Carolee Friedlander v. Burton Friedlander (2010)

MEMORANDUM OF DECISION

The marriage of the parties was dissolved by decree of this court on September 7, 2005.   At that time, the Separation Agreement (# 103.10) (“Agreement”) of the parties dated May 25, 2005, was incorporated in the decree by reference.   At issue is the plaintiff wife's (“wife”) motion (# 110) to, in essence, enforce the provisions of Article VII thereof by indemnifying her for a portion of her attorneys fees incurred arising out of her defense of a lawsuit against her individually and her former corporation, Carolee Designs (“Designs”), by the bankruptcy trustee on behalf of the creditors in an involuntary bankruptcy proceeding involving Friedlander Capital Management Corporation (“FCMC”), of which the defendant husband (“husband”) was the sole shareholder.   The evidence disclosed that on March 14, 2001, through the efforts of the husband, FCMC extended a short-term, no interest loan in the amount of $500,000.00 to Designs, that the latter repaid same on April 11, 2001, and at that time, the husband directed the CFO of Designs that payment be deposited in a joint personal account over which the wife had previously never exercised any control nor made any deposits to or withdrawals from.   The evidence disclosed that the husband repaid the sum of $50,000.00 to FCMC, but used the balance for a personal obligation.   The wife sold Designs in July 2001.   The evidence is clear that the wife was fully aware of the husband's financial troubles throughout the course of the proceedings to dissolve the marriage.   In fact, the husband had filed a voluntary petition for personal bankruptcy under Chapter 7 in June 2002, and as part of the settlement, arrived at with him, she advanced the sum of $2,000,000.00 to his creditors, after which he received a discharge.

Sometime later, on May 23, 2003, an action for involuntary bankruptcy was filed against FCMC in the Southern District of Florida, at which time a Trustee was appointed.   In May 2005, at about the same time as the parties signed their Agreement, the Trustee then commenced an action against the wife and Designs in order to recover the $500,000.00 on the theory that it remained an outstanding debt to FCMC. (Exhibit B.) Following service upon her in June, her attorneys entered an appearance on her behalf.   The wife was ultimately vindicated by a decision of the Bankruptcy Court on April 29,2009, and she now seeks indemnification, as aforesaid, under Article VII of the Agreement, for a portion of her attorneys fees incurred in defense of the claim, including the present action.  (Exhibits 2 and 3.) While the wife also incurred additional attorneys fees payable to William Pinzler, Esq., the husband's previous attorney in connection with the Securities and Exchange Commission (“S.E.C.”) investigation, who assisted her lead counsel, Weil, Gotshal & Manges, LLP, by agreement of the parties, no claim is made for indemnification in that regard.

The court heard the matter over the course of two days, including final argument.   The wife was present in court and offered testimony.   The husband was not present.   At the conclusion of the trial, the court held the evidence open for two weeks in order to give the parties the opportunity to file affidavits of fees and to request argument thereon, if necessary.   No argument being sought, the evidence closed as of December 15, 2009.

LAW

The Agreement is considered a contract, and as such, the “interpretation of a separation agreement that is incorporated by reference into a dissolution decree is guided by the general principles governing the construction of contracts ․ [and] ․ the language used [in a contract] must be accorded its common, natural, and ordinary meaning and usage ․” Eckert v. Eckert, 285 Conn. 687, 692 (2009).   Moreover, words do not become ambiguous simply because lawyers or laymen contend for different meanings.”  Barnard v. Barnard, 214 Conn. 99, 110 (1990).  “When interpreting a contract, [the court] must look at the contract as a whole, consider all the relevant portions together and, if possible, give operative effect to every provision in order to reach a reasonable overall result.”  Minoo Afkari-Ahmadi v. Mohammad T. Fotovat-Ahmadi, 294 Conn. 384, 391 (2009).

Article VII of the Agreement reads in relevant part, as follows:  “Except as expressly provided to the contrary in this Agreement, the Husband has not heretofore incurred and/or contracted, and shall not hereafter incur and/or contract, ․ any debts, charges, liabilities, loans and/or other obligations whatsoever for which the other, his or her legal representatives, and/or his or her property and/or estate, is and/or may hereafter become liable.”   In the event that one of the spouses incurs such, he or she is obligated to “keep the other free, harmless and indemnified of and from, and shall and do hereby hold harmless and indemnify the other of and from, any and all charges, debts, liabilities, loans and/or other obligations, heretofore and/or hereinafter contracted by him or her.”   Each of the parties holds a different opinion as to the meaning of the foregoing.   It is the husband's contention that the attorneys fees do not constitute a debt or obligation.   This argument misses the mark.   The underlying liability in question was that incurred by the husband at the time he arranged for the loan from FCMC and never fully repaid same.

In a case involving the enforcement of a similar indemnification clause in a separation agreement, the Appellate Court affirmed the decision of the trial court finding the former husband in contempt for incurring credit card debt for which the wife became liable and its orders for repayment and attorneys fees.   Therein, the court held that, “although the court does not have the authority to modify a property assignment, a court, after distributing property, which includes assigning the debts and liabilities of the parties, does have the authority to issue postjudgment orders effectuating its judgment.”  Roos v. Roos, 84 Conn.App. 415, 422 (2004).   Moreover, where, as here, a party seeks to enforce the indemnification clause, and they are successful, as an exception to the “American rule,” they are, “entitled to recover from an indemnitor, as part of [their] damages, attorneys fees, costs, and expenses.”  24 Leggett Street Ltd. Partnership v. Beacon Industries, Inc., 239 Conn. 284, 311 (1996).

