employee pension plan, and are not permitted
to participate in flexible spending plans.
18 A-5829-13T1
Although the firm no longer imposes a mandatory retirement
age, once an equity partner reached age sixty-five, the board of
directors determines whether the individual could continue to
participate in the allocation system or whether he or she moves
to senior status, which is a salaried position. If a partner
moved to senior status, the TCA account would not increase by
future allocations, and charges against the account would cause
it to decrease. The balance of the TCA would be paid out over
four years, when an equity partner left the firm. Further, upon
defendant's completion of thirty-years of partnership
participation, he became eligible to receive a discretionary
longevity bonus equal to twenty-five percent of the average
salary earned during the five highest of his final ten years of
service. In May 2008, defendant had not accrued the requisite
vesting period; however, he achieved this milestone on December
31, 2013, prior to trial.
Hirschfeld's report computed "a calculation of value" of
defendant's interest in the firm, comprised of his TCA "as well
as the value of his interest in the enterprise value or
goodwill, of the Firm." The latter intangible "includes, but is
not limited to, it[]s business reputation, national name
recognition, and established relationship with its clients and
19 A-5829-13T1
employees, all of which provide value to the Firm and its
owners."
In determining defendant's TCA account, Hirschfeld assumed
defendant would retire at age seventy, used an annual two
percent growth period, and an average of defendant's annual
compensation over five years, adjusted for extraordinary non-
reoccurring distributions. Also, an adjustment was made to
include the projected longevity bonus. Following this
methodology, he calculated the after tax TCA value as $350,830.
Following cross-examination, prior to redirect, Hirschfeld
prepared a revised computation, making several adjustments to
his original calculations. On redirect, he explained the
changes resulted because he agreed some of Hoberman's
challenges. The bottom line was a revised TCA value of
$292,908.
Goodwill was added as a component of defendant's firm
interest. First, Hirschfeld determined the reasonable
compensation of an attorney with defendant's education and
experience.4 The differential between the reasonable
compensation and the distributions made represented defendant's
4
Both Hirschfeld and Hoberman relied on data published in
the Survey of Law Firm Economics by Altman Weil Publications,
Inc. as a reference for annual billable hours and reasonable
compensation for those working in defendant's legal specialty;
Hirschfeld used the 2007 issue, while Hoberman used 2008.
20 A-5829-13T1
share of the firm's profits as an owner. Earnings based on
historic data were projected to defendant's retirement date at
age seventy adjusted for taxes, using a forty percent tax rate,
then reduced to present value. Following these calculations,
Hirschfeld opined the goodwill value of defendant's individual
interest in the firm was $1,198,770. This too was revised on
redirect, after various corrections were made, to $1,185,304.
Hoberman's methodology to compute the TCA was similar to
Hirschfeld's; however, his overall opinion of value differed, as
he concluded there was no separate goodwill interest in
defendant's firm ownership. In computing the TCA, Hoberman
noted equity partners contracted to subordinate their TCA
accounts to the firm's equity credit line. Defendant asserted
$98,463 of his TCA was subordinated as security to this line of
credit. Hoberman opined the billable hours, hourly rate of
compensation, and average billings as reported for defendant
were consistent with the Altman Weil survey for an attorney
similarly situated. It was Hoberman's opinion defendant's
accrual basis income allocation was similar to the reported
reasonable compensation data. Therefore, the TCA account alone
represented the true value of defendant's interest in the firm,
and there was no additional goodwill component. He computed the
TCA account balance on the date of the complaint as $620,000,
21 A-5829-13T1
which discounted for present value and adjusted for taxes
determined defendant would realize $285,000.
Hoberman disagreed with Hirschfeld's calculations, noting
areas where Hirschfeld double counted items; added perquisites,
which defendant did not receive; used a depressed reasonable
compensation amount. Further, Hoberman disagreed the TCA would
steadily increase annually as Hirschfeld assumed and asserted
Hirschfeld wrongly allocated non-reoccurring special allocations
as if they would be regularly received. Finally, Hoberman
explained his rejection of the inclusion of goodwill.
In his written opinion, the trial judge found it
"incredible" the firm had no goodwill value. Consequently, the
judge rejected Hoberman's opinion. Although the opinion recites
Hoberman's testimony identifying errors and flaws in
Hirschfeld's report, the judge, without clarification, accepted
the original unadjusted valued stated by Hirschfeld: that is,
the TCA as $350,830 plus goodwill for defendant's interest
valued as $1,198,077. The judge reduced the total by the
$300,000 debt defendant incurred to fund his capital account
upon the firm's restructuring. He then awarded plaintiff one-
half of the remainder as her equitable interest.
On appeal, defendant argues the court's conclusion
demonstrates a "misunderstanding of the facts, [a]
22 A-5829-13T1
misapplication of the law and . . . [an] abdication of . . .
responsibility to reach a result that was the product of a
careful and reasoned application of the law to the actual
facts." He notes the judge used Hirschfeld's initial
calculations of value even though Hirschfeld had changed his
opinion and reduced the total value on redirect.5
On the issue of goodwill, defendant asserts the trial judge
erred by assuming because the firm had goodwill, individual
partners must separately have goodwill. Another legal error
defendant raises is the reliance on an unpublished opinion to
justify the trial conclusion. Moreover, defendant maintains
prior New Jersey Supreme Court opinions support his position
that he has no goodwill interest in his firm. Alternatively, he
argues the amount fixed for this intangible asset was neither
explained nor supported.
