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Top 10 Things to Do When Being Sued

Posted on: April 6, 2017 at 4:43 am, in

The threat of a lawsuit, or the prospect of litigation, sends most people into an emotional state somewhere between panic and outrage, especially if that person hasn’t protected their assets ahead of time. Running a business or getting through the daily routines of personal life can be overwhelming without the added stress of a process server, marshal or sheriff coming to your home or office with a summons and complaint.
Most people have never been involved in a lawsuit, so seeing your name or the name of your business in the caption followed by the word “DEFENDANT” can be unsettling. There are ten things you should know about lawsuits that will help you make the right decisions once the process server leaves.

1. It will not go away on its own. Lawsuits must be taken seriously.

Regardless of how frivolous or inconsequential the lawsuit might seem to be, ignoring it can have serious consequences. Failing to file a formal, written answer to the allegations contained in the lawsuit can result in a default judgment against you in favor of the opposing party. A default judgment means potentially your plaintiff can go to your bank and freeze your account or go to the registry and put a lien on your home or rental property. You won’t find out about it until checks start to bounce and you “swear there was at least $10,000 in that account.”

2. That ticking sound is a clock.

The defendant in a lawsuit must file a formal answer or make a motion within a limited period of time that is set by the laws in each jurisdiction. Getting angry and tossing the lawsuit papers into a corner in your home or office to be dealt with later is a mistake. Some states limit the time to submit an answer to just 20 days or less from the date the defendant is served.

3. I can do this without a lawyer.

Without getting into all of the reasons why representing yourself in a lawsuit is a mistake, and there are many, be aware that the laws in some states, such as New York, require that an attorney appear on behalf of a corporation that is a defendant in a lawsuit. Yes, lawyers cost money that most people or small businesses cannot readily afford, but lawyers know the defenses allowed under the law and the procedures that to follow to avoid a costly errors.

4. Choose a lawyer you can depend upon.

If you are using an attorney for the first time, make certain your lawyer is familiar with the issues raised in the lawsuit. Attorney’s today are as specialized as doctors; one does not go to a brain surgeon to fix a broken leg. Ask the lawyer how many lawsuits like yours he has taken to verdict. Lawyers who settle most of the cases they handle might be good negotiators, but you also want to know that the attorney you choose can handle a trial if one is necessary.

5. Be honest with your lawyer.

The second worst mistake you can make is to attempt to defend a lawsuit without having legal representation. The worst mistake is having an attorney but failing to disclose all the facts in an honest and forthright manner. The lawyer you hire is on your side regardless of how good or how bad the facts and the evidence make you look. Lying to your lawyer, or withholding information because it portrays you in a bad light, will make it difficult for your lawyer to represent you and often times you are doing yourself a disservice because when that information you are hiding comes out in court, your lawyer will be caught off guard with no strong, well-thought out response.

6. Don’t ignore insurance options.

Some types of insurance policies provide coverage in the event of a lawsuit. Automobile insurance or homeowners insurance are two policies with which most people are familiar, but there are other types of insurance, such as malpractice or errors and omissions policies that provide coverage in the event of a lawsuit. In most instances, the insurance company will take the lead, pay for your defense, and often times negotiate a settlement.

7. Listen to the expert you hired.

You are paying your lawyer to give you expert legal guidance, but the money is wasted unless you listen and heed the advice that is given to you. Telling your lawyer how you think your lawsuit should be handled ignores the fact that your handling of the situation is probably what got you into a lawsuit in the first place.

8. Fighting over principle can get expensive and distracting.

Whether you are the defendant being sued or the plaintiff who started the lawsuit, at some point you have to consider exactly what it is that you are fighting about. Does defending or prosecuting the lawsuit make sense economically? If you find yourself spending large sums of money on legal fees, court costs and related expenses that will exceed the amount you will recover if you win, it is probably time to reevaluate your position. Perhaps it is time to stop fighting and consider a negotiated settlement to put an end to the litigation. A lawsuit that goes to trial can easily cost $100,000-200,000. Imagine trying to run your business with a lawsuit hanging over your head for 3 years. The stress distracts you from positive things like growing your business.

9. Don’t assume your legal expenses will be paid by your opponent.

Absent an agreement, such as a contract or a law requiring the losing party in a lawsuit to pay the other party’s legal fees, the parties are responsible for their own costs of defending or prosecuting a lawsuit in the United States. Even if you have a contract that states the loser in a dispute will pay legal fees, it is rare that courts award full legal fees.

10. Expect to be in it for the long haul.

People want lawsuits to end quickly so they can go about their normal lives and business, but answers, counterclaims, motions and discovery can take months or, sometimes, years to complete. Lawsuits begin with a flurry of activity that dies down as the case progresses beyond the initial pleadings establishing each party’s position. The pace picks up again months later as each side engages in depositions and other discovery procedures. Patience and trusting in your legal representation are keys to lawsuit success.

Bonus Tip: When You are Being Sued

Evaluate your options. Most lawyers will tell you that you cannot take action to protect assets once you know there might be a lawsuit coming. Most lawyers tell you this because they don’t fully understand fraudulent conveyance and how to manage the resulting 4-5 years statute of limitations on asset transfers. If there is an opportunity to make it difficult for someone to sue you – even late in the game – it could put you in a position to negotiate with your attacker and thus minimize the pain, stress, costs, and distraction that a lawsuit can bring.

Asset Protection & the LLC: 8 Case Studies

Posted on: April 5, 2017 at 3:18 am, in

Many business owners believe that they can simply incorporate their businesses into an Limited Liability Company (aka LLC) and protect their personal assets. However, that is an extreme oversimplification of the law and at the core of misleading consumers by the “LLC farms” out there. Lawyers should know that if a corporation or LLC owes a client money, they are allowed to sue the owners, asking the judge to pierce the corporate veil. Studies have shown that American courts disregard the corporate entity to hold shareholders liable for corporate debts in nearly 50% of cases. As one Illinois Court noted, piercing the corporate veil is both the number one issue that arises in business litigation lawsuits and one frequently misunderstood. If business owners are not meticulous in following corporate formalities, they could find himself forfeiting corporate protection.
Piercing the corporate veil means that a judge may reach beyond the protection provided by the corporate form to hold a business owner personally liable for the company’s debts. There are two common reasons that this happens: undercapitalization and commingling of corporate assets.
If a person starts a business that is likely to incur a significant debts, such as a real estate company, but does not secure adequate insurance or provide funding to pay possible claims against the company, a judge may find that the corporate shareholders are personally liable on the debt. Undercapitalization will most likely lead to veil piercing when it is combined with the failure to observe corporate formalities. To receive protection, a company must hold shareholder meetings and keep minutes. It must have business bank accounts used for business purposes only. Shareholders must not use personal accounts to make business purchases or vice versa.
One of the reasons that piercing the corporate veil is so dangerous for owners is that it does not attach percentages of liability based on a person’s individual wrongdoing. If corporate formalities are not observed and the veil is pierced, the law treats the corporation or LLC like a partnership. That means all shareholders will be jointly and severally liable on the total debt, even a person who owns merely a single share. The plaintiff can choose to sue whichever shareholder has assets.
A cause of action to pierce the corporate veil is not a new lawsuit. The defendants do not have the ability to attack the underlying allegations in the case against the business, even if the business would have had a viable defense. Piercing the corporate veil is a way of imposing liability for an existing judgment against the business on the owners. Thus, an owner who chooses not to defend a case brought against the company because it is incorporated may come to regret that decision later.
The best way for an individual to ensure that his or her assets are protected is to maintain control rather than ownership. Assets that are owned may be seized by creditors, even a person believes they are protected through the formation of an LLC or corporation. Even funds in a revocable trust do not have protection: If the trust may be revoked by the individual who created it, the assets within may be taken by creditors. Only a properly drafted, executed, and funded irrevocable trust provides 100% asset protection.
When a Grantor establishes an irrevocable trust, he transfers ownership of the assets into the trust. A trustee will invest and distribute the assets in accordance with instructions provided by the trust documents. Income generated by irrevocable trusts may provide income to the Grantor, but the Grantor doesn’t own the assets. Subject to Medicare’s five year “look back” period, property held in an irrevocable trust may not be used to satisfy a judgment against the grantor or against the trust beneficiaries.
Below are actual court cases from all over the country highlighting these facts:

1) Peetoom v. Swanson, 630 N.E.2d 1054 (Ill. Ct. App. 2000):

The Illinois Court of Appeals applied the concept of piercing the corporate veil to a personal injury case where the plaintiff, Peetom, fell and injured himself while walking on The Swanson Group’s parking lot. She filed a lawsuit for her hospital bills and pain and suffering, and her husband filed a loss of consortium claim arising out of the accident. The trial court judge entered a default judgment against The Swanson Group in 1997. Approximately one year later, the company was dissolved by the Secretary of State for failure to comply with taxation and annual report requirements. The plaintiffs later filed an action against The Swanson Group’s owners as individuals.
The defendants argued that the two year statute of limitations for bringing a personal injury action had expired and therefore, they could not be liable. The original injury occurred on January 20, 1993. The lawsuit against The Swanson Group was filed on January 11, 1995, shortly before the statute of limitations expired. However, the suit against the owners was not filed until September 2000. The trial court granted the defendants’ motion to dismiss, but the plaintiffs appealed.
The Court of Appeals explained that piercing the corporate veil is not a cause of action like negligence, and therefore is not subject to the same statute of limitations. Piercing the corporate veil is an equitable remedy, a way of imposing liability on corporate shareholders for fraud or injustice that the corporation allowed or caused. As such, the action could be brought within five years after the corporation was dissolved, as provided by Illinois law on shareholder liability for defunct corporations. Neither the corporate form nor the fact that the defendants were not named in the original lawsuit protected them.

2) Las Palmas Assocs. v. Las Palmas Ctr. Assocs.

Las Palmas Assocs. v. Las Palmas Ctr. Assocs., 1 Cal. Rptr. 2d 301(1991): A California Court of Appeals extended the concept of piercing the corporate veil to sister corporations owned by the same parent company. The case arose out of the sale of a large commercial shopping complex.
The contract stated that 84 percent of the complex would belong to Villa Pacific Business Company and the remaining 16 percent belonged to Gribble, president of Hahn Devcorp. Devcorp was a wholly owned subsidiary of Earnest W. Hahn, Inc. Several years later, both companies merged into subsidiaries of the same parent company. The same two individuals sat on the board of directors of both Hahn and Devcorp. By 1983, Hahn’s staff conducted business for Devcorp, leaving Devcorp a shell of a corporation. All of Devcorp’s assets had been liquidated, and all employees and directors fired. At trial, Hahn’s value was more than one hundred times that of Devcorp. The jury found that Devcorp was an alterego of Hahn and, as a result, Hahn should be liable for Devcorp’s debts.
The public policy behind allowing courts to pierce the corporate veil is that, in a situation where there is so much unity in ownership and interest between the company and the owner that the two are not really separate legal entities, it is not fair for the owner to avoid liability. These same principles apply when the owner of a corporation is another corporation. The court noted that there are many situations where a corporate entity is disregarded, and a corporation is treated as merely part of the parent corporation. In these cases, it is only equitable that veil piercing be allowed. The same line of thinking applies to two subsidiaries controlled by the same parent, if that parent company does not observe corporate formalities.

3) Agai v Diontech Consulting

Agai v Diontech Consulting, Inc., 2013 NY Slip Op 51345(U): In this NY Supreme Court case, the defendants were not shareholders of the company in question, Diontech Consulting, Inc. However, they ran the company for their own gain, so it would not be fair to allow them to benefit from hiding behind the corporate form. The judge pierced the corporate veil and imposed liability.
The undisputed evidence showed that the defendants did not observe any corporate formalities in running Diontech. Two of the three, the Antoniou brothers, admitted being unaware of any records or books showing corporate operations. They could not produce any board meeting minutes, pay stubs, bank account statements, or other documentation showing the company’s existence as a separate entity. The brothers commingled business assets with personal funds and used the corporate bank accounts for personal expenses. Both brothers were paid for assisting in settling corporate affairs when Diontech was dissolved, yet both claimed no knowledge of what happened to the corporate assets, including vehicles, furniture, and computers. An accountant for the firm testified that all three defendants routinely took money from the corporate bank account and did not pay it back. No tax return was filed for Diontech because the defendants never provided the required documentation. The evidence suggested that Diontech was a sham corporation, created for the sole purpose of avoiding legal liability.
The standard in New York for piercing the corporate veil whether an individual hid behind a corporation to perpetuate an unjust or wrongful act against the plaintiff. The judge found that the defendants used Diontech to avoid paying creditors. The principals here used the plaintiff’s payments to Diontech and materials purchased for the plaintiff’s job to work on other projects. As a result, it would be unjust not to hold them liable.

