“Estoppel” is the principle that precludes a person from asserting something contrary to that inconsistent with a previous statement, position or ruling. Two decisions last month bringing the principal and to focus.
First, the June 4, 2014 decision of Kings County Supreme Court Justice Jeffrey S. Sunshine in Zito v. Zito primarily resolved the wife’s motion for temporary relief in a divorce action commenced by the husband on June 7, 2011. The parties had been married 10 years before that, and had a daughter (then 5) and a son (then 3).
The husband works in the family-owned Smiling Pizzeria. The wife, although a licensed pharmacist, alleged that she had been a full-time homemaker since the children were born. Those children attend private school and participate in a number of organized activities.
However, in addition to the wife’s motion for temporary relief, Smiling Pizzeria, itself, had moved to be allowed to intervene in the divorce action. The pizzeria wanted to establish that it was owned only by the husband’s father; that the husband had no ownership interest. Without an ownership interest of the husband, it was argued, it could not be subject to equitable distribution.
The wife claimed that it was not until the husband retain new counsel in this divorce action that he changed his position from that previously stated in his Statement of Net Worth: that he was a 50% owner of Smiling Pizzeria. Indeed, on the basis of that statement, Brisbane Consulting had been previously appointed by Justice Sunshine to evaluate the business, and the husband began collecting cash register receipts, as requested, to assist in this evaluation.
The wife further alleged that the husband always referred to the pizzeria as “his.” Further, the husband controlled the operation of the business, hiring and firing employees, doing payroll, signing documents, writing checks and ordering products. The wife acknowledged that the husband’s father was involved, but only “on a semi-retired, part-time basis.” There was also a key-man life insurance policy, by which Smiling Pizzeria will receive $500,000 on the husband’s death.
On the other hand, Smiling Pizzeria alleged that the shareholders’ agreement and stock certificates upon which the wife was relying to prove that her husband was a co-owner were unsigned. Rather, the Pizzeria alleged that it had been originally owned by the husband’s father and uncle. In 1986, the husband’s father bought out the uncle. He claimed, now, to be the sole shareholder ever since; the uncle’s stock had been canceled. Moreover, the tax returns of the Pizzeria from 2007 through 2012 demonstrated that the husband’s father was the sole shareholder. Both the husband and his father submitted affidavits confirming such facts.
Justice Sunshine, however, ruled that the husband was now prevented by the doctrine of judicial estoppel from denying that he was a 50% owner of the pizzeria.
In view of husband’s continuing representation that he owned a 50% interest in Smiling Pizzeria in the two (2) affidavit’s of net worth that he prepared with counsel; in his deposition testimony; in his conduct in agreeing that Brisbane would value his interest in the business and in paying the appraiser; and in supplying his former attorneys with documents that evidence his ownership interest, which documents were provided to wife in discovery, husband will not now be permitted to change his position and argue that Smiling Pizzeria is solely owned by his father.
Justice Sunshine noted that a party to a court proceeding is precluded from inequitably adopting a position directly contrary to or inconsistent with an earlier position in the same proceeding. The fact that a party’s interests may have changed, does not entitle the party to assume a contrary position.
Invocation of the doctrine of estoppel is required in such circumstances lest a mockery be made of the search for truth. . . . Accordingly, the doctrine is invoked to estop parties from adopting such contrary positions because the judicial system cannot tolerate this playing fast and loose with the courts.
As a result, Justice Sunshine found that for the purposes of equitable distribution, the husband to be the owner of 50% of Smiling Pizzeria as he consistently represented himself to be throughout the action.
Justice Sunshine denied the application of Smiling Pizzeria to intervene. The pizzeria would not be prejudiced by this ruling in the divorce action. Although the husband was recognized to be the 50% owner within the divorce action, providing the wife with relief did not require that she receive an actual ownership share in the pizzeria. Rather, the wife will be granted an equitable distributive monetary award based on the value of the husband’s ownership interest, whether as determined by Brisbane Consulting, or otherwise.