Defendant additionally argues the judge abused his
discretion by awarding a fifty-percent distribution to
plaintiff, effectively allocating the same dollars three times.
We consider these issues.
5
Defendant also notes the judge misunderstood the impact of
defendant's required capital contribution and accompanying debt
incurred during the firm's restructuring. He notes this
benefited him because the judge reduced his interest by the debt
amount even though the debt and the capital account offset each
other. He makes this point to demonstrate the judge's lack of
understanding of the issues.
23 A-5829-13T1
Trial courts must always remember,
"[t]he goal of equitable distribution . . .
is to effect a fair and just division of
marital [property]." Steneken v. Steneken,
183 N.J. 290, 299 (2005) (citation omitted).
To fashion an equitable distribution award,
the trial judge must identify the marital
assets, determine the value of each asset,
and then decide "how such allocation can
most equitably be made." Rothman v.
Rothman, 65 N.J. 219, 232 (1974). In
addition, the judge must consider, but is
not limited to, the sixteen statutory
factors set forth in N.J.S.A. 2A:34-23.1.
Fashioning an equitable distribution of
marital assets and debts requires more than
simply "mechanical division"; it requires a
"weighing of the many considerations and
circumstances . . . presented in each case."
Stout v. Stout, 155 N.J. Super. 196, 205
(App. Div. 1977).
[Elrom v. Elrom, 439 N.J. Super. 444 (App.
Div. 2015).]
"A Family Part judge has broad discretion . . . in
allocating assets subject to equitable distribution." Clark v.
Clark, 429 N.J. Super. 61, 71-72 (App. Div. 2012). However, "discretion is not unbounded and is not the personal predilection of the particular judge." Catholic Family & Cmty. Serv. v. State-Operated Sch. Dist. of Paterson,412 N.J. Super. 426
, 442 (App. Div. 2010) (quoting State v. Madan, 366 N.J.
Super. 98, 109 (App. Div. 2004)). "[T]he authority to exercise
. . . discretion is not an arbitrary power of the individual
judge, to be exercised when, and as, his caprice, or passion, or
24 A-5829-13T1
partiality may dictate . . . ." Ibid. (quoting Madan, supra,
366 N.J. Super. at 109). Rather, the nature of judicial discretion requires a trial judge to determine whether to act, and if so, to render a decision "guided by the spirit, principles and analogies of the law, and founded upon the reason and conscience of the judge, to a just result in the light of the particular circumstances of the case." Smith v. Smith,17 N.J. Super. 128
, 132 (App. Div. 1951), certif. denied,9 N.J. 178
(1952). "Moreover, the court must provide factual underpinnings and legal bases supporting the exercise of judicial discretion."Clark, supra
, 429 N.J. Super. at 72.
We must reverse if we find the trial judge clearly abused
his or her discretion, such as when the stated "findings were
mistaken[,] or that the determination could not reasonably have
been reached on sufficient credible evidence present in the
record[,]" or where the judge "failed to consider all of the
controlling legal principles." Gonzalez-Posse v. Ricciardulli,
410 N.J. Super. 340, 354 (App. Div. 2009); see also Wadlow v. Wadlow,200 N.J. Super. 372
, 382 (App. Div. 1985) (reversal is
required when the results could not "reasonably have been
reached by the trial judge on the evidence, or whether it is
clearly unfair or unjustly distorted by a misconception of the
law or findings of fact that are contrary to the evidence."
25 A-5829-13T1
(quoting Perkins v. Perkins, 159 N.J. Super. 243, 247 (App. Div.
1978))).
It is a settled legal question that intangible goodwill may
attach to an attorney's interest in a professional practice.
Dugan v. Dugan, 92 N.J. 423, 433 (1983). If found, the value of goodwill is subject to the equitable distribution claims of the non-titled spouse.Ibid. However, the determination
of the
amount ascribed to goodwill is a complex question of fact.
In this case, the ultimate question that must be resolved
is the value of goodwill defendant had as an equity partner in
the firm. In concluding goodwill existed as a component of
value of this marital asset, the trial judge failed to make
specific factual findings to support the value of attendant
goodwill. Consequently, we are constrained to reverse the
resultant unsupported conclusions.
The most straightforward basis for our conclusion is the
value of defendant's interest in his law firm, as stated in the
final judgment, was taken from Hirschfeld's original opinion
without consideration of Hirschfeld's revised testimony. After
initially testifying, Hirschfeld distinctly reduced his initial
calculations of the TCA and the goodwill components, admitting
they were flawed. Inexplicably, the trial judge overlooked this
evidence and incorporated the original calculations.
26 A-5829-13T1
Next, the judge's stated factual findings are predominately
conclusory. The judge recited the experts' testimony and
acknowledged Hoberman's criticisms of Hirschfeld's calculations.
Thereafter, the judge rejected Hoberman's opinion the value of
goodwill was zero, and ordered the value originally opined by
Hirschfeld. However, no reasons were offered for why Hoberman's
challenges to Hirschfeld's value apparently was found
unpersuasive, and no analysis or evidence supports the ultimate
conclusion.
Certainly, a factfinder may accept or reject expert
testimony in whole or in part, Brown v. Brown, 348 N.J. Super.
