March 14, 2013
New York Appellate Court Tosses Prenuptial Agreement Due to Fraudulent Inducement
A Brooklyn-based appellate court recently upheld a trial court ruling (946 N.Y.S.2d 66) that a prenuptial agreement was uneforceable due to fraudulent inducement. The Cioffi-Petrakis v. Petrakis ruling surprised family law experts in New York and nationally because prenuptial agreements like this one generally were seen as unassailable. The Wall Street Journal quotes several prominent divorce lawyers, stating that the ruling is "a game-changer" with "huge implications" that will "be quoted in every single case going forward."
Some appear to contribute the shocking result to Ms. Perakis's lawyer, Dennis D'Antonio, who is a contract litigator and not a family lawyer. Mr. D'Antonio stated told the WSJ that he presented the case as a contract case: "The matrimonial bar tends to do things the way they always did, and they approached the prenup as something you can't challenge," D'Antonio said. "We applied old-fashioned contract law."
Ms. Petrakis alleged that her husband lied to her in order to get her to sign the agreement. Specifically, he reportedly stated that he would tear up the agreement after the couple had a child (the couple had three children together). After she still refused to sign, Mr. Perakis threatened to call the whole thing off 4 days prior to their wedding after Ms. Perakis's parents already had spent $40,000.
The trial court stated the applicable standard as follows: "To sustain a claim for common-law fraudulent inducement, a plaintiff must demonstrate the misrepresentation of a material fact, which was known by the defendant to be false and intended to be relied upon when made, and that there was justifiable reliance and resulting wrong." Ms. Perakis alleged facts sufficient to satisfy that standard. Specifically, the court stated:
"The court credits the wife's testimony...that her fiancé told her 'not to worry' and 'we'll work everything out' to be convincing. Similarly convincing is her testimony that she was told by her fiancé that, 1) if she didn't sign the prenuptial agreement they wouldn't be getting married in a week, 2) that 'everything they get after the marriage would be theirs' and 3) 'after they had a family he would tear up the agreement.' The court concludes that, based on the such promises, the wife called Mr. Hametz to arrange to sign the prenuptial agreement."
The appellate court opinion is rather short. It affirms that contracts may be deemed uneforceable due to fraud or duress but makes no sweeping statements regarding prenuptial agreements. For Ms. Perakis, the result is rather significant. The agreement stated that she would get only $25,000 per year. Her husband reportedly is worth $20 million.
[Heidi R. Anderson]
March 13, 2013
New in Print
Ariel C. Avgar, J. Ryan Lamare, David B. Lipsky & Abhishek Gupta, Unions and ADR: The Relationship between Labor Unions and Workplace Dispute Resolutions in U.S. Corporations, 28 Ohio St. J. on Disp. Resol. 63 (2013)
Howard S. Bellman, The Importance of Impasse Resolution Procedures to Recent Revisions of Wisconsin Public Sector Labor Law, 28 Ohio St. J. on Disp. Resol. 37 (2013)
Michael Carrell & Richard Bales, Considering Final Offer Arbitration to Resolve Public Sector Impasses in Rimes of Concession Bargaining, 28 Ohio St. J. on Disp. Resol. 1 (2013)
Charles B. Craver, The Use of Alternative Dispute Resolution Techniques to Resolve Public Sector Bargaining Disputes, 28 Ohio St. J. on Disp. Resol. 45 (2013)
Joel Cutcher-Gershenfeld & Saul A. Rubinstein, Innovation and Transformation in Public Sector Employment relations: Future Prospects on a Contested Terrain, 28 Ohio St. J. on Disp. Resol. 107 (2013)
Martin H. Malin, Two Models of Interest Arbitration, 28 Ohio St. J. on Disp. Resol. 145 (2013)]
Lamont E. Stallworth & Daniel J. Kaspar, Employing the Presidential Executive Order and the Law to Provide Integrated Conflict Management Systems and ADR Processes: The proposed National Employment Dispute Resolution Act (NEDRA), 28 Ohio St. J. on Disp. Resol. 171 (2013)
March 12, 2013
Crime and Punishment . . . and the Parol Evidence Rule
In Book II, Chapter 1 of Crime and Punishment by Fyodor Dostoevsky (pictured), beginning on page 192 in the version to which I have linked, the novel's protagonist, Rodion Romanovich Raskolnikov, describes an oral agreement with his landlady. The context is as follows:
The day after Raskolnikov has committed a double homicide, he is called to the police office. He is understandably unnerved and fears that the authorities are on to him. Moreoever, he is about to fall into a fit of delirium and is in no condition to keep his wits about him before the police. However, when he arrives, it turns out that he has been called in as a debtor. The supersilious assistant superintendent informs Raskolnikov that he has been called in on an I.O.U. that he made out to his landlady, the widow Zarnitsyn, for 115 roubles. It appears that the good widow has assigned the I.O.U. to one Mr. Tchebarov who is now seeking recovery.