On June 9, 2014, in Camuso v. Brooklyn Portfolio LLC, Index #, 19269/13, NYLJ 1202660753013, 2014 N.Y.Misc. Lexis 2641, Kings County Supreme Court Justice Carolyn E. Demarest applied the estoppel principle to preclude the plaintiff, Henry Camuso, from claiming that his former wife, Madeline, was a general partner in Regent Associates. Regent is a limited partnership formed in 1988 for the purpose of holding and selling nine parcels of realty. On August 12, 2013, Arthur Gallinaro, who was conceded to be at least a 50% general partner, entered into a contract to sell the nine parcels for $5.9 million. Henry commenced this action to void that contract on the ground that it was not duly authorized by the partnership.
In 1997, Henry and Madeleine had settled their divorce action under a Stipulation by which, in part, Henry gave half of the other 50% Regent general partnership interest to Madeline. If that Stipulation were to be recognized, the general partners would have been Arthur with 50%, Henry would 25% and Madeleine with 25%.
Arthur Gallinaro, of course, was not a party to the divorce action and did not sign or expressly confirm Henry’s transfer to Madeleine. To the contrary, Arthur now argued that the transfer to Madeline caused a forfeiture of Henry’s interest.
On the other hand, Henry (the plaintiff) argued that he remained a 50% general partner and, accordingly, it was improper for Arthur to enter the contract of sale. Arthur took the position that pursuant to the Partnership Agreement and New York’s Partnership Law, the creation of an interest in Madeline was improper and void
In applying the estoppel principle, Justice Demarest noted that the tax returns of Regent for 2010, 2011 and 2012 listed Madeline is a general partner with a 25% interest.
As partners are bound by the representations made in the partnership tax returns . . . , neither Camuso nor Gallinaro can now claim that Madeline was not a general partner. While provisions in both the Partnership Agreement . . . and the New York Partnership Law . . . address the limitations on transferring partnership interests without the prior consent of the remaining partners, based upon the tax filings, and Gallinaro’s written representations to this Court, Gallinaro ratified Henry’s transfer of his 25% general and limited partnership interest to Madeline. Henry may not now challenge his own stipulation, now incorporated into a judgment. Accordingly, Madeline is a 25% general and limited partner of Regent.
Comment: “Estoppel” is an equitable principle. Thus, whether or not it will be applied will depend on who is using it and for what. It may be more likely to be applied as a shield than as a sword.
Thus, for example. Mr. Zito was precluded from changing a stated position in order to harm his wife. On the other hand, it is presumed that the wife joined in the personal tax returns that failed to disclose this ownership interest, although she claimed to know that pizzeria was always her husband. Moreover, divorce courts are continually asked to provide support inconsistent with previously-filed tax returns that can be said to bind the support recipient as much as the income earner.
Moreover, as noted in previous blog posts, bringing fraudulent tax returns to the attention of the court may well wind up with the appropriate taxing authority being notified.
The consistent application of the estoppel principle is often a double-edged sword and shield.
In Zito, Deanna Lucci, Esq., of DiMascio & Associates, of Garden City, represented the wife. John R. Sandleitner, Esq., of Sandleitner & Sandleitner, of Tannersville, represented the husband. Anthony J. Auciello, Esq., of Auciello Law Group, P.C., of Brooklyn, represented Smiling Pizzeria.
In Camuso, Victor A. Worms, Esq., of Manhattan, represented Henry Camuso. Richard A. Roth, Esq., of The Roth Law Firm, PLLC, of Manhattan, represented Mr. Gallinaro. Henry F. Camuso, Esq., (?), of Brooklyn, represented Madeline Camuso. Matthew Hearle, Esq., of Goldberg Weprin Finkel Goldstein, LLP, of Manhattan, represented Brooklyn Portfolio LLC.