466, 478 (App. Div.), certif. denied,174 N.J. 193
(2002), but
there must be a weighing and evaluation of the evidence to reach
whatever conclusion may logically flow from the aspects of
testimony the court accepts. All conclusions must be supported.
As Dugan instructs, the start of the examination of
goodwill considers whether excess earnings exist. Dugan, supra,
92 N.J. at 439-40. This was a highly contested issue on which
the experts used slightly different resources and offered
greatly disparate opinions. Factual findings regarding this
pivotal question were not provided.
A judge's failure to perform factfinding "constitutes a
disservice to the litigants, the attorneys and the appellate
27 A-5829-13T1
court." Curtis v. Finneran, 83 N.J. 563, 569-70 (1980) (quoting Kenwood Assocs. v. Bd. of Adjustment Englewood,141 N.J. Super. 1
, 4 (App. Div. 1976)); R. 1:7-4(a); see also Kas Oriental Rugs, Inc. v. Ellman,407 N.J. Super. 538
, 562-63 (App. Div.), certif. denied,200 N.J. 476
(2009) (requiring a judge, to "find the
facts and state [all] conclusions of law . . . on every motion
decided by a written order that is appealable as of right").
The judge also made no findings when fixing plaintiff's
entitlement to defendant's interest in his law firm at fifty-
percent. The equitable distribution statute "reflects a public
policy that is 'at least in part an acknowledgment that marriage
is a shared enterprise, a joint undertaking, that in many ways
[] is akin to a partnership.'" Thieme v. Aucoin-Thieme, 227
N.J. 269, 284 (2016) (quoting Smith v. Smith,72 N.J. 350
, 361 (1977)). But, equitable is not synonymous with equal. SeeRothman, supra
, 65 N.J. at 232 n.6. Our courts must remain true to the legislative mandate expressed in N.J.S.A. 2A:34-23.1, which assures an ordered equitable distribution be "designed to advance the policy of promoting equity and fair dealing between divorcing spouses." Barr v. Barr,418 N.J. Super. 18
, 45 (App.
Div. 2011). This requires evaluation of unique facts attributed
to each asset.
28 A-5829-13T1
The omission of necessary findings requires we vacate
provisions in the final judgment fixing the value and
distribution of defendant's interest in the firm. To aid the
remand proceeding, the outcome of which will require analysis
and establishment of supporting factual findings necessary to
resolve the complex question of value surrounding a goodwill
component attached to an interest in a law firm, we recite the
authority establishing goodwill as an intangible asset subject
to equitable distribution, as well as the required analysis to
be undertaken by a trial court when fixing goodwill value.
In Stern v. Stern, 66 N.J. 340 (1975), the Court examined the defendant's challenges to ordered equitable distribution of his partnership interest in a "very successful, well-known and highly respected law firm."Id. at 344.
In part, the defendant contested "the propriety of considering his earning capacity as being a separately identified and distinct item of property."Ibid. The Court agreed,
stating:
[A] person's earning capacity, even where
its development has been aided and enhanced
by the other spouse, as is here the case,
should not be recognized as a separate,
particular item of property within the
meaning of N.J.S.A. 2A:34-23. Potential
earning capacity is doubtless a factor to be
considered by a trial judge in determining
what distribution will be "equitable" and it
is even more obviously relevant upon the
issue of alimony. But it should not be
29 A-5829-13T1
deemed property as such within the meaning
of the statute.
[Id. at 345 (footnote omitted).]
The Court also discussed the methodology for making this
difficult assessment of value. Id. at 346. In this regard, the
partnership agreement was the starting point.
Generally speaking, the monetary worth of
this type of professional partnership will
consist of the total value of the partners'
capital accounts, accounts receivable, the
value of work in progress, any appreciation
in the true worth of tangible personalty
over and above book value, together with
good will, should there in fact be any; the
total so arrived at to be diminished by the
amount of accounts payable as well as any
other liabilities not reflected on the
partnership books. Once it is established
that the books of the firm are well kept and
that the value of partners' interests are in
fact periodically and carefully reviewed,
then the presumption to which we have
referred should be subject to effective
attack only upon the submission of clear and
convincing proofs.
[Id. at 346-47 (footnotes omitted).]
Although not reviewing the valuation of the intangible
goodwill of the defendant's partnership interest, the Court
explained:
The good[]will of a law firm, for ethical
reasons, may not be sold or transferred for
a valuable consideration. N.J. Advisory
Committee on Professional Ethics, Op. 48, 87
N.J.L.J. 459 (1964); Opinion 80, 88 N.J.L.J.
460 (1965). It may, however, in a given
case, be possible to prove that it does
30 A-5829-13T1
exist and is a real element of economic
worth. Concededly, determining its value
presents difficulties. Rev. Rul. 609, 1968-
2 Cum. Bull. 327.
[Id. at 347 n.5.]
Years later, in Dugan, the Court undertook review of
whether goodwill was part of the value of the plaintiff's, a
solo practitioner, law practice, "if so, whether it constitutes
property subject to equitable distribution; and, if so, how it
is to be evaluated." Dugan, supra, 92 N.J. at 428. Noting intangible goodwill is "essentially reputation that will probably generate future business," the Court suggested goodwill encompasses the "advantages of an established business that contribute to its profitability," such as a good name, capable staff, and a reputation for superior services.Id. at 429-30.
Further, "[g]oodwill can be translated into prospective earnings."Id. at 431.