Raskolnikov, relieved that he has not been called in for murder, explains to the authorities why he is so surprised to be expected to pay his debt. He informs them that he had had his rooms with the widow Zarnitsyn for three years. Early in his time there, he promised to marry the widow's daughter, and since he was practially a son-in-law, the widow extrended credit to him. But the daughter had died of typhus.
Some time after that, the widow came to Raskolnikov and, while claiming that she still trusted him, offered that she would trust him more if he gave her an I.O.U. for the full amount of the debt that he owed her for the lodgings -- that would be the 115 roubles. He signed the I.O.U. based on her assurances that, once he signed, she would trust him and would never, never seek to enforce it. Raskolnikov adds a sort of laches argument that the widow had waited until he had lost his lessons and had no source of income whatsoever to seek to recover on the I.O.U.
The authorities were not interested in these details, instructing Raskolnikov: :"You must give a written undertaking, but as for your love affairs and all these tragic events, we have nothing to do with that." If any of our readers has any familiarity with 19th-century Russian law, feel free to weigh in, but it does seem like Raskolnikov has only the weakest of fraud in the inducement claims and so his testimony as to the widow's promise, though perhaps admissible despite the written agreement, will carry little weight. Of course, Raskolnikov would have to show that the widow knew, at the time she promised not to enforce the I.O.U. that she in fact would do so. And does it matter that such a promise should not be taken seriously on any account, or were 19th-century Russians really so romantic that they valued signed undertakings even if they had no intention of enforcing them?
Or, even absent a showing of fraud, Raskolnikov's parol evidence might be relevant to show the parties' frames of mind. Although the document looks legally binding, perhaps neither party regarded it as such. Both had in mind only a written affirmation of their mutual obligations -- the landlady avowed her trust and Raskolnikov evidenced his trustworthiness through his willingness to sign. The I.O.U. is no more enforceable than a written pledge to be best friends forever.
There is also the additional issue. The widow did not seek to enforce the I.O.U.; she assigned it to Tchebarov, whom she likely did not inform of her promise to Raskolnikov. If the I.O.U. really is unenforceable, then the transfer of it ought not to make it any more so, and if the widow has committed some sort of fraud, it might arise from passing on an I.O.U. that she knows to be worthless as though it were of some value.
Weekly Top Tens from the Social Science Research Council
March 11, 2013
Life Imitates Art; Martha Stewart Imitates Lady Duff
My co-blogger, Meredith Miller has already commented on the ways in which Martha Stewart is the modern Lady Duff. It really is extraordinary. Martha Stewart is, of course, far more diverse and perhaps more ambitious in terms of the range of products that her company produces, but Lady Duff was quite the force in her day. Remember that Mr. Wood sued her because her agreement to endorse merchandise sold in Sears Roebuck stores allegedly violated their agreement that he was to be her exclusive marketing agent.
As reported in the New York Times, Martha Stewart was in court last week testifying in a showdown between Macy's and J.C. Penney over which company gets to carry Martha Stewart products in its stores. Alas, the facts in this case are much more complicated than the straightforward Wood v. Lady Duff-Gordon. However, the kernel of the dispute is very much reminiscent of the older case.
Martha Stewart's company, now called Martha Stewart Living Omnimedia (MSLO), entered into an agreement with Kmart in 1997 permitting Kmart to sell the company's products in its stores. Ten years later, MSLO entered into a similar agreement with Macy's, and when the agreement with Kmart expired in 2009, Macy's became "the only retailer to sell [MSLO] products in categories like home décor, bedding and bath," according to the Times. In 2011, J.C. Penney started attempting to woo Ms. Stewart into a deal to sell MSLO products in its stores as a mechanism for bolstering its shaky financial performance. James B. Stewart's column in last week's New York Times indicates that, since its new CEO has come on board, J.C. Penney has reported a $4.28 billion loss in sales and laid off 2200 workers, while its share price has dropped 60%.