4) Ted Harrison Oil Company v. Dokka

Ted Harrison Oil Company v. Dokka, 617 N.E.2d 898 (1993): An Illinois Court of Appeals found that incorporation did not protect the assets of a company owner who followed no corporate formalities and treated the company as an extension of himself. Ted Harrison Oil Company (“Harrison”) filed a lawsuit asking the judge to hold Dokka personally liable for a debt owed to him by Dokka’s company, Hess Tire. Dokka purchased all shares of Hess Tire in 1972. He later sold shares to two investors, but never created or printed stock certificates. The company was initially profitable but lost a significant amount of money between 1972 and 1981.
A review of the corporate books showed no shareholder meeting minutes, although Dokka claimed the shareholders met and were involved in the business. Hess Tire operated in a building personally owned by Dokka and paid no rent. A corporate account paid property taxes for the building. Dokka even admitted that he did not follow corporate formalities. The company’s bookkeeper testified that another shareholder, Walden, had her write checks to herself on the business accounts, which Walden cashed, keeping the money. Dokka testified that there was no business purpose for these checks or other loans and bonuses paid to Walden. Walden moved tires from Hess Tire’s inventory into storage to avoid paying creditors. Although Dokka claimed no knowledge of Walden’s activities, the Appeals Court pointed out that the deception would have been uncovered sooner if corporate formalities had been followed. Since Dokka did not treat Hess Tire as a separate business entity, he was not entitled to the protection of incorporation laws. The court held Dokka responsible for Hess Tire’s debt to the plaintiff.

5) Buckley v. Abuzir

Buckley v. Abuzir, 2014 IL App (1st) 130469: Plaintiffs John Buckley and Mama Gramm’s Bakery, Inc. won a case against Silver Fox Pastries, Inc. for violation of The Illinois Trade Secrets Act. After they realized that they were not able to collect the judgment from Silver Fox, which had no assets, the plaintiffs asked a judge to pierce the corporate veil and enter a judgment against the owner, Haitham Abuzir. Although the trial court dismissed the Complaint, on appeal, the Illinois Court of Appeals reversed, finding that the plaintiffs had alleged sufficient facts to allow the trial court to pierce the corporate veil.
After incorporated, Silver Fox never filed an annual report with the Secretary of State. It had no directors, no officers, no corporate records, and no corporate books. The company never held a shareholder or director meeting. No stock was issued, and no dividends paid. Silver Fox never made any payments on loans granted to it, and at no time had assets exceeding its debts. No corporate formalities were ever observed. On the other hand, Abuzir ran Silver Fox, maintaining 100% control over the company. Abuzir did not dispute the plaintiffs’ allegation that he and Silver Fox were, in effect, the same entity. Instead, he claimed that the corporate veil could not be pierced because he was not an officer, director, employee, or shareholder of the corporation.
After reviewing the law in other states, the Court concluded that stock ownership was not required to pierce the corporate veil. A person who exercises considerable authority over a company may be legally considered the equitable owner and, therefore, a judge can pierce the corporate veil to hold that person liable for corporate debts. Abuzir could not avoid liability by refusing to appoint himself as director or officer and failing to issue himself stock.

6) Associated Vendors, Inc. v. Oakland Meat Co.

Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal.App.2d 825 (1962): A California appellate court found that a person could be held personally liable for corporate debts when the corporation was merely the “alter ego” of the individual. The case arose out of a commercial lease between Associated Vendors, Inc. (“Associated”) and Oakland Meat Company (“Meat”). and Oakland Packing Company (“Packing”). After Meat leased the premises in question from Associated, the company turned around and leased it to Packing for only a portion of the rent they had agreed to pay Associated. Associated asked the judge to hold the owner of the companies responsible for the debt owed, based on the fact that the corporations were alter egos of the owner and not treated as separate legal entities.
The company’s owner, Zaharis, loaned personal funds to Packing without a first holding a corporate meeting or requesting a shareholder vote. When it was time for the loan to be repaid, Meat issued a loan to Packing, and the funds were transferred to Zaharis. Meat applied for and received business permits used by Packing. Zaharis and Meat’s two other officers worked for Packing without receiving compensation; however, Meat continued to pay their salaries. The lawyer who negotiated the commercial lease testified that he was unaware that Meat and Packing were separate companies. A butcher who delivered products to Packing was told to bill Meat instead. Invoices sent to Meat were paid by Packing and vice versa. Several other vendors that did business with both corporations testified they were unaware that Meat and Packing were two separate legal entities. Because the directors commingled assets, did not observe corporate formalities such as holding meetings and keeping minutes, and they treated the companies as one, the court held that the owners were personally liable for the corporations’ debts.

7) Kinney Shoe Corp. v. Polan

Kinney Shoe Corp. v. Polan, 939 F.2d 209 (4th Cir. 1991): The United States Fourth Circuit Court of Appeals found that the business owner, Polan, was responsible for paying a corporate lease entered into on behalf of his company.
In November 1984, Polan filed paperwork with the Secretary of State to create Polan Industries, Inc. He incorporated Industrial one month later. Neither corporation elected any officers, held organizational meetings, or issued a single share of stock. Both corporations were created for the same purpose.
Shortly after the first business was established, Polan began negotiations with Kinney Shoe Corp. to sublease a building owned by a third party. Although the parties signed the sublease in April 1985, their actual agreement started in December 1984. Ten days after the sublease with Kinney was signed, Industrial subleased half of the property to Polan Industries. Polan signed the sublease on behalf of both corporations.
Industrial owned no assets other than the sublease, not even a bank account. The corporation had no income, other than the payments Polan Industries owed under the sublease. When the first lease payment to Kinney became due, Polan issued a check on his personal bank account. This first payment was the only one Kinney received from either company. In 1987, after receiving no further payments, Kinney sued Industrial and obtained a judgment of more than $166,000. Kinney then sued Polan personally to collect its judgment. Despite the long-established rule that the stockholders are not responsible for corporate debts, the Court held that it was appropriate to reach beyond the corporate veil and hold Polan personally liable for the judgment against Industrial because Polan did not follow corporate formalities. Thus, the corporate veil did not protect Polan’s personal assets and the Court upheld the judgment against Polan.

8) Minnesota Mining & Manufacturing Co. v. Superior Court

Minnesota Mining & Manufacturing Co. v. Superior Court, 206 Cal. App. 3d 1027 (1988): The California Court of Appeals held a shareholder responsible for paying a corporate debt after they pierced the corporate veil, even though the company had other shareholders. The case also clarified that, when the corporate veil is pierced, a shareholder may be held liable for one hundred percent of the debt, not a percentage equal to his proportionate share in the company, even if he owns only one share of stock.
Maximum Technology (“MaxiTech”) sued several defendants, including Minnesota Mining and Robert Schwartz for more than $2 million. Schwartz and MaxiTech settled their claims for only $20,000, and Minnesota Mining filed a suit after the judge appealed the settlement. The settlement was based on the erroneous conclusion that Schwartz, as a 40 percent owner of one of the companies being sued, was only responsible for paying 40 percent of that company’s liability if the corporate veil was pierced. However, that is not how the law works. If a company forfeits the protection of the corporate veil by not observing corporate formalities, all owners become jointly and severally liable for corporate debts, as if the business had never incorporated. It is not relevant whether a shareholder owns one share of a company in that scenario or all but one. In this particular scenario where only two of the company’s three shareholders were sued, the two of them would have to bear the burden of the entire corporate debt. As a result, the settlement agreement was based on a faulty assumption of law and could not have been found to have been negotiated in good faith, and Schwartz not only lost the benefit of the corporate veil, but also the advantageous settlement he negotiated.
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AVENT, Appellee, v. AVENT, Appellant: Prenuptial Court Case 2006

Posted on: March 7, 2017 at 7:28 am, in

AVENT v. AVENT
AVENT, Appellee, v. AVENT, Appellant.
No.L-05-1140.
– April 14, 2006

Martin E. Mohler and Heather J. Fournier, Toledo, for appellee.M. Susan Swanson, for appellant.
{1} This appeal comes to us from a judgment issued by the Lucas County Court of Common Pleas, Domestic Relations Division, which determined the marital-property division in a final divorce decree. Because we conclude that the trial court erred in its determinations, we reverse.
{2} Appellant, Elizabeth A. Avent, and appellee, Billy R. Avent Sr., were married in 1978 and executed a prenuptial agreement, which stated that the parties desired to keep each of their financial estates separate and that any property owned by them prior to or acquired after the marriage would remain their separate properties. Each waived any claims against the other arising “by force of the contemplated marriage.”
{3} Billy filed for divorce in December 2003. At the time of trial in December 2004, he was 86 years old, his wife was 81, and both were retired. The trial court found that the parties were unable to remember many important facts about their earned income over the years or their present assets. The following summarizes the court’s factual findings or other undisputed facts presented at trial.
{4} Billy retired in 1983, after 43 years of employment with the same company. He received $141,274 as a lump-sum retirement distribution from that employment, which was placed in “separate IRA [Individual Retirement Accounts] accounts.” His yearly income included $14,628 from Social Security plus $9,118 from his IRA, for a total of $23,746.
{5} Elizabeth retired in 1986, after working for 11 years as a cafeteria worker. Her yearly income totaled $12,814, which included $461 per month from Social Security, $169 per month from School Employees Retirement System (“SERS”) and $4,000 to $5,000 per year in withdrawals from “her present assets.”
{6} Billy’s grandson, a financial consultant, testified regarding the present value of assets in Billy’s name, which the court valued at $129,078. He stated that he had been handling his grandfather’s finances since 1997. Elizabeth’s assets were valued as follows. During the pendency of the divorce action, Elizabeth’s assets were placed in two trusts: the Avent Irrevocable Trust and the Elizabeth A. Avent Living Trust. The Avent Irrevocable Trust consisted of Elizabeth’s home and 278 bonds. Elizabeth’s accountant said that the bonds had a cost basis of $99,175, with a future value of $245,852. The court stated that interest income on the bonds until maturity was projected to be $155,677. The court also valued Elizabeth’s marital portion of appreciation on her house at $30,000.
{7} The court valued Elizabeth’s living trust (“revocable trust”) at $188,049, which included cash gifts made to her daughter and various bank accounts that were all solely in Elizabeth’s name. The court declared that the appreciation on the wife’s house was marital, awarding her the $30,000 appreciation of that property and an additional $60,000 “in consideration of her share of husband’s separate pension, the fact that there will be no spousal support, and assets she claims and accountant deemed to be inherited.”
{8} The court determined that all of Elizabeth’s bank accounts, bonds, or other cash assets held in her own name were marital because she had failed to adequately trace her “separate property” owned prior to the marriage to her present assets. The court stated that Billy had traced his property sufficiently, awarding him the $129,078 of assets in his name. In addition, the court ordered Elizabeth to transfer to Billy one-half of her bonds placed in the irrevocable trust and to pay Billy an additional $64,045, one-half of the remaining assets in Elizabeth’s name ($188,089 minus $60,000 equals $128,089 divided by two).
{9} Neither spouse was awarded spousal support, both spouses were ordered to pay their own attorney fees, and court costs were to be split equally between the parties.
{10} Elizabeth now appeals from that decision, arguing the following three assignments of error:
{11} “I. The Trial Court erred to the prejudice of the Appellant by requiring the tracing of separate assets that had not been found to have been commingled.
{12} “II. The Court abused its discretion in finding that Appellant had failed to prove her financial accounts to be separate property by a preponderance of the evidence.
{13} “III. The Court abused its discretion and committed prejudicial error in making a distributive award from Appellant’s separate property without considering all of the factors set forth in R.C. 3105.171(F)(1) through (9).”