Emphasizing "future earning capacity, per se, is not goodwill," the Court held, "[W]hen that future earning capacity has been enhanced because reputation leads to probable future patronage from existing and potential clients, goodwill may exist and have value. When that occurs the resulting goodwill is property subject to equitable distribution."Id. at 433;
see also Levy v. Levy, 164 N.J.
Super. 542, 554 (Ch. Div. 1978) ("What is being measured is in
reality the capacity of repeat patronage and of a certain
31 A-5829-13T1
immunity to competition to produce earnings beyond the average
for that kind of business."). The Court explained:
After divorce, the law practice will
continue to benefit from that goodwill as it
had during the marriage. Much of the
economic value produced during an attorney's
marriage will inhere in the goodwill of the
law practice. It would be inequitable to
ignore the contribution of the non-attorney
spouse to the development of that economic
resource. An individual practitioner's
inability to sell a law practice does not
eliminate existence of goodwill and its
value as an asset to be considered in
equitable distribution. Obviously, equitable
distribution does not require conveyance or
transfer of any particular asset. The other
spouse, in this case the wife, is entitled
to have that asset considered as any other
property acquired during the marriage
partnership.
[Dugan, supra, 92 N.J. at 434.]
"For purposes of valuing the goodwill of a law practice,
the true enhancement to be evaluated is the likelihood of repeat
patronage and a certain degree of immunity from competition."
Ibid. Careful consideration in assigning value to goodwill in a divorce action is required because the attorney-spouse is essentially "forced to pay the ex-spouse 'tangible' dollars for an intangible asset."Id. at 435.
Dugan articulated "one appropriate method to determine the
value of goodwill of a law practice." Id. at 139. This
computation is "accomplished by fixing the amount by which the
32 A-5829-13T1
attorney's earnings exceed that which would have been earned as
an employee by a person with similar qualifications of
education, experience and capability." Ibid.; see also Levy,
supra, 164 N.J. Super. at 547 ("Where the business is a service
organization then the question of excess [net earnings] requires
comparison of the net earnings with the reasonable value of the
personal services which produced them."). The methodology
followed requires a trial court to
first, ascertain what an attorney of
comparable experience, expertise, education
and age would be earning as an employee in
the same general locale. The effort that
the practitioner expends on his law practice
should not be overlooked when comparing his
income to that of the hypothetical employee.
A sole practitioner who, for example, works
a regular sixty-hour week may have a
significantly greater income than an
employee who regularly works a forty-hour
week, and the income may be due to greater
productivity rather than the realization of
income on the sole practitioner's goodwill.
Next, the attorney's net income before
federal and state income taxes for a period
of years, preferably five, should be
determined and averaged. The actual average
should then be compared with the employee
norm. If the attorney's actual average
realistically exceeds the total of (1) the
employee norm and (2) a return on the
investment in the physical assets, the
excess would be the basis for evaluating
goodwill.
The excess is subject to a
capitalization factor [which is] the number
of years of excess earnings a purchaser
would be willing to pay for in advance in
33 A-5829-13T1
order to acquire the goodwill. The precise
capitalization factor would depend on [a
variety of factors including] [t]he age of a
lawyer . . . because . . . goodwill would
probably terminate upon death. . . .
Subject to such adjustments, . . . a figure
close to the true worth of the law
practice's goodwill may be obtained.
[Dugan, supra, 92 N.J. at 439-400 (citations
omitted).]
The Court's discussion also makes it clear this stated
methodology was not dispositive. Understanding Dugan involved a
solo practitioner, the Court acknowledged other means of
reaching the required determination may be appropriate,
including reference to partnership or shareholder agreements,
and consideration of
the limitations to which we have previously
alluded, as well as the expertise and age of
the individual should be factored into any
evaluation. Moreover, potential federal tax
consequences should be considered in
determining equitable distribution.
[Id. at 441.]
Here, a nuanced valuation methodology is required because
defendant is an equity partner in a large firm, who generally is
not responsible for originations, and who is bound by the firm
policies and a shareholder agreement.
Each expert offered an opinion of the reasonable
compensation for an attorney similarly situated, having
comparable experience and expertise, to discern the reasonable
34 A-5829-13T1
compensation for defendant's services and whether he received
excess earnings. Yet, the judge failed to analyze the
differences in these opinions, which essentially drove the
conclusion reached by each expert. Further, Hoberman's
identification of flaws in Hirschfeld's analysis, some of which
were conceded by Hirschfeld, were completely overlooked.
We believe the trial judge misunderstood Hoberman's
conclusion, as suggesting goodwill did not exist for the firm.
Actually, Hoberman's opinion asserted the TCA of each equity
partner accounted for any goodwill. Further, plaintiff, who was
not an originator but a worker in a highly specialized legal
area, was actually paid what a similarly skilled lawyer would be
paid. Thus, defendant's compensation matched his earning
capacity, nothing more. This view considered whether
defendant's "future earning capacity has been enhanced because
reputation leads to probable future patronage from existing and
potential clients" and concluded it did not. Accordingly, there
was no additional component of goodwill. Id. at 433.
In this matter, any analysis of goodwill must evaluate the
firm's shareholder's agreement to determine whether it is an
appropriate measure of the total firm value, including goodwill.
That formula computes an exiting partner's interest, calculated
as a portion of the firm's excess earnings. See Levy, supra,
35 A-5829-13T1
164 N.J. Super. at 534. The Court must discern the
objectiveness and accuracy of the formula and calculations.
