On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Ocean County, Docket No. FM-15-948-00-C.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lisa, Reisner and Ostrer.
This matter comes before us by virtue of plaintiff's appeal and defendant's cross-appeal from certain aspects of post-judgment orders issued by the Family Court.
The parties were married in 1984. They had two children, a daughter who was born in 1987 and is now twenty-three-and-one-half years old, and a son born in 1989, who is now twenty-two years old. The parties separated in November 1999. Plaintiff filed a divorce complaint in January 2000. Defendant is a dermatologist with a very successful practice, yielding high income to him. Until the parties separated, plaintiff was the office manager of the practice. The parties accumulated very substantial assets subject to equitable distribution. Both parties were represented by counsel, and the divorce proceedings were marked by extensive discovery, investigation, and negotiations.
On September 26, 2002, the parties entered into a property settlement agreement (PSA). They were divorced on October 11, 2002, and the divorce judgment incorporated the PSA.
On June 3, 2004, plaintiff filed the motion which began extensive post-judgment proceedings leading up to this appeal. She sought various forms of relief, including setting aside the PSA because of defendant's failure to disclose the expansion of his medical practice shortly before the PSA was entered into. Defendant filed a cross-motion alleging lack of cooperation by plaintiff regarding his efforts to re-establish a relationship with the children, who were then teenagers. On February 23, 2005, the court entered an order directing that a plenary hearing would be held to determine whether defendant "intentionally and improperly excluded or withheld relevant and material facts prior to the settlement of this case." On May 16, 2005, the court entered another order adding as an issue for the plenary hearing plaintiff's "cooperation or lack of cooperation with this court['s] order regarding the children's reunification" with defendant.
The plenary hearing began on September 19, 2005, and continued for forty-four days over a two-and-one-half year period. On January 5, 2009, the court issued a written decision and an accompanying order. We will later set forth the relevant provisions of the order. However, it is fair to say that the appeal revolves primarily around a single provision, namely that the court rejected plaintiff's contention that there was a fraudulently concealed plan of expansion of defendant's medical practice, as a result of which the court declined to reopen the equitable distribution provisions of the PSA.
Plaintiff appeals from specified portions of the January 5, 2009 order. Defendant cross-appeals from specified portions of the orders entered on February 23, 2005 and January 5, 2009. For the reasons that follow, none of the arguments presented by either party provide a basis for reversal. Accordingly, we affirm in all respects.
We need not describe in detail the financial circumstances of the parties at the time of the divorce or the detailed financial provisions in the PSA. A brief summary is sufficient. The marital estate was in the neighborhood of $20 million, and defendant was regularly earning more than $1 million per year in his medical practice. The PSA provided that defendant would pay plaintiff limited duration alimony of $250,000 per year for four years, followed by four more years at $175,000 per year. Real estate assets, which included two homes for personal use and seventeen real estate investment properties, were divided equally between the parties. Defendant received full ownership of the primary marital home in Toms River, and plaintiff received a house on Long Beach Island. The investment properties were divided between the parties, and these properties provided a substantial source of income. Based upon the testimony of plaintiff's appraisal expert, defendant's medical practice was valued at $3.5 million, and plaintiff was awarded a $1 million distributable share of the practice.
Plaintiff was given primary custody of the children. Apparently, defendant was somewhat estranged from the children during the divorce proceedings. The PSA obligated the parties to communicate and cooperate toward the goal of restoring a normal parent-child relationship between the children and defendant. Defendant was obligated to pay $60,000 per year in child support, provide for their children's educational needs, and provide health insurance for them.
In the aftermath of the divorce, plaintiff became aware that several months before the divorce, in the summer of 2002, defendant had acquired another physician's medical practice located in Northfield. At that time, defendant had six offices. Therefore, this expansion added a seventh office. Plaintiff argued that defendant hid from her his plans to expand his practice prior to the settlement by concealing his acquisition of the Northfield office. The acquisition was made by defendant together with the other doctor in his practice, Patricia Tager, who is now defendant's wife. It was these events that triggered the post-judgment proceedings that are the basis of this appeal.