I

{14} In her first assignment of error, Elizabeth argues that the trial court erred in requiring her to trace assets that were never commingled with her husband’s funds and that the appreciation of her home should have been deemed separate property. We agree.
{15} In a divorce action, the domestic relations court is required to determine whether property is separate or marital and to divide both marital and separate property equitably. R.C. 3105.171(B). Marital property generally includes all property acquired by either party during the marriage as well as the appreciation of separate property due to the labor, monetary, or in-kind contributions of either party during the marriage. R.C. 3105.171(A)(3)(a)(i) and (iii). Marital property is to be divided equally in general, and each spouse is considered to have contributed equally to the acquisition of marital property. R.C. 3105.171(C)(1) and (2). However, marital property does not include separate property. R.C. 3105.171(A)(3)(b). Under R.C. 3105.171(A)(6)(a)(v), separate property includes any real or personal property that is excluded by a valid antenuptial agreement. Thus, Ohio law specifically allows for property that would normally be considered marital to be excluded from a division of marital property by a valid antenuptial agreement. Todd v. Todd (May 4, 2000), 10th Dist., No. 99AP-659, 2000 WL 552311.
{16} An antenuptial agreement is a contract entered into between a man and a woman in contemplation, and in consideration, of their future marriage whereby the property rights and economic interests of either the prospective wife or husband are determined and set forth in a written instrument. Gross v. Gross (1984), 11 Ohio St.3d 99, 102, 11 OBR 400, 464 N.E.2d 500. The law of contracts applies to the interpretation and application of antenuptial agreements. Fletcher v. Fletcher (1994), 68 Ohio St.3d 464, 467, 628 N.E.2d 1343. The interpretation of a contract that is clear and unambiguous is a question of law, and no issue of fact exists to be determined. State ex rel. Parsons v. Fleming (1994), 68 Ohio St.3d 509, 511, 628 N.E.2d 1377; Davis v. Loopco Industries, Inc. (1993), 66 Ohio St.3d 64, 66, 609 N.E.2d 144. On appeal, questions of law are reviewed de novo. Wiltberger v. Davis (1996), 110 Ohio App.3d 46, 51-52, 673 N.E.2d 628.
{17} In Ohio, antenuptial agreements are valid and enforceable “(1) if they have been entered into freely without fraud, duress, coercion, or overreaching; (2) if there was full disclosure, or full knowledge and understanding of the nature, value and extent of the prospective spouse’s property; and (3) if the terms do not promote or encourage divorce or profiteering by divorce.” Gross, 11 Ohio St.3d 99, 11 OBR 400, 464 N.E.2d 500, paragraph two of the syllabus. See, also, Fletcher, 68 Ohio St.3d at 466, 628 N.E.2d 1343. If parties have freely entered into a prenuptial agreement, a court should not substitute its judgment and amend the contract. Gross, 11 Ohio St.3d at 109, 11 OBR 400, 464 N.E.2d 500.
{18} In the present case, the parties entered into a prenuptial agreement that clearly expressed, “[I]t is mutually desired and agreed by the parties that the estate of each of the parties shall remain separate, as well after as previous to the solemnization” of their marriage. The agreement states further that the husband’s estate “shall remain and be his separate property, subject entirely to his individual control and use, the same as if he were unmarried; and that the second party [wife] shall not acquire by force of the contemplated marriage for herself, her heirs, assigns or creditors any interests in his property or estate, or right to the control thereof, and the second party shall and does hereby waive, release, and relinquish, and shall by these presents be barred from any and all claim or rights of dower, year’s support, right to live in the mansion house, property exempt from administration, distributive share or intestate share of the other’s estate, from any and all claims or rights as widow, heir, distributee, survivor, or next of kin, and any and all other claims, to the property of the first party now owned or hereafter acquired.” (Emphasis added.)
{19} In the following paragraph, the agreement sets forth the same language with reference to Elizabeth’s estate and control, with Billy waiving all rights to any property owned or acquired by Elizabeth. In other words, the agreement indicates the parties’ intent to keep separate not only the property owned at the time of the marriage, but also any increase in value or additional property each might separately acquire during the marriage.
{20} In this case, the record shows that the parties never commingled their funds in joint bank accounts and never owned real estate together. All bank accounts and stocks were maintained in each party’s separate name prior to and after the marriage. Billy’s retirement distribution was placed in his own separate account. Likewise, any funds or inheritance monies received by Elizabeth were placed in her own accounts. Since the antenuptial agreement specifically provided that each party waived any rights to each other’s property acquired prior to or after the marriage, any funds or assets separately owned by the parties, which had never been commingled, remained their separate properties. No evidence was presented that any of Elizabeth’s funds were ever commingled with or taken from Billy’s funds. Therefore, Elizabeth’s accounts, which had always been separately maintained, remained her own separate property, and no tracing was required.
{21} In addition, although Billy testified that he had paid for certain expenses related to Elizabeth’s home over the years, the antenuptial agreement specifically states that he agreed to waive any claim to property acquired after or arising “by force of” the marriage, i.e., a claim for a contribution to the appreciation of the home where the parties resided. Moreover, there was nothing in the record to indicate the exact amounts of his alleged payments or other contributions, or that they significantly affected the appreciation of the property value beyond what would have naturally occurred. We also note that at the time of the marriage, Billy owned two homes that he no longer owned at the time of the divorce. Presumably, by virtue of his living in Elizabeth’s home, he was able to sell or otherwise dispose of those properties to his advantage, with no accounting or credit to wife. Consequently, under the terms of the antenuptial agreement, any appreciation on Elizabeth’s home was separate property. Therefore, under the facts of this case, we conclude that the trial court erred in failing to designate the assets owned by each party as their separate property, not subject to division as marital property.
{22} Accordingly, appellant’s first assignment of error is well taken. In light of our disposition of the first assignment of error, appellant’s second assignment of error is moot.

II

{23} In her third assignment of error, Elizabeth asserts that the trial court failed to properly consider the factors set forth in R.C. 3105.171(F), and erred in distributing her separate property to appellee. Again, we agree.
{24} As we previously determined, the court erroneously ruled that Elizabeth’s accounts were marital because she had not adequately traced the funds. In making the property division, the court then erroneously divided and awarded a portion of Elizabeth’s assets to Billy. The court stated that Elizabeth had acted “contrary to Court Order” by “diverting” funds to the two trust accounts and to her daughter and by her failure to amend and update the initial asset list filed with her answer. Nothing in the record, however, demonstrates that Elizabeth, who relied on her daughter and financial consultants to advise her, attempted to hide or dissipate assets by placing them in trust. In addition, Elizabeth executed the trusts when no divorce proceedings were pending, on the advice of an attorney and financial consultant, and considering her age.1
{25} Furthermore, although noting that the frequent moving of Elizabeth’s funds made it “very difficult to exactly trace the past and present assets,” the court never made an actual finding of misconduct or dissipation of marital assets. In fact, the court recognized that both parties were elderly and had trouble remembering many financial details spanning their 25-year marriage. Thus, since appellant’s assets were, in fact, her separate property and within her sole control, her decision to give away money or to place some of her money and property in trust was not improper.
{26} The trial court further stated that it had considered the factors in R.C. 3105.171(F) and had awarded an inequitable distribution of “marital assets held by wife” solely because she could not trace her assets. Nothing in the final judgment indicates that the court awarded these assets on the basis of any other factor in R.C. 3105.171(F). Again, since we determined that the tracing of assets held solely in appellant’s name was not required and there was no misconduct by appellant regarding her assets, the trial court erred in distributing a portion of Elizabeth’s assets to husband.
{27} Accordingly, appellant’s third assignment of error is well taken.
{28} Pursuant to App.R. 12(B), this court hereby renders the judgment that should have been rendered by the trial court and therefore modifies paragraphs two through seven of page seven of the trial court’s divorce decree judgment entry as follows:
{29} “WHEREFORE, IT IS ORDERED:
{30} “***
{31} “2. For the purpose of making a division of marital property, the period of time “during the marriage” was from the date of the marriage through the day of the trial. The parties are bound by the terms of a valid antenuptial agreement which provided that each waived any claim or rights to the other’s property owned prior to or acquired after the marriage. After considering that the parties at all times conducted their financial affairs separately and that no evidence of commingling of funds was presented, we conclude that, under the language of the antenuptial agreement, there is no marital property to divide.
{32} “3. Wife shall keep, as her separate property, the real estate at 2332 Dana Street and any appreciation in its value. Wife shall further keep all assets, including bank accounts and stocks which are solely owned by her or in her name. Wife shall also keep her personal property to which the parties stipulated.
{33} “4. Husband shall keep, as his separate property, all funds and accounts relating to his retirement distribution, and any other assets, including bank accounts, stocks, or other funds, which are solely owned by him or in his name. Husband shall also keep his personal property to which the parties stipulated.
{34} “5. Pursuant to the parties’ agreement, neither shall pay spousal support to the other and the Court does not retain jurisdiction over the issue of spousal support.
{35} “6. Each party shall pay his/her outstanding debts, attorney fees and costs. After application of the initial filing fee(s), the parties shall equally pay the remaining court costs.
{36} “IT IS SO ORDERED.”
{37} The judgment of the Lucas County Court of Common Pleas, Domestic Relations Division, is reversed and modified as designated in this decision. Appellee is ordered to pay the costs of this appeal pursuant to App.R. 24. Judgment for the clerk’s expense incurred in preparation of the record, fees allowed by law, and the fee for filing the appeal is awarded to Lucas County.
Judgment reversed.

FOOTNOTES

1. Elizabeth testified that the trusts were set up prior to Billy’s filing of the divorce complaint on December 9, 2003.
SKOW, Judge.
HANDWORK and PIETRYKOWSKI, JJ., concur.

Michael WEYMOUTH v. Veronica WEYMOUTH: Antenuptial Agreement case

Posted on: March 7, 2017 at 7:25 am, in

87 So.3d 30 (2012)
Michael WEYMOUTH, Appellant,
v.
Veronica WEYMOUTH, Appellee.
Nos. 4D10-873, 4D10-2745.
District Court of Appeal of Florida, Fourth District.
April 11, 2012.
Rehearing Denied May 21, 2012.
32*32 Nancy W. Gregoire of Kirschbaum, Birnbaum, Lippman & Gregoire, PLLC, Fort Lauderdale, and Howard S. Friedman of Fischler & Friedman, P.A., Fort Lauderdale, for appellant.
Terrence P. O’Connor of Morgan, Carratt and O’Connor, P.A., Fort Lauderdale, for appellee.
TAYLOR, J.
The husband, Michael Weymouth, appeals a final judgment of dissolution and a final fee award. The wife, Veronica Weymouth, cross-appeals the final judgment of dissolution. We affirm in part, reverse in part, and remand for further proceedings.