When "it is established that the books of the firm are well kept
and that the value of partners' interests are in fact
periodically and carefully reviewed, then the presumption to
which we have referred should be subject to effective attack
only upon the submission of clear and convincing proofs."
Stern, supra, 66 N.J. at 347.
Further, when calculating the value of his firm asset, the
analysis must consider defendant's projected term of future
employment. As noted, Hirschfeld assumed defendant would
continue as an equity partner until age seventy. However,
evidence was presented showing defendant's working status may
change once he reaches age sixty-five. At that point, the firm
could require defendant to become a salaried employee. The
firm's established policies may make the use of earnings over an
additional five-year period as an equity partner, rather than
senior status inappropriate. If so, the calculation used by
Hirschfeld must be considered to discern if they artificially
inflated goodwill. This area of analysis was not undertaken.
See R. 1:7-4.
The value attributed by the judge to defendant's TCA
interest suffers similar faults. First, Hirschfeld modified his
36 A-5829-13T1
initial value, reducing it from $350,830 to $292,908. Second,
the modified value assumed defendant would remain an equity
partner until age seventy, continuing to work at the same pace
regardless of his advanced age. As noted, the facts in evidence
tear at the accuracy of this assumption. Finally, no findings
were made to support why Hoberman's computation was rejected in
favor of Hirschfeld's. The conclusory determination by the
judge is unfounded.
Once the value of defendant's interest in his firm is
determined, an analysis must be made to discern plaintiff's
interest in the asset. This demands an examination of equitable
factors set forth in N.J.S.A. 2A:34-23.1. The Legislature has
mandated: "In every case . . . the court shall make specific
findings of fact on the evidence relevant to all issues
pertaining to asset eligibility or ineligibility, asset
valuation, and equitable distribution, including specifically,
but not limited to, the factors set forth in this section."
Ibid. Specific to this asset, a measure of consideration must be given to the lack of intrinsic value associated with any amount determined as individual goodwill. N.J.S.A. 2A:34- 23.1(p); see alsoDugan, supra
, 92 N.J. at 435.
For these reasons, the provisions of the final judgment
fixing the value of defendant's interest in his law firm, as
37 A-5829-13T1
well as setting plaintiff's equitable interest in this marital
asset, must be vacated and the matter remanded for further
consideration consistent with this opinion. We understand the
trial judge has been assigned to a different trial division, and
because certain credibility determinations were made, which are
now set aside as unsupported, we order the matter reassigned by
the Presiding Judge of the Family Part to a new trial judge. We
need not further analyze the argument offered by defendant in
Point IX.
We reject as unavailing defendant's argument that the
inclusion of properly computed goodwill double counts the same
dollars. See Steneken, supra, 183 N.J. at 298 (emphasizing
because alimony and equitable distribution serve two separate
purposes, it is not required that "a credit on one side of the
ledger must perforce require a debit on the other side").
Another issue related to this obligation, set forth in
Point VII, challenges the payment schedule to satisfy
plaintiff's equitable distribution interest, provided in the
July 18, 2014 post-judgment order. Although a payment schedule
for satisfaction of equitable distribution may be equitable
here, the payment provisions must be vacated because the amount
of the assets and plaintiff's interest remains subject to
further review.
38 A-5829-13T1
C.
In Point VIII, defendant argues the trial court erred in
distributing his Union Central and Wells Fargo IRAs urging they
were funded with monies from a premarital bank account.
Following trial, the judge accepted defendant's proofs and
concluded the assets were exempt from equitable distribution.
See Valentino v. Valentino, 309 N.J. Super. 334, 338 (App. Div.
1998) ("Any property owned by a husband or wife at the time of
marriage will remain the separate property of such spouse and in
the event of divorce will be considered an immune asset and not
eligible for distribution."). Upon plaintiff's motion for
reconsideration, the judge changed his mind, stating "there was
no believable evidence produced by [d]efendant to establish that
these funds were premarital and the so-called proofs postdated
the marriage by eight years. Obviously the court was mistaken
in its decision." This explanation is lacking, and conflicts
with the very detailed credibility findings made by the court,
accepting defendant's trial testimony, as stated in the final
judgment.
Although no documents verifying the establishment of the
premarital bank account were presented, evidence in the form of
defendant's testimony was presented on this issue. Also,
defendant admitted two checks from the account and explained
39 A-5829-13T1
other records were destroyed when the parties' home was flooded.
The checks reflect the asset was titled solely to defendant and
note payments were transferred to the subject IRA accounts.
Plaintiff cross-examined defendant in an effort to challenge his
credibility, but provided no testimony of evidence refuting his
claims.
We are unable to reconcile the statements in the post-
judgment order referencing "so-called proofs" or why defendant's
testimony first found "forthcoming," "candid, straight-forward,
direct," and "non-evasive," was thereafter characterized as "no
believable evidence." Testimony is evidence, and the
contradictory conclusions without more require the provision in
the July 28, 2014 order be vacated and the issues reviewed anew
on remand.
D.
Lastly, defendant argues the court abused its discretion in
awarding plaintiff counsel fees and expert costs in connection
with litigation. The assessment of counsel fees is
discretionary. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001); Eaton v. Grau,368 N.J. Super. 215
, 225 (App. Div.
