Divorce Windfall Not Unconscionable

When Deborah and Rafael Etzion negotiated a separation agreement in 2003 after 24 years of marriage, an appraiser valued a Brooklyn warehouse they owned at $6.5 million. Under the terms of the separation agreement, Ms. Etzion received $13 million and her soon-to-be-ex-husband received the Williamsburg warehouse and the land underneath it, as well as the title to several corporations the couple owned. Two and one-half years later, Mr. Etzion sold the warehouse for $84.6 million, more than 13 times its appraised value. Ms. Etzion filed suit for rescission or reformation of their stipulation of settlement. In May, a Brooklyn appeals court threw out the majority of Ms. Etzion's claims. A unanimous appellate panel rejected her causes of action for unilateral mistake, mutual mistake, unconscionability and breach of fiduciary duty. “Although the defendant here received the warehouse property, which substantially increased in value after the date on which the parties entered into the memorandum agreement, 'courts will not set aside an agreement on the ground of unconscionability simply because it might have been improvident,'” the panel held in Etzion v. Etzion, 2008-00759.

The panel found that the defendant had a duty to disclose but not to volunteer information, which was available in the public domain and might affect the property's value. The court did allow three causes of action alleging fraud to go forward.

History

Mr. and Ms. Etzion married in October 1978. Ms. Etzion commenced a divorce action in June 2002. In March 2005, the couple signed an agreement controlling the distribution of their property. Ms. Etzion received approximately $10 million, as well as the couple's $3 million marital home. Mr. Etzion took title to the couple's Christmas-ornament business, Variety Accessories, as well as the company that owned and operated a warehouse that stored Variety's stock, Metro Shipping and Warehousing. During the negotiations of the settlement, a neutral appraiser determined the warehouse, located on the industrial Greenpoint-Williamsburg waterfront, had a market value of $6.5 million. However, in May 2005, two months after the couple executed the agreement, New York City formally adopted a rezoning plan allowing for residential development in the waterfront area surrounding and including the warehouse. A judgment of divorce, which incorporated the stipulation of settlement, was issued in August 2005. Then, less than two months after the divorce became official, Mr. Etzion entered into a contract to sell the warehouse and its land for $84.57 million. Ms. Etzion filed the present action the following year, seeking the rescission or reformation of the agreement. She alleged, among other things, that her ex-husband concealed the existence of an agreement to sell the warehouse property. Mr. Etzion contended that his former wife failed to state a cause of action. In January 2008, the trial court denied Mr. Etzion's motion to dismiss. Subsequently, the Second Department modified that order, striking Ms. Etzion's key causes of action. Ms. Etzion is appealing.

Mark Fass is a reporter for the New York Law Journal, an Incisive Media sister publication of this newsletter.

When Deborah and Rafael Etzion negotiated a separation agreement in 2003 after 24 years of marriage, an appraiser valued a Brooklyn warehouse they owned at $6.5 million. Under the terms of the separation agreement, Ms. Etzion received $13 million and her soon-to-be-ex-husband received the Williamsburg warehouse and the land underneath it, as well as the title to several corporations the couple owned. Two and one-half years later, Mr. Etzion sold the warehouse for $84.6 million, more than 13 times its appraised value. Ms. Etzion filed suit for rescission or reformation of their stipulation of settlement. In May, a Brooklyn appeals court threw out the majority of Ms. Etzion's claims. A unanimous appellate panel rejected her causes of action for unilateral mistake, mutual mistake, unconscionability and breach of fiduciary duty. “Although the defendant here received the warehouse property, which substantially increased in value after the date on which the parties entered into the memorandum agreement, 'courts will not set aside an agreement on the ground of unconscionability simply because it might have been improvident,'” the panel held in Etzion v. Etzion, 2008-00759.

The panel found that the defendant had a duty to disclose but not to volunteer information, which was available in the public domain and might affect the property's value. The court did allow three causes of action alleging fraud to go forward.

History

Mr. and Ms. Etzion married in October 1978. Ms. Etzion commenced a divorce action in June 2002. In March 2005, the couple signed an agreement controlling the distribution of their property. Ms. Etzion received approximately $10 million, as well as the couple's $3 million marital home. Mr. Etzion took title to the couple's Christmas-ornament business, Variety Accessories, as well as the company that owned and operated a warehouse that stored Variety's stock, Metro Shipping and Warehousing. During the negotiations of the settlement, a neutral appraiser determined the warehouse, located on the industrial Greenpoint-Williamsburg waterfront, had a market value of $6.5 million. However, in May 2005, two months after the couple executed the agreement, New York City formally adopted a rezoning plan allowing for residential development in the waterfront area surrounding and including the warehouse. A judgment of divorce, which incorporated the stipulation of settlement, was issued in August 2005. Then, less than two months after the divorce became official, Mr. Etzion entered into a contract to sell the warehouse and its land for $84.57 million. Ms. Etzion filed the present action the following year, seeking the rescission or reformation of the agreement. She alleged, among other things, that her ex-husband concealed the existence of an agreement to sell the warehouse property. Mr. Etzion contended that his former wife failed to state a cause of action. In January 2008, the trial court denied Mr. Etzion's motion to dismiss. Subsequently, the Second Department modified that order, striking Ms. Etzion's key causes of action. Ms. Etzion is appealing.

Mark Fass is a reporter for the New York Law Journal, an Incisive Media sister publication of this newsletter.