I. Factual Background

The parties were married in 1993. Shortly before their marriage, the parties executed an Antenuptial Agreement prepared by the husband’s attorney. The Antenuptial Agreement contained a schedule of all the husband’s assets and liabilities prior to the execution of the agreement. Paragraph 3 of the Antenuptial Agreement provided that the wife would “hereby forever remise, release and quit claim all right, title and interest she might have or otherwise could have . . . to any property owned prior to marriage . . . by Michael and specifically waives any and all claim or claims which she might have in and to the real and personal property of Michael, owned prior to marriage. . . .” Paragraph 4 provided that all “property acquired by either of them during the marriage (other than property acquired by either of them by gift or inheritance)” is marital property. The Antenuptial Agreement did not, however, contain an express waiver of growth or appreciation of pre-marital or non-marital assets.
Paragraph 11 of the Antenuptial Agreement provided that the parties “specifically waive any claims against the other for alimony . . . unless the basis for the dissolution is adultery, physical abuse, mental or emotional abuse.” Furthermore, “[i]n the event of adultery, physical abuse, or mental or emotional abuse, either party shall be able to seek alimony and support from the other pursuant to Florida law; except that adultery or abuse may not be used against the party obligated to pay alimony or support.”
Before the marriage, the husband owned a Broward County house, which later became the marital residence. On the date the parties entered into the marriage, the fair market value of the home was $250,000, and the home was encumbered by a $160,000 mortgage. Between 1993 and 2006, the parties lived in the Broward County house, but the home remained titled in the husband’s name alone. Marital earnings were used to pay the house mortgage, insurances, real estate taxes and maintenance. In addition, substantial improvements 33*33 were made to the property during the marriage.
In 2003, the parties went to a marital counselor because of problems in the marriage. Nonetheless, the parties remained together at that time, and in the early summer of 2006, they began discussing a move to North Carolina. The husband testified that he was unhappy in the marriage and hoped that the move might resurrect the parties’ relationship.
Around the same time in 2006, the husband was terminated from his position at Hamway Flooring, and he returned to work for Hunter Crow Corporation, a general contracting firm that the Weymouths founded in 1997. The husband claimed that his income at Hunter Crow was significantly less than it was at Hamway.
In September 2006, the parties acquired a North Carolina home. The parties planned to move there at the end of their sons’ school year in May or June 2007. They planned to rent the Broward County house for a year and then sell it to pay for the North Carolina property if the move worked out.
Beginning in March 2007, the husband began having frequent contact, via phone calls and text messages, with a woman who was not his wife. Additionally, beginning in April 2007, the husband would sometimes leave the house after dinner and come home very late. By May 2007, the wife was aware of problems with the marriage. The husband told her that he no longer wanted to move to North Carolina. The wife asked him if there was another woman involved in his decision. The husband denied that there was and became upset at the wife for asking.
The parties’ relationship continued to get worse during the summer of 2007. In August 2007, the husband moved out of the house. In September 2007, the husband traveled to the Florida Keys with the “other woman.” Both the husband and the “other woman” testified that the September 2007 trip was the first time they had sexual relations with each other. The trial court, however, specifically found that their testimony on this point was not credible.
By October 2007, the wife was aware of the relationship with the mistress. Even so, the wife was willing to work on the marriage. But when she learned that the husband was planning another trip with the “other woman,” the wife decided to file for divorce. Although the husband pleaded with the wife to wait, the wife filed for divorce in November 2007.
During trial, the wife submitted evidence of her need based on her requested relocation to North Carolina. Furthermore, the wife’s forensic accountant testified regarding the husband’s income and assets.
At the conclusion of the trial, the court ordered the parties to submit written closing arguments and proposed final judgments. On the alimony issue, the husband’s Closing Argument argued: (1) the Antenuptial precluded an alimony award; (2) the wife had not met her relocation burden; and (3) the wife should be awarded only $1,300 monthly, but at the most, her needs were $2,600 per month.
At a post-trial conference, the trial court advised the attorneys that it was having trouble determining the amount of alimony, explaining that there was no evidence of mortgage expenses for the wife if she moved from the marital residence and secured comparable housing in South Florida. After the hearing, the wife submitted a Motion to Reopen to Permit Additional Evidence, arguing that she should be allowed to submit evidence of her expenses if she remained in Broward County instead of relocating to North Carolina. The motion 34*34 attached a letter which set forth what the cost of purchasing a $500,000 house in Broward County would be for the wife. The husband filed an objection to the wife’s motion to reopen the evidence, arguing that she had the opportunity at trial to present evidence of her need if her request for relocation were denied, and that her failure to do so constituted a waiver.
The court never explicitly ruled on the wife’s motion to re-open. Instead, in October 2009, the trial court entered a Final Judgment of Dissolution, which prompted both parties to file motions for rehearing.
The trial court later entered an Amended Final Judgment of Dissolution, which ruled: 1) the wife’s request for relocation was denied; 2) the parties would have shared parental responsibility; 3) the Antenuptial was unambiguous; 4) the basis for the dissolution was adultery; 5) the husband’s income was $290,000 per year, based on his average income of $270,000 from 2007 and 2008 plus the $20,000 he regularly receives as a gift from his mother each year; 6) the wife’s income was $36,000; 7) the wife was entitled to permanent periodic alimony of $3,000 monthly to begin after the sale of the North Carolina property; 8) the wife was awarded the Broward County house, and the non-marital portion was only the $90,000 in equity that existed at the inception of the marriage; 9) the parties were each awarded 50% of the sales proceeds of the North Carolina property; 10) the husband had a monthly child support obligation of $2,211.32; and 11) the wife was entitled to fees and costs, with jurisdiction reserved as to the amount.
Attached to the Amended Final Judgment were the equitable distribution schedule and child support worksheet first submitted to the court in the wife’s August 2009 post-trial letter. Despite the fact that the amended final judgment reflected that the parties would each receive 50% of the proceeds of the sale of the North Carolina property, the equitable distribution schedule attached to the Amended Final Judgment awards the entire North Carolina property (worth $1,457,000 per the schedule) and its mortgage liability (worth $960,000 per the schedule) to the husband. This resulted in the husband owing the wife a $290,940 equalizing distribution.
On June 23, 2010, the trial court entered an Amended Fee Judgment, awarding the wife fees for her counsel and expert in exactly the amount requested, plus interest.
The husband appeals, and the wife cross-appeals.

II. Equitable Distribution

A. The Broward County House

The Broward County house was the husband’s non-marital asset before the marriage; at the time the parties got married in 1993, the house was worth $250,000 and was subject to a $160,000 mortgage.
The preliminary issue is whether the wife waived the right to any passive appreciation of the value of the Broward County house in the prenuptial agreement. Where a prenuptial agreement does not address the right to enhanced value of a non-marital asset, that value is subject to equitable distribution. See, e.g., Valdes v. Valdes, 894 So.2d 264, 267 (Fla. 3d DCA 2004). Here, when the wife entered into the prenuptial agreement in this case, she agreed to “remise, release and quit claim all right, title and interest she might have or otherwise could have . . . to any property owned prior to marriage . . . by Michael and specifically waives any and all claim or claims which she might have in and to the real and personal property of Michael, owned prior to marriage. . . .” However, 35*35 as in Valdes, the prenuptial agreement in this case does not specifically address enhancement value.
The reference to “quit claim” in the prenuptial agreement does not mean that the agreement governed enhancement value. The husband relies upon Ledea-Genaro v. Genaro, 963 So.2d 749 (Fla. 4th DCA 2007), in support of his argument that the wife waived even passive appreciation of the property, but the husband’s reliance is misplaced. In Ledea-Genaro, the wife entered into a prenuptial agreement which provided: “In the event of a divorce initiated by either party, [the wife] shall vacate the marital home and deliver a Quitclaim Deed to the subject property to [the husband] in exchange for a complete, absolute release” of any obligation under the parties’ mortgage. Id. at 751. We held that the prenuptial agreement “unambiguously required that the wife quitclaim her entire interest in the home to the husband in the event that a petition for dissolution was filed . . . .” Id. at 752 (emphasis added). In other words, we interpreted the agreement in Ledea-Genaro as meaning that the wife in that case would convey her entire interest in the marital home at the time of the divorce, and thus the wife waived her right to any share of equity in the home that had accrued during the course of the marriage.
Here, by contrast, the boilerplate reference to a “quit claim” in the prenuptial agreement referred to the wife’s waiving her interest in the property at the time the agreement was entered into. The prenuptial agreement in this case did not require the wife to convey her interest in the Broward home to the husband at the time when any “petition for dissolution was filed.” Therefore, Valdes controls, rather than Ledea-Genaro.
Although the trial court was correct in determining that the passive appreciation of the Broward County home was marital property subject to equitable distribution, the trial court’s methodology for distributing this asset was error. In Kaaa v. Kaaa, 58 So.3d 867, 868 (Fla.2010), the Florida Supreme Court held that, contingent upon certain findings of fact by the trial court, “passive appreciation of the marital home that accrues during the marriage is subject to equitable distribution even though the home itself is a nonmarital asset.”
The Florida Supreme Court explained that the trial court should employ the following method when determining whether a non-owner spouse is entitled to a share of the passive appreciation of the non-marital property: (1) the trial court must determine the overall current fair market value of the property; (2) the trial court must determine whether there has been a passive appreciation in the property’s value; (3) the trial court must determine whether the passive appreciation is a marital asset, a step which includes making findings of fact as to whether marital funds were used to pay the mortgage, whether the non-owner spouse made contributions to the property, and the extent to which the contributions of the non-owner spouse affected the appreciation of the property; (4) the trial court must determine the value of the passive appreciation that accrued during the marriage and is subject to equitable distribution; and (5) after the court determines the value of the passive appreciation to be equitably distributed, the court’s next step is to determine how the value is allocated. Id. at 872. “In general, in the absence of improvements, the portion of the appreciated value of a separate asset which should be treated as a marital asset will be the same as the fraction calculated by dividing the indebtedness with which the asset was encumbered at the time of the marriage by 36*36 the value of the asset at the time of the marriage.” Id. (quoting Stevens v. Stevens, 651 So.2d 1306, 1307-08 (Fla. 1st DCA 1995)) (emphasis in Kaaa).
As a preliminary matter, the trial court erred in awarding the Broward County house to the wife because the home itself was a non-marital asset belonging to the husband. Only the passive appreciation of the home, not the home itself, was subject to equitable distribution. Second, the trial court erred in determining that the only non-marital portion of the house value was the $90,000 in equity that existed at the time of the parties’ marriage in 1993. This is not the proper methodology for calculating the non-marital portion of the value of the property. While the trial court’s findings–including payment of the mortgage with marital funds and improvements to the property during the marriage–do support that the wife is entitled to a share of the passive appreciation of the Broward County home, the case should be remanded for the trial court to conduct further proceedings consistent with the methodology set forth in Kaaa.

B. North Carolina Property

The Amended Final Judgment found that each party had a 50% interest in the North Carolina Property and ordered that the proceeds of the sale would be divided equally between the parties. In contrast, the Equitable Distribution Schedule attached as an exhibit to the Amended Final Judgment assigns the property and its debt entirely to the husband. This aspect of the judgment is internally inconsistent. A dissolution judgment that is internally inconsistent should be reversed and remanded for correction or clarification. See, e.g., Woellmer v. Woellmer, 935 So.2d 610, 611 (Fla. 4th DCA 2006). On remand, the trial court should utilize an equitable distribution schedule that reflects the court’s ruling that the parties would equally split the proceeds of the sale of the North Carolina property.

C. BOA Accounts

Additional facts are relevant to this sub-issue. The equitable distribution schedule attached to the final judgment shows $244,886 in Bank of America Accounts and CDs awarded to the husband. The amounts were taken from the wife’s expert’s schedules, which used valuation dates between September 2007 and October 2008. As of June 2009, however, the husband’s amended financial affidavit showed that the Bank of America accounts and CDs totaled only $37,490.59. The husband testified that the difference went to pay marital expenses.
We have stated that “it is error to include in the equitable distribution scheme assets or sums that have been diminished or depleted during the dissolution proceedings unless the depletion was the result of misconduct.” Tillman v. Altunay, 44 So.3d 1201, 1203 (Fla. 4th DCA 2010) (internal quotation marks and citation omitted). To include a dissipated asset in the equitable distribution scheme, there must be evidence of the spending spouse’s intentional dissipation or destruction of the asset, and the trial court must make a specific finding that the dissipation resulted from intentional misconduct. Roth v. Roth, 973 So.2d 580, 585 (Fla. 2d DCA 2008).
Here, there was no evidence as to any misconduct connected to the depletion of the Bank of America accounts, and the trial court made no such finding. Rather, the uncontradicted testimony was that these assets were liquidated to pay the parties’ personal expenses during the separation. Therefore, the trial court erred in valuing the Bank of America accounts at 37*37 $244,886, an amount which was largely depleted by the time of trial.

D. Valuation of Hunter Crow

We find that the trial court did not abuse its discretion in its valuation of the Hunter Crow business, including the trial court’s decision to select a post-petition valuation date.

E. Insurance Policy

During trial, the wife’s expert used a cash value of $6,634 to value the New York Life insurance policy. Only in the post-trial schedules did the wife claim for the first time that the policy was worth $12,000, which is the figure that the court accepted. The trial court erred in accepting this post-trial change, which was never explained.

III. Alimony

The husband raises various arguments against the alimony award. First, he claims that the trial court abused its discretion in finding that the “basis of the dissolution is adultery,” thereby permitting the wife to receive alimony under the Antenuptial. Second, he argues that the trial court erred in determining his income. Finally, he asserts that the trial court abused its discretion in allowing post-trial evidence of the wife’s needs.