2004). In our review, "[w]e will disturb a trial court's
determination on counsel fees only on the 'rarest occasion,' and
then only because of clear abuse of discretion." Strahan v.
40 A-5829-13T1
Strahan, 402 N.J. Super. 298, 317 (App. Div. 2008) (citing
Rendine v. Pantzer, 141 N.J. 292, 317 (1995)).
An allowance for counsel fees is permitted to any party in
a divorce action, R. 5:3-5(c), subject to the provisions of Rule
4:42-9. The rule provides that "all applications for the
allowance of fees shall be supported by an affidavit of services
addressing the factors enumerated by RPC 1.5(a)." R. 4:42-9(b).
To determine whether and to what extent such an award is
appropriate, the court must consider:
(1) the financial circumstances of the
parties; (2) the ability of the parties to
pay their own fees or to contribute to the
fees of the other party; (3) the
reasonableness and good faith of the
positions advanced by the parties both
during and prior to trial; (4) the extent of
the fees incurred by both parties; (5) any
fees previously awarded; (6) the amount of
fees previously paid to counsel by each
party; (7) the results obtained; (8) the
degree to which fees were incurred to
enforce existing orders or to compel
discovery; and (9) any other factor bearing
on the fairness of an award.
[R. 5:3-5(c).]
Here, the judge evaluated the statutory factors in
rendering his award to plaintiff. He ordered defendant pay
$467,793.38 in fees and $23,804.24 in expert costs. However, we
determine certain findings were mistaken, and the need for
41 A-5829-13T1
additional review requires reversal. Rova Farms, supra, 65 N.J.
at 484.
First, we comment on certain findings made on this issue,
which must be set aside. The judge stated defendant was
"extremely well-off . . . earning in excess of $1,000,000 per
year." This finding failed to account for ordered obligations,
which significantly impact defendant's available income,
including alimony and equitable distribution payments along with
debts for which defendant was solely responsible.
Next, the judge found defendant's positions regarding the
loans and the zero goodwill value in his firm evinced badges of
bad faith. This finding is unsupported. The existence of the
borrowings was not disputed. At issue was repayment. The
position was not fallacious; rather, the proofs were found
insufficient. Further, we reversed the findings regarding value
of defendant's interest in his firm.
That a party advances a legal position reasonably supported
which the court rejects, is not the equivalent of "bad faith."
Tagayun v. AmeriChoice of N.J., Inc., 446 N.J. Super. 570, 580
(App. Div. 2016) ("When [a party]'s conduct bespeaks an honest
attempt to press a perceived, though ill-founded and perhaps
misguided, claim, he or she should not be found to have acted in
bad faith." (quoting Belfer v. Merling, 322 N.J. Super. 124,
42 A-5829-13T1
144-45 (App. Div.), certif. denied, 162 N.J. 196 (1999)).
Examples of bad faith include misusing or abusing process,
seeking relief not supported by fact or law, intentionally
misrepresenting facts or law, or otherwise engaging in vexatious
acts for oppressive reasons. Borzillo v. Borzillo, 259 N.J.
Super. 286, 293-94 (Ch. Div. 1992). None of these events
occurred.
Second, certain findings are no longer accurate. The judge
considered the amount of fees plaintiff incurred, stated as more
than "$1.7 million," finding plaintiff would be forced to expend
a portion of her equitable distribution to pay her remaining
counsel fees. However, the supplemental orders entered on June
7, 2016, stipulated plaintiff's indebtedness to her attorneys
stood at $450,000, plus interest. This sum is less than the
amount defendant was ordered to contribute.
Although we reject defendant's suggestion of collusion, the
debt owed by plaintiff is unquestionably relevant to any award
imposed on the adverse party. Argila v. Argila, 256 N.J. Super.
484, 490 (App. Div. 1992). Whatever the reason plaintiff's
counsel consented to compromise the sums claimed due, a burden
placed on defendant for payment must fairly account for the
obligation plaintiff owes.
43 A-5829-13T1
The judge's reliance on the results obtained by plaintiff
has now been altered on appeal as we have vacated the provisions
fixing the value of defendant's interest in his law firm.
Finally, no assessment was made regarding plaintiff's actions,
her refusal to answer, being disruptive and otherwise
uncooperative, and causing the trial to extend over nineteen
days.
The order cannot stand because it was based on
insufficient, and now, vacated findings. The provision ordering
defendant to pay plaintiff's fees is vacated. We direct the
issue reviewed on remand.
We do not disturb the ordered expert fees. The sums
ordered represent a reasonable allocation to assure a level
playing field between the parties. Kelly v. Kelly, 262 N.J.
Super. 303, 307 (Ch. Div. 1992).
III.
Plaintiff's cross-appeal argues the trial judge abused his
discretion by refusing to retroactively award her an additional
$300,000 in pendente lite support for the period June 2009
through June 2014, plus $53,000 to repay a loan she incurred.
We disagree.
The September 19, 2008 pendente lite support order directed
defendant to pay all plaintiff's monthly shelter and
44 A-5829-13T1
transportation expenses as listed in her Case Information
Statement (CIS); an additional $10,000 for monthly personal
expenses. Further, defendant remained obligated to maintain
medical insurance, pay plaintiff's medical expenses, and
continue all life and car insurance. On May 21, 2009, the judge
granted defendant's motion to halve his monthly contribution to
plaintiff's personal expenses, effective June 15, 2009, based on
proof of a decrease in his income. Plaintiff did not seek
further review or adjustment of support and evidence shows
plaintiff's income increased from the 2009 levels.