At the plenary hearing, Tager testified that in approximately March 2002, she was considering purchasing the practice of an acquaintance, Dr. Tamara Moss, in Northfield. Tager's employment agreement with defendant's medical practice was scheduled to end on June 30, 2002. She was considering the possibility of disassociating herself from defendant's practice because the divorce proceedings had been going on for a long time and she was concerned about her financial and professional future.
Tager and defendant discussed the possibility of her acquisition of the Northfield practice. She requested defendant's advice regarding its financial viability. Defendant met with Moss' husband and negotiated a price.
On June 3, 2002, defendant and Tager met with defendant's accountants and discussed the possibility of acquiring the Northfield practice. At the meeting, Tager asked whether acquisition of the Northfield practice by her and defendant would cause it to get tied up in the divorce proceedings. Presumably because the valuation date of defendant's practice was set at December 31, 1999, the time of the filing of the divorce, and based upon the valuation methods used in valuing the practice, the accountants were of the opinion that the potential new office would not have to be disclosed. Based on that advice, Tager and defendant decided in late June 2002 that they would purchase the practice together.
On July 1, 2002, defendant and Tager entered into an agreement with Moss for the purchase of the practice for $100,000. Moss did not own the real estate. A bill of sale dated July 31, 2002 transferred the practice to Tager and defendant. Most of the purchase price, nearly $92,000, was evidenced by a one-year promissory note signed by defendant and Tager.
Plaintiff's accounting expert, Joseph Gunteski, testified that he used two methods to value defendant's practice, with a December 31, 1999 valuation date. One method was the capitalization of excess income (or excess earnings) approach. The other was the discounted future benefit stream (or discounted cash flow) approach. The level of growth of the business had no impact on the capitalization of excess income method. The discounted future benefit stream approach projected future income. Gunteski assumed a growth rate of twenty percent per year and informed plaintiff of his projection that defendant's income would increase in the years following his valuation.
Gunteski testified that had he known about the plans to expand the practice, it would have affected the growth rate used in the valuation. However, it would only have impacted his valuation if the plan to expand existed prior to the valuation date. If he had known about the addition of the Northfield office, but that was the only factor different from what was contained in his report, it would not have changed his report, or it would have changed it only minimally.
Each valuation method yielded a value close to the other method, in the neighborhood of $3.5 million. The fact that the two methods yielded very similar results fortified Gunteski's opinion that they were accurate. His rounded off valuation was $3.5 million, and he so advised plaintiff. She believed the value was too low. She believed the practice was growing and would be expanding, more doctors and physicians' assistants would be hired, and multiple additional offices would be acquired.
Plaintiff testified that she and defendant had always planned to expand the practice. She said it was their goal to set up satellite offices, develop them to a stage of productivity, and then further branch out.
At the time of the PSA negotiations, defendant's medical practice was in the midst of upgrading its computer system and had retained Scott Milne to arrange for and install the new system. On April 30, 2002, an employee of the practice, Jerald Schlitzer, wrote to Milne stating that he would explain to Milne what was needed so the practice could "progress by opening additional offices in the 609 and 732 area codes." The letter stated that "Northfield NJ is on our List to open an office."
At no time prior to the PSA did defendant disclose to plaintiff the acquisition of the Northfield office. Plaintiff further argued at the plenary hearing that defendant had failed to disclose certain income draws he took from the practice during the two months between his most recently updated case information statement (CIS), which set forth his income as of July 20, 2002, and the PSA, entered into on September 26, 2002. The CIS listed defendant's year-to-date gross earned income as of July 20, 2002 as $481,527.29. His 2001 gross earned income was listed as $1,082,032.22.
In July and August 2002, several disbursements were made to defendant which plaintiff claimed were wrongfully concealed from her, in violation of defendant's ongoing duty to update information in his CIS. These were as follows: On July 25, 2002, a $133,253.98 check was drawn on defendant's business account and payable to him personally. This check was handwritten, and not computer generated. Three bonus checks, each for $50,000, were paid to defendant on August 24, August 26, and August 31, 2002, respectively. Defendant also received another bonus check of $175,000 on July 27, 2002 to cover federal and state withholding taxes and Medicare taxes.