The husband has raised three defenses to this action, to wit:  laches, unclean hands, and waiver.  “Laches is an equitable defense that consists of two elements:  First, there must have been a delay that was inexcusable, and second, that delay must have prejudiced the defendant ․ The mere lapse of time does not constitute laches ․ unless it results in prejudice to the defendant ․ as where, for example, the defendant is led to change his position with respect to the matter in question.”  Cifaldi v. Cifaldi, 118 Conn.App. 325, 334-35 (2009).   There was no inexcusable delay on the part of the wife, on the contrary, it was entirely reasonable to await the decision of the Bankruptcy Court, so as to determine, with reasonable certainty, the amount of attorneys fees incurred in her defense.   After all, it is a claim for attorneys fees which is the subject of the wife's claim for indemnification.   Even if the passage of time were to be considered unreasonable, which the court specifically finds it was not, the husband offered no credible evidence that he was prejudiced thereby.

The husband also claims that the wife has waived any claims against him by virtue of the fact that the bankruptcy action was pending at the time that the court dissolved the marriage, and that no specific action was taken to address it.  “Waiver is an intentional relinquishment or abandonment of a known right or privilege.”  State v. Collazo, 115 Conn.App. 752, 758 (2009).   Looking at the Agreement as a whole, and particularly, in light of the wife's testimony regarding her intent to protect her assets from further fallout from the husband's past business practices, it is quite apparent that there was no relinquishment of any rights in this regard.   According to her, Article VII was specifically inserted in the Agreement just for that purpose.   The court has found her credible on that account.

The husband further claims that he should escape any liability to the wife under the equitable doctrine of unclean hands.   The evidence is clear that, while the wife's company benefitted from the short term loan from FCMC, her testimony supports a finding that she had no direct knowledge that the monies used for repayment had been diverted, at the husband's request, to an account controlled by him and not FCMC. “[I]n a case tried before a court, the trial judge is the sole arbiter of the credibility of the witnesses and the weight to be given specific testimony ․” United Technologies Corp. v. East Windsor, 262 Conn. 11, 26 (2002).   The court found the wife's testimony to be credible.   Moreover, it is axiomatic that “he who seeks equity, must do equity.”   In this the husband has failed to meet his obligation.   In short, the husband gave to the wife a sworn Financial Affidavit dated May 25, 2005 (# 101.10), in connection with the execution of the Agreement, and he later filed same with the court on September 7, 2005.   In Article 6.1 of the Agreement, he made representations to the wife as to the accuracy of the document and his understanding that she would rely on it.   However, he failed to list any outstanding indebtedness to FCMC regarding the repayment of the 2001 loan to Designs.   In emphasizing the importance of “full and frank disclosure” in matrimonial actions, our courts have long held that the failure to do so “goes to the very heart of the judicial proceeding,” and that it is by such disclosure that we ensure that “reasonable settlements have been knowingly agreed upon.”  Billington v. Billington, 220 Conn. 212, 219-22 (1991).   Accordingly, the husband's reliance upon equitable relief is misplaced.

Finally, pursuant to General Statutes § 46b-62, where there is a breach of a court order, but no finding of contempt, it is within the discretion of the court to award reasonable attorneys fees, so long as a party against whom they are assessed is given an opportunity to challenge the reasonableness of the fees.  Dobozy v. Dobozy, 241 Conn. 490, 499-500, (1997);  Sardilli v. Sardilli, 16 Conn.App. 114 (1988);  Nelson v. Nelson, 13 Conn.App. 355 (1988).   Following the hearing, the parties were given a reasonable opportunity to review and challenge the respective claims for fees, and neither chose to do so.

FINDINGS

The court having heard the testimony of the plaintiff and considered the evidence, finds as follows:

1. That the marriage of the parties was dissolved by decree of this court on September 7, 2005;  and that the parties executed a Separation Agreement dated May 25, 2005, which agreement was incorporated by reference in the decree.

2. That Article VII of the Agreement provides for the indemnification of a party thereto, where the other has incurred or contracted a debt for which the other party is held liable;  that said language of said provision is clear and unambiguous;  that at the time of the execution of said Agreement, the husband had incurred or contracted a debt to FCMC in the amount of $500,000.00, for which the wife was sued for repayment, specifically the monies loaned from FCMC to Design which, at his direction were not repaid to FCMC;  that the wife was unaware that said monies had not been repaid to FCMC;  and that, as a direct result, the wife incurred attorneys fees in the amount of $112,899.04, excluding any sums paid to William Pinzler, Esq., as agreed, to successfully defend the claim by the Trustee in Bankruptcy for payment for which she is entitled to indemnification.  (Exhibit 4.)

3. That, as to the husband's breach of the Agreement, the court has reviewed the Affidavit of Fees of Richard L. Albrecht, Esq. Of Cohen and Wolf, PC, dated December 3, 2009 (# 117.00), submitted as attorney for the wife;  that the court finds the legal fees and expenses as shown thereon in the amount of $11,540.17 to be fair and reasonable under all the circumstances;  that for the reasons set forth above, the husband should be liable for the payment thereof;  and that there being no breach of the Agreement by the wife, the husband's claim for attorneys fees is without merit.

ORDER

The foregoing motion having been heard, it is HEREBY GRANTED and IT IS HEREBY ORDERED that the defendant pay to the wife the sum of $112,899.04, and to Cohen & Wolf, PC the sum of $11,540.17, all within thirty (30) days from the date of this Order.

THE COURT

SHAY, J.

Shay, Michael E., J.