A. Adultery

The Antenuptial agreement in this case precluded an award of alimony unless the basis for the dissolution was adultery or abuse. “Because adultery usually takes place in secret or seclusion, proof thereof in most instances is by circumstantial evidence, through showing desire, by evidence of mutual affection or otherwise, coupled with opportunity under conditions or circumstances from which a reasonable judge of human nature would be led to conclude that adultery was committed.” Leonard v. Leonard, 259 So.2d 529, 530 (Fla. 3d DCA 1972). Furthermore, circumstantial evidence can overcome a spouse’s denial of adultery. See id. at 530-31.
Nonetheless, even if adultery occurs, this does not necessarily mean that adultery is the basis for the dissolution. In Smith v. Smith, 378 So.2d 11, 15 (Fla. 3d DCA 1979), the court noted that the wife’s alleged post-separation adultery was not related “to the breakup of the marriage, or to any of the financial relationships and obligations between the parties.” Therefore, the wife’s adultery was irrelevant, though the court noted that the husband’s adultery before the breakup was directly responsible for the dissolution of the marriage and was relevant.
Here, the trial court made the specific finding that the basis for the dissolution of marriage was that the husband committed adultery. This finding was supported by competent, substantial evidence. The husband admitted to having sexual relations with his mistress in September 2007, which was after he was separated from his wife but before the filing of the petition for dissolution. However, the communications between the husband and his mistress provided sufficient circumstantial evidence for the trial court to conclude that the husband was engaged in an adulterous relationship even before the separation from his wife. Furthermore, even considering only the post-separation adultery, there was evidence that the wife still wanted to salvage the marriage after the separation, but decided to file for divorce only after she learned that the husband was planning on taking yet another vacation with his mistress, confirming that the mistress was still “in the picture.” We do not disturb the trial court’s finding that adultery was the basis for the dissolution.

38*38 B. Income

We acknowledge that it is error to average a spouse’s income over previous years where uncontroverted testimony showed a reduction in income. See Greenberg v. Greenberg, 793 So.2d 52, 55 (Fla. 4th DCA 2001). In this case, however, the testimony was not “uncontroverted” that the husband had a reduction in income. Although the husband testified that his business had experienced a slow-down, the wife’s expert offered testimony to the contrary. On this record, we do not disturb the trial court’s ruling.

C. Post-Trial Evidence of the Wife’s Needs

The husband also complains that the trial court considered post-trial evidence as to the wife’s needs. It is not clear whether the trial court actually considered this evidence, but we need not reach this issue because we find that it is moot. Because we are reversing the trial court’s decision to award the Broward home to the wife, the trial court will need to reconsider the issue of the wife’s needs for purposes of alimony in light of the fact that she will need to secure alternative housing in Broward County. See, e.g., Tilchin v. Tilchin, 51 So.3d 596, 597-98 (Fla. 2d DCA 2011) (where error in equitable distribution cannot be corrected in isolation, remand for reconsideration of equitable distribution plan and alimony award is appropriate). Thus, on remand, the trial court should take additional evidence as to the wife’s needs. The husband will be able to cross-examine the wife’s witnesses and present any evidence on the issue. Accordingly, because this issue needs to be reconsidered by the trial court in the context of an evidentiary hearing, any due process argument that the husband raises in this appeal is moot.

IV. Life Insurance

Section 61.08(3), Florida Statutes (2007), authorizes the trial court to require an obligated spouse to purchase or maintain life insurance “[t]o the extent necessary to protect an award of alimony.” Requiring life insurance to secure an alimony payment “is justified only if there is a demonstrated need to protect the alimony recipient.” Privett v. Privett, 535 So.2d 663, 665 (Fla. 4th DCA 1988). The amount of life insurance required by the trial court must be related to the extent of the obligation being secured. Kotlarz v. Kotlarz, 21 So.3d 892, 893 (Fla. 1st DCA 2009).
We reverse as to the requirement that the husband maintain $1,000,000 in life insurance and remand for the trial court to reconsider the amount. While the husband had historically maintained $1,000,000 of life insurance during the marriage, the $1,000,000 requirement is excessive, given that the child support obligation will expire in 2015 and the alimony obligation can be secured with a lesser amount of insurance. See Walia v. Thomas, 805 So.2d 1041, 1042 (Fla. 4th DCA 2002) (holding that $1,000,000 was substantially more life insurance than necessary to secure the husband’s monthly child support of $2,460 for two children, age nine and sixteen). Furthermore, although the issue was not specifically raised on appeal, on remand the trial court should allocate the amount of life insurance designated to secure the alimony award vis-à-vis the amount designated to secure the child support award. See Gordon v. Gordon, 63 So.3d 824, 827 (Fla. 5th DCA 2011).

V. Attorney’s Fees

Because equitable distribution and alimony will be significantly impacted by this appeal, we reverse and remand so that the trial court can reconsider the award of attorney’s fees once a new final judgment 39*39 of dissolution is entered on remand. See Tilchin v. Tilchin, 65 So.3d 1207, 1207 (Fla. 2d DCA 2011).

VI. Cross-Appeal

We find no reversible error in the trial court’s determination that the mutual fund accounts at issue in the cross-appeal were non-marital. See Mondello v. Torres, 47 So.3d 389, 393 (Fla. 4th DCA 2010) (“Where the evidence is conflicting as to whether one spouse intends to make a gift to the other, it is the responsibility of the trial court to evaluate the weight and credibility of that testimony and to arrive at a determination.”) (citation and internal quotation omitted).
Affirmed in part, Reversed in part, and Remanded.
POLEN and HAZOURI, JJ., concur

William JUREK Jr. v. Tawana COUCH-JUREK, Court of Appeals Texas

Posted on: March 7, 2017 at 7:21 am, in

296 S.W.3d 864 (2009)
William JUREK Jr., Appellant,
v
Tawana COUCH-JUREK, Appellee.
Court of Appeals of Texas, El Paso.
September 23, 2009.
867*867 Robert T. O’Donnell, Garland, TX, for Appellant.
Rick Thompson, Hankinson Levinger LLP, Dallas, TX, for Appellee.
Before CHEW, C.J., McCLURE, and RIVERA, JJ.

OPINION

GUADALUPE RIVERA, Justice.

Appellee Tawana Couch-Jurek filed for divorce from Appellant William Jurek Jr. After a bench trial, a final decree of divorce was entered by the 254th District Court of Dallas County, Texas. William Jurek Jr. presents four issues on appeal. We find that the trial court properly admitted parol evidence relating to a premarital agreement between the parties and that the premarital agreement effected a constitutional exchange or bilateral partition of community interests in income from separate property. We find that the trial court committed harmless error by mischaracterizing rental properties purchased on credit during the marriage by Tawana, in that the loan agreements did not require the lenders to look solely to Tawana’s separate property for satisfaction of the debt. We find that William waived any claim he may have had under ERISA by failing to plead that affirmative defense. We affirm the trial court’s judgment.

FACTUAL AND PROCEDURAL BACKGROUND

William and Tawana were married on October 20, 1990 and Tawana filed for divorce February 24, 2006. The characterization and division of the marital estate was tried to the court. The trial court entered the final decree of divorce on December 25, 2007. On January 22, 2008, the trial court signed findings of fact and conclusions of law. On March 3, 2008, William filed his timely notice of appeal.
At trial no premarital agreement between the parties could be produced, and William denied ever having signed one. However, Tawana claimed, and the trial court found, that prior to their marriage in 1990, the parties did in fact enter into a premarital agreement. Further, the Court found that the premarital agreement between 868*868 William and Tawana was identical to a 1991 premarital agreement between Tawana’s sister, Juanita Couch, and her second husband. The 1991 premarital agreement was produced at trial.
The alleged 1990 premarital agreement, if identical to the 1991 premarital agreement, would establish that the parties agreed, among other things, that each party would retain “all rights, including profit and income” to his or her separate property, including any property acquired during the marriage, “as if no marriage had been consummated between them.”
Charles G. Clay was the attorney who prepared the 1991 premarital agreement, and he testified that he remembered preparing an agreement for Tawana in 1990 as well. He testified that the two premarital agreements were identical except for “the parties, the date, and the exhibits attached thereto.” Mr. Clay also testified to having prepared a third premarital agreement for Juanita in 1987. Mr. Clay’s testimony was admitted without objection and a copy of Juanita’s 1991 premarital agreement was admitted into evidence over William’s objection as to relevance. Juanita asserted that she had seen Tawana’s 1990 premarital agreement.
Mr. Clay retired from the practice of law some years prior to the present case and had since destroyed his records. As a result, he was unable to produce a copy of Tawana’s premarital agreement. Also, Jerlene Sawier, the notary public who witnessed and notarized the signing of the premarital agreement, passed away in 1992, and her record book could not be located.
Throughout the marriage, the behavior of both parties was consistent with there being the existence of a premarital agreement. Stephen Grissom, the CPA who prepared Tawana’s tax returns, testified that he met with Tawana and William soon after their marriage, and that William confirmed that he and Tawana had signed a premarital agreement. Grissom testified that William told him, “[w]e have an agreement–we have a marital property agreement that what’s hers is hers and mine is mine.” Grissom testified that throughout the marriage both parties filed income tax returns as “married filing separately” and reported their income from jobs and properties separately. Without a premarital agreement between Tawana and William, Grissom testified he would have had to file amended returns for a number of years. No objection was raised to Grissom’s testimony.
The couple maintained separate bank accounts. When purchasing new properties, they would submit only their own financial information to lenders. They each received title to new properties in his or her name only. William did not claim any “partial ownership” in any of the rental properties for which title was in Tawana’s name.
Tawana asserted that around the time it was signed her copy of the premarital agreement was placed in a file box marked “1991” in the attic, and that she never saw the premarital agreement again. When she searched for the agreement after filing for divorce, the box marked “1991” was missing from the attic. Tawana stated that she did not destroy the premarital agreement.
Based on this evidence, the trial court concluded that “there was a valid pre-nuptial agreement and [that the] parties did act in a course of conduct that supported its execution and existence throughout the 16 years of the marriage.” The court found that the premarital agreement between Tawana and William was in the same format, content, and wording as the premarital agreement prepared for Juanita in 1991.
During the marriage, Tawana acquired more than thirty rent houses, with title in 869*869 her name only. Tawana acquired the properties on credit from various lenders to whom she submitted only her financial data; however, there is no evidence that she received an agreement from the lenders to look solely to her separate property for satisfaction of the debt. During her marriage, Tawana received income from her separate property.
Prior to her marriage Tawana started a Southwest Airlines 401(K) Plan and a Southwest Airlines Co. Profit Sharing Plan, which grew in value during her marriage.

DISCUSSION

Premarital Agreement

In Issue One, William argues that the trial court abused its discretion by admitting Juanita’s premarital agreement as parol evidence of a 1990 premarital agreement between Tawana and William. William further argues that the evidence was insufficient for the trial court to find that the terms of the two premarital agreements were identical. Tawana responds by challenging the substance of Issue One and by asserting that William failed to preserve the issue for appellate review in that William waived any error by failing to object to testimony explaining the contents of the 1991 premarital agreement.