As we have stated, defendant did not update his CIS to reflect these checks. His CIS reflected year-to-date gross bonuses, as of July 20, 2002, of $70,527.21. However, it is notable that his CIS also reflected gross bonuses for 2001 in the total amount of $332,032.06. Defendant argues that it was well known that his income for 2002 would exceed $1 million, as it had in recent years. Indeed, the negotiations for alimony, child support, and other financial arrangements, were predicated largely upon the analysis of plaintiff's accounting experts, who opined that, in addition to defendant's $1.1 million income in 2001, his professional corporation also had about $700,000 in undistributed income, as a result of which his total cash flow for the year was approximately $1.8 million.
Further, the record contains a letter dated September 25, 2002 from the bookkeeper at defendant's medical practice addressed to defendant's attorney detailing the bonus checks we have described. According to defendant's attorney, the purpose of this letter was to produce updated information as a condition of plaintiff signing the PSA. At oral argument, defendant's attorney represented to us that a copy of this letter was handed to plaintiff and her attorney at the time of signing the PSA on September 26, 2002.
Based upon all of these circumstances, defendant argues before us, as he did before the trial court, that there was no material impropriety in his failure to update the CIS. He contends that these ongoing payments to him from his practice were made in the ordinary course of his practice, were consistent with past experience, and had no effect on the income parameters that undergirded the negotiations leading up to the PSA.
There was also substantial testimony at the plenary hearing regarding the relationship of defendant and the children, and the parties' competing claims about plaintiff's cooperation or lack of cooperation in working toward reunification of the children with their father. For reasons we will discuss, we find it unnecessary to describe any of this testimony. Likewise, we will not set forth the judge's findings on this issue.
In his January 5, 2009 written decision, the judge noted that the primary issue was whether defendant intentionally and improperly excluded or withheld relevant and material facts prior to the settlement. Plaintiff argued that defendant had plans for expanding his medical practice and that he had concealed them from her during the pendency of the divorce proceeding. The court found that defendant had acquired the Northfield office without disclosing it, and intended to hide that fact from plaintiff. However, the court also found that defendant's acquisition of the Northfield office was not part of a pre-determination for expansion. Instead, the acquisition was a "fortuitous" response to several factors: the availability of the Northfield practice;
Dr. Tager's connection with Dr. Moss; the pending termination of Dr. Tager's Employment Agreement; Dr. Tager's considerations of planning her professional future; Dr. Tager and Dr. Geffner's relationship; the continuing uncertainty of Dr. Geffner's Divorce proceedings; and the advice that Dr. Geffner received from his accountants.
Defendant concealed the acquisition because of his belief that it was not relevant to the divorce case, the advice he received from his accountants that the acquisition would have no impact on the value of his business, and "his general attitude that he should give [plaintiff] as little information as possible."
The court acknowledged that defendant was an "aggressive businessman," and it was possible that he "had a generalized intention to consider the possibility of future growth for his practice after the would be divorce concluded." However, the court was not willing to make that finding from the evidence presented. The court reasoned that there "was no definitive, specific or detailed strategy in place" and "generalized, non-specific hopes for the future" could not be the basis for setting aside a property settlement agreement. Thus, there was no fraud because a subjective future intention could not amount to a presently existing or past fact, which was a necessary element of fraud.
Also, Gunteski's discounted cash flow approach already assumed substantial future growth for defendant's business. And, plaintiff did not rely on defendant's statements. She maintained throughout the settlement negotiations that defendant's business was expanding and testified that she thought defendant's income would increase.
Thus, there was no basis to set aside the PSA with respect to the value of defendant's medical practice. Both parties, their attorneys, and the accountants had all relevant and material information concerning valuation.
With respect to the undisclosed income in July and August, 2002, the court found that defendant was attempting to hide these funds from plaintiff during the settlement negotiations. The $133,253.98 check was handwritten, signed by defendant, and made payable to him, not his business. While the bookkeeper testified that the check was needed for payroll for the first two weeks of July 2002, the amount of the check did not match any calculations for payroll for a two-week pay period and the ...