Tuesday, October 4, 2005

Case Law Development: Ongoing Duty of Disclosure of Financial Assets Extends Until Entry of Judgment of Dissolution

The Connecticut Supreme Court, in a 3-2 decision, holds that the parties have a continuing duty to disclose financial information until the time of judgment.  Reversing the trial and appellate courts, the court found that Wife had proven fraud sufficient to reopen the judgment when Husband had repeatedly valued his interest in his company at $ 40,000, but failed to disclose an offer to purchase his company for $2.5 million dollars.

In a running subtext, the majority opinion spars with the dissent over whether the issue had been properly preserved for trial, the degree of deference to be given to the trial court’s findings, the necessity of due diligence in investigating facts, and the time at which the duty of disclosure ends.

WEINSTEIN v. WEINSTEIN, 2005 Conn. LEXIS 348 (October 4, 2005)
Opinion on the web at http://www.jud.state.ct.us/external/supapp/Cases/AROcr/CR275/275CR143.pdf (last visited October 4, 2005 bgf)

Husband owned an interest in a software company, which he valued at $40,000.  The parties stipulated to, and the dissolution court adopted, this value and allocated the entire value of the business to Husband.  Thereafter, Husband brought a motion for reconsideration of the property division and support obligations, arguing that the trial court’s decision would “strip him bare.”  While the motion was pending, however, Husband and his partners were negotiating the sale of the business and received and rejected a $2.5 million offer to purchase (Husband’s share would have been $500,000).  The trial court denied the motion to reconsider and entered judgment.  Five months later, Husband and his partners sold the business for $6 million, with Husband receiving $ 1.45 million for his share.

Wife then sought to open and to vacate the judgment on the basis of fraud.  The 3-judge majority of the court agreed that Husband’s knowledge of the sale offer and failure to disclose constituted a fraudulent concealment upon which Wife detrimentally relied.  The court concluded that but for the concealment, the trial court would have issued a different judgment, so that the judgment must be vacated for fraud.  the trial court apparently concluded that the defendant's duty to disclose ended at the conclusion of the evidence, not upon the date on which judgment was rendered.

The court emphasizes the continuing duty of financial disclosure in dissolution actions.  “The principle of full and frank disclosure . . . is essential to our strong policy that the private settlement of the financial affairs of estranged marital partners is a goal that courts should support rather than undermine.” The court noted that there is no “due diligence” element to fraud: "the requirement of diligence in discovering fraud is inconsistent with the requirement of full disclosure because it imposes on the innocent injured party the duty to discover that which the wrongdoer already is legally obligated to disclose."

In arguing that the duty of disclosure should extend to the entry of judgment, rather than merely to the end of trial as argued by the dissent, the court noted “It would defy logic and principles of fairness to allow the defendant to contest his financial ability to comply with the dissolution court's order by claiming financial hardship while simultaneously allowing him to withhold information expressly sought by the plaintiff as to the accurate value of and purchase offers for [the business].” 

The dissent strongly disagreed at every point.  Summarizing it’s analysis, the dissenting opinion states, “In closing, I note that the majority is able to reach its decision today only by systematically disregarding the amply supported facts found by the trial court, the strictures of our rules of practice, our well settled law regarding proof of fraud and our long-standing rule that we do not allow plaintiffs to advance claims on appeal that have not been fairly raised or preserved at trial. The majority's actions, in my view, are unwarranted even under the guise of "doing justice," which is the only motivation that I can charitably attribute to the majority opinion. The unfortunate irony is that it fails to accomplish even that goal.”

http://lawprofessors.typepad.com/family_law/2005/10/case_law_develo_4.html

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