Pendente lite support orders are subject to modification at
the time final judgment is entered. Mallamo v. Mallamo, 280
N.J. Super. 8, 12 (App. Div. 1995). Any changes in the initial orders rest with the trial judge's discretion. Jacobitti v. Jacobitti,263 N.J. Super. 608
, 617 (App. Div. 1993), aff'd,135 N.J. 571
(1994). A retroactive increase in the ordered pendente lite support should be considered when the amount initially awarded based on limited information at the inception of a matrimonial matter is later determined "woefully inadequate" or "obviously unjust" once all facts and circumstances are fleshed out at trial.Id. at 617-18.
45 A-5829-13T1
In denying plaintiff's request for an award amounting to an
additional $5000 per month for the period June 2009 through June
2014, the trial judge found:
Plaintiff has failed to set forth any
justifiable reason to give her a windfall of
this nature. She has not demonstrated any
additional need. She did not prove that she
needed a $53,000.00 insurance loan. The
$5,000 [pendente lite] order for
[p]laintiff's [personal] expenses entered in
May of 2009 was consistent with the marital
lifestyle. The evidence established that
during the [pendente lite] timeframe,
[p]laintiff received a far larger share of
[d]efendant's net income than he did . . . .
Plaintiff likewise failed to account for the
income she received during that period.
Plaintiff's motion for reconsideration of this order was
denied, as plaintiff had not "convinced the court of the
efficacy of her argument." The judge stated:
The alimony awarded to her of
$260,000.00 per year is before taxes. After
taxes are deducted she nets only about
$175,000.00. Therefore[,] using her own
logic, she has received in excess of the
$144,000.00 lifestyle. The net result is
substantially the same considering the
passage of 6 years since the original Case
Information Statement . . . was filed.
Furthermore, most of the plaintiff's so-
called financial woes were caused by her.
She put HIPPA blocks on her medicals
creating havoc and resulting in unpaid
bills/judgments against her. She switched
the cell phone billing. She switched the EZ
Pass. None of these actions were necessary.
Plaintiff failed and refused to confer with
[d]efendant who was paying those bills.
Plaintiff also raises tuition issues which
46 A-5829-13T1
are self-imposed. While the pursuit of
higher education is certainly a noble
endeavor, at some point in your life you
must pursue your career. Plaintiff was 58
at the time of the trial with an advanced
education and a professional degree and
license. There is no evidence that her
income will be greatly improved by her
securing an additional advanced degree.
These findings are supported by the substantial, credible
evidence of record. We will not intervene. Beck, supra, 86
N.J. at 496.
IV.
The consolidated appeal regards a challenge to the denial
of defendant's motion to dismiss a petition, initiated by
plaintiff's trial attorneys, to enforce defendant's payment of
the counsel fee award.6 Defendant posited counsel lacked
standing to seek enforcement of the matrimonial order. Notably,
plaintiff's counsel subsequently informed the judge plaintiff
was disputing the invoice, and a motion for a charging lien was
filed. The judge denied defendant's motion, and directed him to
pay the ordered $254,950.03 to plaintiff's counsel's trust
account within thirty days and to comply with the payment
schedule established in the July 28, 2014 order. On appeal,
defendant renews his argument.
6
Also, defendant sought the judge's recusal, an issue we
need not reach.
47 A-5829-13T1
Traditionally, courts in New Jersey have taken a "generous
view of standing." In re N.J. State Contract, 422 N.J. Super.
275, 289 (App. Div. 2011). A litigant has standing to prosecute an action when that litigant has a "sufficient stake and real adverseness with respect to the subject matter of the litigation, and a substantial likelihood that some harm will fall upon it in the event of an unfavorable decision." In re N.J. Bd. Of Pub. Utils.,200 N.J. Super. 544
, 556 (App. Div. 1985) (citing N.J. State Chamber of Commerce v. N.J. Election Law Enf't Comm'n,82 N.J. 57
, 67 (1980)). Courts will not entertain proceedings brought by parties who are merely interlopers or strangers to a dispute. Ridgewood Educ. Ass'n v. Ridgewood Bd. of Educ.,284 N.J. Super. 427
, 432 (App. Div. 1995). A financial interest in the outcome of the litigation may confer standing. See Jen Elec., Inc. v. Cty. of Essex,197 N.J. 627
, 644 (2009)
Defendant challenges plaintiff's counsel's right to move
for enforcement when he was contemporaneously seeking relief
adverse to his former client. Further, he argues to allow
plaintiff's attorney to petition for enforcement permits
preferential treatment of counsel, who is merely one of many of
plaintiff's creditors.
48 A-5829-13T1
In Williams v. Williams, 59 N.J. 229 (1971), counsel petitioned for an award of counsel fees for legal services rendered to the plaintiff in the matrimonial action, who had passed away.Id. at 231.
Noting there was "no dispute that had the litigation proceeded to final judgment, [the] plaintiff-wife would have been entitled to an award of counsel fees and costs[,]" the Court found "no logical reason why the wife's untimely demise should relieve the husband of an obligation which as a matter of policy and justice he ought to bear."Id. at 233-34.