Parol Evidence Objection

In order to preserve error, the complaint must be made to the trial court by a timely request, objection, or motion that states the grounds for the ruling that the complaining party seeks from the trial court with sufficient specificity to make the trial court aware of the complaint, unless the specific grounds are apparent from the context. See Tex.R.App.P. 33.1(a)(1)(A). As a general rule, a party is required to present a complaint to the trial judge before being allowed to raise the issue on appeal. In re L.M.I., 119 S.W.3d 707, 711 (Tex.2003). Moreover, the complaint on appeal must match the complaint raised in the trial court. Tex.R.App.P. 33.1(a); J.C. Penney Life Ins. Co. v. Heinrich, 32 S.W.3d 280, 290 (Tex.App.-San Antonio 2000, pet. denied). The general guideline is that the trial presentation must have been sufficient to put the trial judge on notice that the party was relying upon the argument that he later offers to the appellate tribunal. Stewart v. State, 995 S.W.2d 251, 258 (Tex.App.-Houston [14th Dist.] 1999, no pet.).
William argued at trial that Texas Rule of Evidence 1004(e) prohibits the admission of the 1991 premarital agreement as parol evidence used to prove the contents of a document when that document is closely related to a “controlling issue” and that the 1991 premarital agreement was irrelevant. However, William never specifically objected to the admission of the 1991 premarital agreement under any other provision of Rule 1004.[1]
870*870 For the first time on appeal William argues that it was an abuse of discretion for the trial court to admit the 1991 premarital agreement because there was insufficient evidence to show that William “knowingly, intentionally and wantonly” took or destroyed the original 1990 premarital agreement. This argument is not related to the objection raised at trial. This argument more closely relates to Tex. R.Evid. 1004(a), the lost document exception, under which the evidence in question was admitted.
At trial William specifically referred the court to Tex.R.Evid.1004(e) not Tex. R.Evid. 1004(a). William’s trial objections based on relevance, “controlling matters,” and on Tex.R.Evid. 1004(e) are different from the argument raised on appeal. Therefore, the issue is waived. See Collazo v. State, No. 08-00-00289-CR, 2002 WL 26296, at *1 (Tex.App.-El Paso Jan. 10, 2002, no pet.) (not designated for publication) (objection to testimony as irrelevant did not preserve error asserted on appeal that the same testimony did not meet the requirements for opinion testimony).
Furthermore, when other competent evidence of the fact in question appears in the record, the improper admission of the evidence will not constitute error. Wolfe v. Wolfe, 918 S.W.2d 533, 538 (Tex.App.-El Paso 1996, writ denied). It is the general rule that error in the admission of testimony is deemed harmless and is waived if the objecting party subsequently permits the same or similar evidence to be introduced without objection. Volkswagen of America, Inc. v. Ramirez, 159 S.W.3d 897, 907 (Tex.2004) (citing Richardson v. Green, 677 S.W.2d 497, 501 (Tex.1984)). “Objections should be repeated when a witness testifies to facts which were objected to in a document offered in evidence and admitted over objection….” Kelso v. Wheeler, 310 S.W.2d 148, 150 (Tex.Civ.App.-Houston 1958, no writ). Error can be waived where a document is admitted into evidence under objection but the document is subsequently treated by both parties as being in evidence for all purposes in that both parties without objection interrogate witnesses concerning its contents. Id. To preserve error William could have requested a running objection, or objected outside the presence of the jury to all the testimony relating to the 1991 premarital agreement as permitted by Tex.R.Evid. 103(a)(1). See Ethington v. State, 819 S.W.2d 854, 858 (Tex.Crim.App.1991); Gillum v. State, 888 S.W.2d 281, 285 (Tex.App.-El Paso 1994, pet. ref’d). “A running objection is required to be specific and unambiguous.” Huckaby v. A.G. Perry & Son, Inc., 20 S.W.3d 194, 203 (Tex.App.-Texarkana 2000, pet. denied).
In Kelso, a document was admitted into evidence for the limited purpose of showing a part of its contents. However, thereafter, both parties interrogated witnesses about all its contents, without objection. The appellate court held that this caused any error in the document’s admission into evidence to be waived. Kelso, 310 S.W.2d at 149-50.
William initially objected to the admission of any evidence regarding the contents of the 1990 premarital agreement and he argued that the 1991 premarital agreement was irrelevant. However, once the trial judge allowed the 1991 agreement into evidence, both parties referred to it and described its contents.
Both parties questioned Charles Clay without objection regarding a section of the premarital agreement that declared “hereafter-acquired property” would be separate property. When Charles Clay, Juanita Couch, and Tawana Couch were asked whether the premarital agreement was identical to Tawana’s premarital agreement, William did not object. William 871*871 never requested a clear and unambiguous running objection to any testimony regarding the 1991 agreement. By allowing testimony regarding details of the 1991 agreement, without objection, William waived any error in the admission of the 1991 agreement.
Even if William had preserved error, we find that the court did not err in admitting the 1991 agreement. The admission of evidence is committed to a trial court’s sound discretion. See Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 396 (Tex. 1989). This Court reviews trial court’s decisions to admit evidence under an abuse of discretion standard. Franco v. Franco, 81 S.W.3d 319, 340-41 (Tex.App.-El Paso 2002, no pet.).
Tex.R.Evid. 1002 states “[t]o prove the content of a writing, recording, or photograph, the original writing, recording, or photograph is required except as otherwise provided in these rules or by law.” Tex. R.Evid. 1002 generally precludes admission of parol evidence to prove the contents of a document. Tex.R.Evid 1004 provides the exceptions for when an original document is not required, and permits other evidence of the contents of a writing if all originals are lost or have been destroyed, unless the proponent of the evidence lost or destroyed the evidence in bad faith. Tex.R.Evid. 1004(a).
The purpose of the best evidence rule is to produce the best obtainable evidence, and if a document cannot as a practical matter be produced because of its loss or destruction, then the production of the original is excused. Utica Mut. Ins. Co. v. Bennett, 492 S.W.2d 659, 665 (Tex.Civ. App.-Houston [1st Dist.] 1973, writ dism’d).
In its findings of fact numbers 16-18 and conclusion of law 25 the court found that the “original was lost and the loss was not the result of any action by [Tawana].” We find ample evidence in the record to support this conclusion. Once the existence of the 1990 premarital agreement was established and there was no evidence that it was lost or destroyed by the proponent, Tawana, the trial court properly admitted evidence to establish the contents of the 1990 premarital agreement under Rule 1004(a).
Finally, William argues that Tawana’s belief that the original document was taken “knowingly, intentionally and wantonly” by William at or around the time Tawana filed for divorce is not supported by the evidence; however, no such showing is required by Tex.R.Evid. 1004(a). This argument is without merit.

Sufficiency of the Evidence Objection

In the same issue, William argues the trial court erred in concluding that the 1990 premarital agreement prepared for Tawana was identical to the 1991 premarital agreement prepared for Juanita because of insufficient evidence. William does not raise a challenge to any of the trial court’s findings of fact. In an appeal from a bench trial, a trial court’s findings of fact “have the same force and dignity as a jury’s verdict upon questions.” Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex.1991). A trial court’s findings of fact may be reviewed for legal and factual sufficiency under the same standards that are applied in reviewing evidence to support a jury’s answer. See Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996). When findings of fact are filed, and are unchallenged, as here, they occupy the same position and are entitled to the same weight as the verdict of a jury. They are binding on an appellate court unless the contrary is established as a matter of law, or if there is no evidence to support the finding. McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex.1986).
872*872 An appellate court will sustain a legal sufficiency or “no-evidence” challenge if the record shows: (1) the complete absence of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidence establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex.2005). In conducting our review, we consider the evidence in the light most favorable to the verdict and indulge every reasonable inference that would support it. Id. at 822. To determine a “no evidence” or “matter of law” point this Court must disregard all evidence contrary to the trial court’s finding, and if there is any remaining evidence which would support the verdict or judgment, the trial court’s judgment must be upheld. If after the removal of all contrary evidence this Court finds an absence of any evidence which would support the verdict or judgment, a contrary conclusion to the verdict or judgment is required as a matter of law. McGalliard, 722 S.W.2d at 696.
Charles G. Clay testified that he was the attorney who prepared the 1987 and 1991 premarital agreements for Juanita, and that he prepared a premarital agreement for Tawana in 1990. He testified that the 1991 premarital agreement was identical to the 1990 premarital agreement. This evidence meets City of Keller’s first, second, and third legal sufficiency tests listed above.
As to the fourth test, William claims that the trial court’s conclusion about the contents of the agreement is against logic because Mr. Clay could not have used the 1991 agreement as a model to draw up the 1990 agreement. William claims it must have been the 1987 premarital agreement prepared for Juanita that was used as a form for the 1990 agreement. Mr. Clay explained that it was the 1990 agreement which was used as a model for the 1991 agreement and that he would not have used the 1987 agreement as a model for the 1990 agreement because in 1990 he would have been using a new form book. Both Juanita and Tawana testified that the 1990 and 1991 agreements were identical. The evidence does not establish conclusively the opposite of the vital fact. Issue One is overruled.

Rent Houses

In Issue Two, William contends that the court erred in characterizing the rent houses acquired by Tawana during the marriage as separate property. Specifically, William references thirty houses that he asserts were bought with no money down and on community credit.
All property on hand at the dissolution of marriage is presumed to be community property. Tex.Fam.Code Ann. § 3.003(a) (Vernon 2006). It is a rebuttable presumption that requires a spouse claiming assets as separate property to establish their separate character by clear and convincing evidence. Tex.Fam.Code Ann. § 3.003(b) (Vernon 2006). Property owned before marriage, or acquired during marriage by gift, devise, or descent, is separate property. Tex.Fam.Code Ann. § 3.001 (Vernon 2006). Community property consists of all property, other than separate property, acquired by either spouse during marriage. Tex.Fam.Code Ann. § 3.002 (Vernon 2006).
A legal sufficiency challenge to a fact finding requiring clear and convincing evidence does not mandate an alteration in the standard of review. In re B.R., 950 S.W.2d 113, 118-19 (Tex.App.-El Paso 1997, no pet.). A “no evidence” or legal insufficiency point is a question of law which challenges the legal sufficiency of 873*873 the evidence to support a particular fact finding. There are basically two distinct “no-evidence” claims. When the party with the burden of proof suffers an unfavorable finding, the point of error challenging the legal sufficiency of the evidence should be that the fact or issue was established as “a matter of law.” When the party without the burden of proof suffers an unfavorable finding, the challenge on appeal is one of “no evidence to support the finding.” See Kimsey v. Kimsey, 965 S.W.2d 690, 699-700 (Tex.App.-El Paso 1998, pet. denied). The latter applies here. In considering a legal sufficiency or “no evidence” point, an appellate court considers only the evidence which tends to support the challenged finding and disregards all evidence and inferences to the contrary. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965); Parallax Corp., N.V. v. City of El Paso, 910 S.W.2d 86, 89 (Tex.App.-El Paso 1995, writ denied). If any probative evidence supports the fact finder’s determination, it must be upheld. In re King’s Estate, 150 Tex. 662, 244 S.W.2d 660, 661-62 (1951); Kimsey, 965 S.W.2d at 699-700; Parallax Corp., 910 S.W.2d at 89.
Most appealable issues in family law cases are evaluated against an abuse of discretion standard, be it the issue of property division incident to divorce or partition, conservatorship, visitation, or child support. Tate v. Tate, 55 S.W.3d 1, 5-6 (Tex.App.-El Paso 2000, no pet.). While the appellant may challenge the sufficiency of the evidence to support findings of fact, in most circumstances, that is not enough. If, for example, an appellant is challenging the sufficiency of the evidence to support the court’s valuation of a particular asset, he must also contend that the erroneous valuation caused the court to abuse its discretion in the overall division of the community estate. See Lindsey v. Lindsey, 965 S.W.2d 589, 593 n. 3 (Tex.App.-El Paso 1998, no pet.). Here we are asked to review an alleged characterization error. In doing so, we are required to determine not only whether the trial court’s finding of separate property is supported by clear and convincing evidence, we must also determine whether the characterization error, if established, caused the trial court to abuse its discretion in the overall division of the community estate. These two prongs require first, a showing of error, and second, a showing that the error was harmful. Tex.R.App.P. 44.1(a)(1) (no judgment may be reversed on appeal on the ground that the trial court made an error of law unless the court of appeals concludes that the error complained of probably caused the rendition of an improper judgment). William must first establish error by challenging the legal or factual sufficiency of the evidence to support the separate property characterization. Tate, 55 S.W.3d at 6-7. Then, he must conduct a harm analysis; in other words, because of the mischaracterization the overall division of property constitutes an abuse of discretion. Id.; Vandiver v. Vandiver, 4 S.W.3d 300, 302 (Tex. App.-Corpus Christi 1999, pet. denied) (mischaracterization of community property as separate property is not reversible unless the mischaracterization had more than a de minimus effect on the just and right division).
William argues that these houses are community property because the houses were purchased on credit for which the lender did not agree to look solely to Tawana’s separate property for payment, and as a result the credit used to purchase the properties would be community and therefor the rental properties should constitute community property. We agree that the existence or absence of this type of agreement or understanding on the part of the lender is controlling in this situation. See Welder v. Welder, 794 S.W.2d 420, 427-28 (Tex.App.-Corpus Christi 1990, no writ).
874*874 The intention of the spouses does not control the separate or community character of property purchased on credit during marriage. Holloway v. Holloway, 671 S.W.2d 51, 57 (Tex.App.-Dallas 1983, writ dism’d). Such property is community property unless there is an express agreement on the part of the lender to look solely to the separate estate of the purchasing spouse for satisfaction of the indebtedness. Glover v. Henry, 749 S.W.2d 502, 503 (Tex.App.-Eastland 1988, no writ). The reasoning being that, “there being nothing in the note or related instruments to the contrary, the note is by presumption and in legal effect a community obligation, unless somehow lawfully shown to be otherwise. In the absence of any such showing, the result would necessarily be that, to the extent of the face of the note, the community furnished the original consideration for the purchase and thereby acquired a pro tanto ownership in the property….” Broussard v. Tian, 156 Tex. 371, 295 S.W.2d 405, 406 (1956). The fact that the actual payment of all or some of the installments of the note were later made out of separate funds of one party would not affect the community ownership, but would merely give rise to a debt or charge in favor of that parties estate against the community enforceable by appropriate proceedings. Id.
We conclude that the evidence in this case is legally insufficient to support a finding that these rental properties were Tawana’s separate property. While the prenuptial agreement provided that each of the parties would separately retain all rights, including profit and income in property owned or thereafter acquired, that provision did not reference debts. Regardless of any such agreement had one existed, there is no evidence to support a finding that the lenders who financed the rental home purchases for the lenders agreed to look solely to Tawana’s separate property for payment. The premarital agreement only characterizes as separate those debts arising from properties listed in the exhibits. This agreement does not cover the debts on properties purchased after the marriage. Because the evidence does not support a finding other than that these properties were purchased on community credit, we find that the trial court erred in its characterization of said properties.
However, William’s argument nevertheless fails because he has not attempted to demonstrate how the erroneous characterization caused the trial court to abuse its discretion in the overall division of the community estate or that it had more than a de minimus impact on a just and right division of the community estate. He has wholly failed to conduct a harm analysis. Our review of the record indicates that harm cannot be shown. There is no evidence to establish actual value of the properties, the charge in favor of Tawana for her payments on the properties from her separate funds, nor the total value of the community estate. While we find that the court’s characterization of the rental properties was error, Appellant has failed to show it was harmful and that the error probably caused the rendition of an improper judgment. Issue Two is overruled.