Upon learning that Ms. Stewart was in bedding with J.C. Penney, Macy's was not well-pleased. In her testimony, Ms. Stewart did not seem to see the problem. When asked if a consumer was likely to buy the same product, say a knife, at two different stores, Ms. Stewart gamely answered that the consumer might have two houses and need one knife for each kitchen. This might explain why she no longer sells her goods at Kmart. What's the point of selling to a demographic that includes renters? She might have added, "I like to keep an extra knife handy for back-stabbing," but her talents for self-mockery (in response to a question about how she spends her time, she responded "I did my time," to the delight of the courtroom audience), do not extend quite that far.
In today's New York Times, David Carr presents an apt anaology: the conflict is like a schoolyard fight between two boys over the most popular girl on the playground. And Carr succinctly explains why Martha Stewart is so popular. Ms. Stewart, he reminds us, "altered the way that people live by decoupling class and taste. . . . When you go into Target or Walmart and see a sage green towel that is soft to the touch, it may not carry her brand, but it reflects her hand. Her tasteful touch — in colors, in cooking, in bedding — is now ubiquitous. . . ." Here too, there are echoes of Lady Duff.
Ms. Stewart expressed surprise that a simple contract dispute would end up in court. It should be possible for the parties to come to an understanding of words written on a page. New York Supreme Court Justice Jeffrey K. Oing may agree, since he sent the case to mediation, but according to James Stewart, he might have arrived at that result through a reasoning process that Ms. Stewart would not endorse. According to James Stewart, the meaning of the contract is clear:
[T]he contract itself seems straightforward, with numerous clauses giving Macy’s exclusive rights to Martha Stewart products in various categories, including “soft home,” like sheets and towels, as well as housewares, home décor and cookware, and specifically limits her rights to distribute her products through any other “department store.”
He adds that there is no question that J.C. Penney is a department store. Justice Oing appeared to agree, since he repeatedly said that the contract is clear, and he granted an earlier injunction. J.C. Penney may have hoped to get around the exclusive contract by setting up a MSLO boutique within its own stores, but James Stewart gives a number of reasons, both legal and factual, and citing to the authoritative Charles Fried on the law, for why that argument is unlikely to fly.
What might fly would be a giant Martha Stewart balloon at the next Macy's Thanksgiving Day Parade. According to James Stewart, Ms. Stewart still asks for and receives free tickets for herself and her grandchildren to that event. Last year, James Stewart reports, she complained that she did not get to sit with the other celebrities who are seated with Macy's CEO, Terry Lundgren. Time for Macy's to show Martha Stewart the love. After all, Macy's does need her products in its stores.
Eighth Circuit Describes and Permits a Scheme to Get Around Arbitration
In In re: Wholesale Grocery Products Antitrust Litigation, five retail grocers sought to bring anti-trust class action suits against two wholesale grocers. Each retail grocer did business with and had an arbitration agreement with only one of the two wholesalers.
According to the Eighth Circuit's opinion, "[i]n an effort to avoid arbitration, each Retailer brought claims only against the Wholesaler with whom they did not have a supply and arbitration agreement." At the District Court level, the wholesalers argued that the doctrine of equitable estoppel permitted the non-signatory wholesalers to invoke the arbitration agreements and moved to have the retailers' claims dismissed and arbitration compelled. The District Court granted the wholesalers' motion.
On appeal, the Eighth Circuit reversed holding that parties cannot invoke the doctrine of equitable estoppel in order to enforce arbitration agreements to which they are not signatories. The Court noted that
[E]quitable estoppel applies when a complaint involves "allegations of prearranged, collusive behavior demonstrating that the claims are intimately founded in and intertwined with the agreement at issue.” In contrast, merely alleging that a non-signatory conspired with a signatory is insufficient to invoke equitable estoppel, absent some “intimate . . . and intertwined” relationship between the claims and the agreement containing the arbitration clause. [citations omitted]
Here, the Eighth Circuit found that the retailers' claims were not intertwined with the agreement containing the arbitration clause.
The Eighth Circuit remanded the case to address the wholesalers' claim, left unresolved by the District Court, that some of the arbitration agreements are enforceable by non-signatories as successors-in-interest. It did not address the retailers' arguments that the arbitration agreements are unenforceable as against public policy, as that argument will only be relevant should the District Court resolve the successor-in-interest argument in the wholesalers' favor.
Judge Benton dissented.