The Court also rejected the defendant-husband's
argument to deny counsel's application because the award was
sought directly and counsel lacked standing, stating:
In our view, petitioners have standing as
unpaid solicitors. Our cases recognize that
while counsel fees and costs are awarded to
the litigant, they properly "belong" to
counsel and the allowances are to be held in
trust for the attorneys who furnished the
services. Thus, the attorney is a party in
interest to that extent. Here, there is no
possibility of recovery from the decedent's
estate; and, unless petitioners are allowed
to press their application, they will go
uncompensated and defendant will be unjustly
enriched to that extent. In such
circumstances, we think it clear that
petitioners should be allowed to proceed in
their own right.
[Id. at 234-35 (citations omitted).]
In Tagliabue v. Tagliabue, 183 N.J. Super. 547 (Ch. Div.
1982), Judge Conrad W. Krafte considered a similar question.
49 A-5829-13T1
The defendant objected to the petition by plaintiff's former
attorney for fees, maintaining the attorney "[d]oes not have the
right to apply for counsel fees" and counsel "no longer
represents" the plaintiff because "he voluntarily withdrew from
this case." Id. at 548. The defendant's argument was rejected because: "Equity, which will not permit a wrong to occur without providing a remedy which is lacking at law, will not be bound by tight constraints imposed by the law courts in establishing third-party beneficial status."Id. at 550.
The judge concluded: "This court interprets [Rule] 4:42-9(a)(1) . . . to create an equitable third-party beneficiary status in favor of the attorney. Given such status, he may, independently, pursue his remedy . . . ."Ibid. The reasoning expressed
in these holdings establishes the interest counsel has in fee awards, based upon proof of the reasonable value of work performed in the litigation. Defendant's recitation of excerpts from Rosenberg v. Rosenberg,286 N.J. Super. 58
, 63-64 (App. Div. 1995) and Poch v. Haag,105 N.J. Super. 44
, 46 (App. Div. 1969), to suggest a counsel fee
award belongs to the client, ignores the context of the cited
passages. Rosenberg involved a client's attempt to limit the
obligation due by her to the sum fixed in the matrimonial
litigation when assessing fees due from the adversary.
50 A-5829-13T1
Rosenberg, supra, 286 N.J. Super. at 61-69. In dicta, this court in Poch noted it was "doubtful" the law firm could appeal pro se, to challenge the amount of a fee award rendered to its client.Poch, supra
, 105 N.J. Super. at 46. These factual
differences provide the context for excerpts, which distinguish
these holdings.
The right to seek establishment of a counsel fees award
paid by an adversary belongs to the client. The client must
present supporting proofs justifying the award. The amount of
any award is based on the reasonable value of work performed by
counsel, after a factual analysis guided by Rule 5:3-5(c) and
Rule 4:42-9. Similarly, a challenge to the amount of fees
awarded is a claim held by the client. Rosenberg, supra, 286 N.J. Super. at 61-69. However, once a fee award is granted, Williams identifies the interest of counsel holds in enforcing payment.Williams, supra
, 59 N.J. at 232.
Two aspects of this order are troublesome. First,
counsel's petition sought to receive all sums due to plaintiff
under the final judgment, not simply attorney fees awarded.
Absent imposition of a constructive trust or establishment of an
attorney's lien, the awards of all sums due plaintiff as a means
to satisfy counsel fees was too broad a remedy. The order in
this regard is error and vacated.
51 A-5829-13T1
Second, the petition discloses plaintiff disputed the
reasonableness of fees billed and elected fee arbitration. See
R. 1:20A-3. Under these circumstances, no action to enforce
payment of the fees can be made pending arbitration. R. 1:20A-
6; see Rosenfield v. Rosenfield, 239 N.J. Super. 77, 78 (Ch.
Div. 1989). If the amount of fees is fixed in arbitration, the
attorney may not seek a statutory lien for a greater sum, R.
1:20A-3(e), with the caveat proceedings to preserve the lien and
restrain disposition of lawsuit proceeds pending arbitration are
permitted. Thus, no fees should be remitted to counsel from
defendant or plaintiff until the arbitration proceeding is
competed.
Here, plaintiff and her former attorneys, after fee
arbitration was initiated, agreed to a stipulated fee amount;
that sum is less than the amount defendant was ordered to
contribute. As stated above, the reduction in the fee
obligation of plaintiff bears directly on any fee awarded she
receives. Leavengood v. Leavengood, 339 N.J. Super. 87, 96
(App. Div. 2001). For all of these reasons the January 9, 2015
determination must be reversed and the matter remanded for
additional review in light of our opinion.
52 A-5829-13T1
V.
In summary, regarding Docket No. A-5829-13, we affirm the
provisions of the final judgment of divorce and the post-
judgment orders denying reconsideration of the treatment of the
family loans and adjustments based upon the pendent lite support
order. We reverse the provision of the final judgment and
orders regarding the valuation of defendant's interest in his
law practice as well as the percentage interest accorded to
plaintiff of this asset. We also reverse the July 28, 2014
order reversing the final judgment's provision concluding the
IRA's were not exempt and the award of counsel fees and costs to
plaintiff. Each of these issues must be reviewed on remand by a
newly assigned Family Part judge. The orders challenged in
Docket No. A-2813-14 are reversed, as the amount of attorney's
fees, if any, must be addressed on remand.
Any issues raised but not otherwise addressed were found to
lack sufficient merit to warrant discussion in our opinion. R.
2:11-3(e)(1)(E).
Affirmed in part, reversed in part, and remanded.
53 A-5829-13T1