Income from Tawana’s Separate Properties

In Issue Three, William argues that the court erred in characterizing the income from Tawana’s separate property as separate because that characterization was based on a premarital agreement that should be invalid because it was unconstitutionally created prior to the parties’ marriage and not ratified after their marriage.
Tex. Const. art. XVI, § 15 includes the following provision:
[S]pouses also may from time to time, by written instrument, agree between 875*875 themselves that the income or property from all or part of the separate property then owned or which thereafter might be acquired by only one of them, shall be the separate property of that spouse….
Tex.Fam.Code Ann. § 4.103 (Vernon 2006), entitled, “Agreement Between Spouses Concerning Income or Property form Separate Property,” reads:
At any time, the spouses may agree that the income or property arising from the separate property that is then owned by one of them, or that may thereafter be acquired, shall be the separate property of the owner.
The plain language of these provisions clearly does not authorize future spouses to enter into such income-from-separate-property agreements. See Fanning v. Fanning, 828 S.W.2d 135, 142-43 (Tex. App.-Waco 1992), (holding in part that this provision of Tex. Const. art. XVI, § 15 applies only to spouses and that premarital agreement attempting to invoke it was invalid), aff’d in part, rev’d and remanded in part on other grounds, 847 S.W.2d 225 (Tex.1993).
However, another provision of Tex. Const. art. XVI, § 15 reads:
[P]ersons about to marry and spouses, without the intention to defraud pre-existing creditors, may by written instrument from time to time partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse in any property for the community interest of the other spouse….
Thus, when read as a whole, the Texas Constitution allows prospective spouses as well as spouses to enter into written instruments to partition their property or exchange their community interests in property, and spouses, but not prospective spouses, may enter into written agreements re-characterizing as separate property the income or property from separate property. Dokmanovic v. Schwarz, 880 S.W.2d 272, 274 (Tex.App.-Houston [14th Dist.] 1994, no writ).
Some courts have concluded that premarital provisions relating to interests in future income from separate property may be held valid under Section 15, where the persons about to marry are exchanging or partitioning their community interests in their future income from separate property. See Beck v. Beck, 814 S.W.2d 745, 748-49 (Tex.1991), cert. denied, 503 U.S. 907, 112 S.Ct. 1266, 117 L.Ed.2d 494 (1992) (premarital agreement re-characterizing community property as separate property held constitutional as an exchange of each parties’ community interest in future income from separate property). See Winger v. Pianka, 831 S.W.2d 853, 859 (Tex. App.-Austin 1992, writ denied) (agreement reserving full ownership in certain listed property, including any and all income held valid as a partition or exchange of income to be acquired by the parties during their future marriage). In general, these courts have liberally construed premarital agreements regarding future income from separate property as bilateral partitions or exchanges. In essence, Texas courts have shown a willingness to “validate the intent of the parties and to uphold premarital agreements against constitutional challenges unless the language of the agreement forecloses that choice.” Dokmanovic, 880 S.W.2d at 275.
In Fanning, a provision of a premarital agreement providing that property in one schedule “is and shall remain the separate property of Future Husband,” and that the property described in another schedule “is and shall remain the separate property of Future Wife” was held to effect a constitutional partition or exchange. 828 S.W.2d 876*876 at 142. The provision included the parties’ incomes from their careers and interest on separate funds, and did not explicitly reference the portion of the 1980 constitutional amendment applying only to spouses. Id.
William attempts to distinguish these cases by arguing that the 1991 agreement is a unilateral partition of income not a bilateral partition and/or mutual exchange. However, the premarital agreement clearly states the parties’ desire, “to partition between themselves all of their property now existing or to be acquired as well as the income therefrom….” This language establishes their intent to make a bilateral partition of the community interests in the future income from separate property. This agreement was carried out as evidenced by the behavior of the parties throughout their marriage with regard to banking and the paying of taxes. This agreement like those in Fanning, Winger, and Beck clearly sets out the parties’ intent to exchange their community interests in income from separate property and in earnings. Issue Three is overruled.

Southwest Airlines’ Retirement Accounts

In Issue Four, William argues that the trial court’s award of the two Southwest Airlines retirement accounts to Tawana as her separate property is not authorized by the Texas Constitution, and is preempted by the anti-alienation provision of the federal Employee Retirement Income Security Act (“ERISA”).[2] He argues that ERISA preempts the applicable law; not that the trial court lacked jurisdiction. “[W]here ERISA’s preemptive effect would result only in a change of the applicable law, preemption is an affirmative defense which must be set forth in the defendant’s answer or it is waived.” Gorman v. Life Ins. Co. of N. Am., 811 S.W.2d 542, 546 (Tex.1991).
“Texas Rule of Civil Procedure 94 requires that matters constituting an avoidance or affirmative defense must be set forth affirmatively.” Gorman, 811 S.W.2d at 546 n. 8. “The purpose of Rule 94 … is to require the defendant to announce in his pleadings what his defense will be … and to give plaintiff the opportunity of knowing what character of proof he may need to meet the defenses pleaded.” Reid v. Associated Employers Lloyds, 164 S.W.2d 584, 585 (Tex.Civ.App.-Fort Worth 1942, writ ref’d); see also Davis v. City of San Antonio, 752 S.W.2d 518, 519 (Tex.1988). William raised this issue for the first time in his motion for new trial. William did not raise this issue in his pleadings. Therefore, William has waived this argument by failing to plead the affirmative defense of ERISA preemption. Issue Four is overruled.

CONCLUSION

We affirm the judgment of the trial court.
[1] Tex.R.Evid. 1002 generally precludes admission of parol evidence to prove the contents of a document. An exception is Tex. R.Evid 1004, which provides that an original document is not required, and other evidence of the contents of a writing is admissible if:
(a) All originals are lost or have been destroyed, unless the proponent lost or destroyed them in bad faith;
(b) No original can be obtained by any available judicial process or procedure;
(c) No original is located in Texas;
(d) At the time when an original was under the control of the party against whom offered, that party was put on notice, by pleadings or otherwise, that the content would be subject of proof at the hearing, and that party does not produce the original at the hearing; or
(e) The writing, recording or photograph is not closely related to a controlling issue.
[2] With regard to the constitutional issue William has failed to cite the constitutional provision purportedly violated or provide any supportive argument. Accordingly, we will not address that issue. See Tex.R.App.P. 38.1(h).

Michelle Galetta v Gary Galetta May 30, 2013 Court of Appeals

Posted on: March 7, 2017 at 7:18 am, in

Michelle Galetta, Appellant,
v
Gary Galetta, Respondent.
Francis C. Affronti, for appellant.
Kathleen P. Reardon, for respondent.

Galetta v Galetta 2013 NY Slip Op 03871 Decided on May 30, 2013 Court of Appeals Graffeo, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the Official Reports.

GRAFFEO, J.:

In this matrimonial action, plaintiff Michelle Galetta sought a determination that a prenuptial agreement she and defendant Gary Galetta signed was invalid due to a defective acknowledgment. Because we conclude that plaintiff was entitled to summary judgment [*2]declaring the agreement to be unenforceable under Domestic Relations Law § 236B(3), we reverse the order of the Appellate Division, which held there was a triable question of fact on that issue.
Michelle Galetta and Gary Galetta were married in July 1997. About a week before the wedding, they each separately signed a prenuptial agreement. Neither party was present when the other executed the document and the signatures were witnessed by different notaries public. The agreement had apparently been prepared by Gary’s attorney; Michelle elected not to be represented by counsel. In substance, the parties agreed that their separate property, as listed on attached addenda, would remain separate and not subject to equitable distribution in the event of dissolution of the marriage. They also decided that neither would seek maintenance from the other. It is undisputed that the signatures on the document are authentic and there is no claim that the agreement was procured through fraud or duress.
The parties’ signatures and the accompanying certificates of acknowledgment are set forth on a single page of the document. The certificates appear to have been typed at the same time, with spaces left blank for dates and signatures that were to be filled in by hand. The certificate of acknowledgment relating to Michelle’s signature contains the boilerplate language typical of the time. However, in the acknowledgment relating to Gary’s signature, a key phrase was omitted and, as a result, the certificate fails to indicate that the notary public confirmed the identity of the person executing the document or that the person was the individual described in the document. The record does not reveal how this error occurred and apparently no one noticed the omission until the issue was raised in this litigation.
In 2010, defendant husband filed for divorce. Plaintiff wife subsequently commenced this separate action seeking a divorce and a declaration that the prenuptial agreement was unenforceable. The wife moved for summary judgment on the request for declaratory relief, contending that the agreement was invalid because Domestic Relations Law § 236B(3) compels that prenuptial agreements be executed with the same formality as a recorded deed and the certificate of acknowledgment relating to the husband’s signature did not comport with Real Property Law requirements. The husband opposed the motion, asserting that the prenuptial agreement was enforceable because the language of the acknowledgment substantially complied with the Real Property Law. He submitted an affidavit from the notary public who had witnessed his signature in 1997 and executed the certificate of acknowledgment. The notary, an employee of a local bank where the husband then did business, averred that it was his custom and practice, prior to acknowledging a signature, to confirm the identity of the signer and assure that the signer was the person named in the document. He stated in the affidavit that he presumed he had followed that practice before acknowledging the husband’s signature.
Supreme Court denied the wife’s motion for summary judgment, reasoning that the acknowledgment of the husband’s signature substantially complied with the requirements of [*3]the Real Property Law. In a divided decision, the Appellate Division affirmed the order denying summary judgment on a different rationale (96 AD3d 1565). The majority held that the certificate of acknowledgment was defective but determined that the deficiency could be cured after the fact and that the notary public affidavit raised a triable question of fact as to whether the prenuptial agreement had been properly acknowledged when it was signed in 1997. A two-justice dissent would have reversed and granted plaintiff summary judgment declaring the prenuptial agreement to be invalid because the acknowledgment was fatally defective. The dissent reasoned that the issue of whether a defect in an acknowledgment can be cured had not been preserved in the motion court but concluded, in any event, that such a deficiency cannot be cured, nor was the notary public’s affidavit sufficient to raise a question of fact if a cure had been possible. The Appellate Division granted defendant leave to appeal to this Court, certifying the question: “Was the Order of this Court…properly made?” Because plaintiff was entitled to summary judgment declaring the prenuptial agreement to be unenforceable, we answer that question in the negative.
Prenuptial agreements are addressed in Domestic Relations Law § 236B(3), which provides: “An agreement by the parties, made before or during the marriage, shall be valid and enforceable in a matrimonial action if such agreement is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded.”
We interpreted this statute in Matisoff v Dobi (90 NY2d 127 [1997]), where we held that an unacknowledged postnuptial agreement was invalid. We observed that the statute recognizes no exception to the requirement that a nuptial agreement be executed in the same manner as a recorded deed and “that the requisite formality explicitly specified in DRL 236B(3) is essential” (id. at 132).
Real Property Law § 291, governing the recording of deeds, states that “[a] conveyance of real property…on being duly acknowledged by the person executing the same, or proved as required by this chapter,…may be recorded in the office of the clerk of the county where such real property is situated.” Thus, a deed may be recorded if it is either “duly acknowledged” or “proved” by use of a subscribing witness. Because this case involves an attempt to use the acknowledgment procedure, we focus on that methodology.
The acknowledgment requirement fulfills two important purposes. First, “acknowledgment serves to prove the identity of the person whose name appears on an instrument and to authenticate the signature of such person” (Matisoff, 90 NY2d at 133). Second, it necessarily imposes on the signer a measure of deliberation in the act of executing the [*4]document. Just as in the case of a deed where the law puts in the path of the grantor “formalities to check haste and foster reflection and care…[h]ere, too, the formality of an acknowledgment underscores the weighty personal choices to relinquish significant property or inheritance rights, or to resolve important issues concerning child custody, education and care” (id. at 136 [internal quotation marks and citation omitted]).
We noted in Matisoff that the acknowledgment requirement imposed by Domestic Relations Law § 236B(3) is onerous and, in some respects, more exacting than the burden imposed when a deed is signed (id. at 134-135). Although an unacknowledged deed cannot be recorded (rendering it invalid against a subsequent good faith purchaser for value) it may still be enforceable between the parties to the document (i.e., the grantor and the purchaser). The same is not true for a nuptial agreement which is unenforceable in a matrimonial action, even when the parties acknowledge that the signatures are authentic and the agreement was not tainted by fraud or duress (id. at 135).
With these general principles in mind, we turn to the first issue presented in this case: whether the certificate of acknowledgment accompanying defendant husband’s signature was defective. Three provisions of the Real Property Law must be read together to discern the requisites of a proper acknowledgment. Real Property Law § 292 requires that the party signing the document orally acknowledge to the notary public or other officer that he or she in fact signed the document. Real Property Law § 303 precludes an acknowledgment from being taken by a notary or other officer “unless he [or she] knows or has satisfactory evidence that the person making it is the person described in and who executed such instrument.” And Real Property Law § 306 compels the notary or other officer to execute “a certificate…stating all the matters required to be done, known, or proved” and to endorse or attach that certificate to the document. The purpose of the certificate of acknowledgment is to establish that these requirements have been satisfied: 1) that the signer made the oral declaration compelled by Real Property Law § 292; and 2) that the notary or other official either actually knew the identity of the signer or secured “satisfactory evidence” of identity ensuring that the signer was the person described in the document.
At the time the parties here signed the prenuptial agreement in 1997,[FN1] proper [*5]certificates of acknowledgment typically contained boilerplate language substantially the same as that included in the certificate accompanying the wife’s signature: “before me came (name of signer) to me known and known to me to be the person described in and who executed the foregoing instrument and duly acknowledged to me that s/he executed the same.” The “to me known and known to me to be the person described in the document” phrase satisfied the requirement that the official indicate that he or she knew or had ascertained that the signer was the person described in the document. The clause beginning with the words “and duly acknowledged . . .” established that the signer had made the requisite oral declaration.
In the certificate of acknowledgment relating to the husband’s signature, the “to me known and known to me” phrase was inexplicably omitted, leaving only the following statement: “On the 8 [sic] day of July, 1997, before me came Gary Galetta described in and who executed the foregoing instrument and duly acknowledged to me that he executed the same.” Absent the omitted language, the certificate does not indicate either that the notary public knew the husband or had ascertained through some form of proof that he was the person described in the prenuptial agreement. New York courts have long held that an acknowledgment that fails to include a certification to this effect is defective (see Fryer v Rockefeller, 63 NY 268 [1875] [applying predecessor to Real Property Law § 303, held that acknowledgment of deed that did not establish signer’s identity and relationship to document was invalid]; Gross v Rowley, 147 App Div 529 [2d Dept 1911], appeal denied 148 App Div 922 [1912] [acknowledgment deficient because it failed to certify that signer was person described in the instrument]; see generally People ex rel. Sayville Co. v Kempner, 49 App Div 121 [1st Dept 1900] [same]). Thus, we agree with the Appellate Division, which unanimously concluded that the certificate of acknowledgment did not conform with statutory requirements.
The husband continues to dispute that the acknowledgment is defective because he claims that it substantially complied with the Real Property Law. In support of this argument, he relies on a line of substantial compliance cases including Weinstein v Weinstein (36 AD3d 797 [2d Dept 2007]). Weinstein involved a prenuptial agreement that was signed after Real [*6]Property Law § 309-a set forth specific language to be included in an acknowledgment (see FN 1, supra), yet the certificates of acknowledgment contained the former boilerplate language that had commonly been used prior to the statute. Although the acknowledgment did not track the preferred text, the Appellate Division concluded that it was nonetheless valid because the language was in substantial compliance with the new statute which is all the statute required. There is no indication in Weinstein that any of the substantive elements of an acknowledgment were lacking rather, in that case the parties merely used different verbiage to establish that the Real Property Law had been followed, a deviation in form (in light of Real Property Law § 309-a) but not substance. The same is not true here where a core component of a valid acknowledgment was not referenced in the certificate.
Because we conclude that the certificate of acknowledgment was defective, we address the question of whether such a deficiency can be cured and, if so, whether the affidavit of the notary public prepared in the course of litigation was sufficient to raise a question of fact precluding summary judgment in the wife’s favor [FN2]. In Matisoff, a case where the parties had not attempted to have their signatures acknowledged, defendant husband similarly contended that the lack of certificates of acknowledgment had been cured by testimony both the husband and wife presented at the matrimonial trial admitting that the signatures were authentic and that the postnuptial agreement had not been signed under fraud or duress. We determined that it was unnecessary to decide whether the absence of an acknowledgment could be cured because, even if it could, the testimony from the parties was not the functional equivalent of an acknowledgment, which involves both the oral declaration of the signer and the written certificate of the official establishing that certain prerequisites were met.
Since Matisoff, the Appellate Divisions have grappled with the “cure” issue, which has largely arisen in cases where a signature was not accompanied by any certificate of acknowledgment not in situations like this where there was a contemporaneously prepared certificate of acknowledgment but it is defective. In any event, the weight of Appellate Division [*7]authority is against permitting the absence of an acknowledgment to be cured after the fact, unless both parties engaged in a mutual “reaffirmation” of the agreement (see D’Elia v D’Elia, 14 AD3d 477 [2d Dept 2005] [where postnuptial agreement was not properly acknowledged, defendant’s attempt to cure the defect by submitting a duly-executed certificate of acknowledgment at trial was not sufficient]; Filkins v Filkins, 303 AD2d 934 [4th Dept 2003] [where antenuptial agreement was not acknowledged, plaintiff’s attempt to cure defect by having agreement notarized and filed after divorce action had commenced failed “because the agreement was never reacknowledged”]; Shoeman, Marsh & Updike v Dobi, 264 AD2d 572 [1st Dept 1999], lv dismissed 94 NY2d 944 [2000], lv dismissed 97 NY2d 721 [2002], lv denied 100 NY2d 508 [2003] [legal malpractice action related to Matisoff litigation] [parties to divorce action cannot obtain retroactive validation of postnuptial agreement]; Anonymous v Anonymous, 253 AD2d 696 [1st Dept 1998], lv dismissed 93 NY2d 888 [1999] [where prenuptial agreement was not acknowledged, defect could not be cured by production of acknowledgment that surfaced after matrimonial action had commenced and some 12 years after agreement was signed]).[FN3]
When there is no acknowledgment at all, it is evident that one of the purposes of the acknowledgment requirement to impose a measure of deliberation and impress upon the signer the significance of the document has not been fulfilled. Thus, a rule precluding a party from attempting to cure the absence of an acknowledgment through subsequent submissions appears to be sound.
But this case does not involve the complete absence of an acknowledgment; rather, there was an attempt to secure an acknowledged document but there was an omission in [*8]the requisite language of the certificate of acknowledgment. A compelling argument can be made that the door should be left open to curing a deficiency like the one that occurred here where the signatures on the prenuptial agreement are authentic, there are no claims of fraud or duress, and the parties believed their signatures were being duly acknowledged but, due to no fault of their own, the certificate of acknowledgment was defective or incomplete. Although neither party submitted evidence concerning how the error occurred, we can infer from the fact that the signatures and certificates of acknowledgment are contained on a single page of the document in the same typeface that the certificates were typed or printed by the same person at the same time. Since one acknowledgment included all the requisite language and the other did not, it seems likely that the omission resulted from a typographical error. Thus, the deficiency may not have arisen from the failure of the notary public to engage in the formalities required when witnessing and acknowledging a signature. To the contrary, it may well be that the prerequisites of an acknowledgment occurred but the certificate simply failed to reflect that fact. Thus, the husband makes a strong case for a rule permitting evidence to be submitted after the fact to cure a defect in a certificate of acknowledgment when that evidence consists of proof that the acknowledgment was properly made in the first instance that at the time the document was signed the notary or other official did everything he or she was supposed to do, other than include the proper language in the certificate. By considering this type of evidence, courts would not be allowing a new acknowledgment to occur for a signature that was not properly acknowledged in the first instance; instead, parties who properly signed and acknowledged the document years before would merely be permitted to conform the certificate to reflect that fact.
In this case, however, we need not definitively resolve the question of whether a cure is possible because, similar to what occurred in Matisoff, the proof submitted here was insufficient. In his affidavit, the notary public did not state that he actually recalled having acknowledged the husband’s signature, nor did he indicate that he knew the husband prior to acknowledging his signature. The notary averred only that he recognized his own signature on the certificate and that he had been employed at a particular bank at that time (corroborating the husband’s statement concerning the circumstances under which he executed the document). As for the procedures followed, the notary had no independent recollection but maintained that it was his custom and practice “to ask and confirm that the person signing the document was the same person named in the document” and he was “confident” he had done so when witnessing the husband’s signature.
We have held that a party can rely on custom and practice evidence to fill in evidentiary gaps “where the proof demonstrates a deliberate and repetitive practice by a person in complete control of the circumstances” (Rivera v Anilesh, 8 NY3d 627, 634 [2007] [citation omitted]), thereby creating a triable question of fact as to whether the practice was followed on the relevant occasion. But the averments presented by the notary public in this case are too [*9]conclusory to fall into this category.
Custom and practice evidence draws its probative value from the repetition and unvarying uniformity of the procedure involved as it depends on the inference that a person who regularly follows a strict routine in relation to a particular repetitive practice is likely to have followed that same strict routine at a specific date or time relevant to the litigation. For example, in Rivera, a dentist who did not recall the procedure that allegedly gave rise to plaintiff’s dental malpractice action a second injection of anesthesia was able to avoid summary judgment in plaintiff’s favor by supplying a detailed description of the multi-step protocol she always followed when administering such injections, coupled with proof that this protocol, if followed, comported with generally accepted medical standards.
In contrast, the affidavit by the notary public in this case merely paraphrased the requirement of the statute he stated it was his practice to “ask and confirm” the identity of the signer without detailing any specific procedure that he routinely followed to fulfill that requirement. There are any number of methods a notary might use to confirm the identify of a signer he or she did not already know, such as requiring that the signer display at least one current form of photo identification (a driver’s license or passport). It is also possible that a notary might not employ any regular strategy but vary his or her procedure for confirming identity depending on the circumstances (for example, a notary who works in a bank, law firm or other similar institution might occasionally rely on another employee who knew the signer to vouch for the signer’s identity). If the notary actually remembered having acknowledged defendant’s signature, he might have been able to fill in the gap in the certificate by averring that he recalled having confirmed defendant’s identity, without specifying how. But since he understandably had no recollection of an event that occurred more than a decade ago, and instead attempted to proffer custom and practice evidence, it was crucial that the affidavit describe a specific protocol that the notary repeatedly and invariably used and proof of that type is absent here. As such, even assuming a defect in a certificate of acknowledgment could be cured under Domestic Relations Law § 236B(3), defendant’s submission was insufficient to raise a triable question of fact as to the propriety of the original acknowledgment procedure. Plaintiff was therefore entitled to summary judgment declaring that the prenuptial agreement was unenforceable.
Accordingly, the order of the Appellate Division should be reversed, with costs, plaintiff’s motion for summary judgment determining that the parties’ prenuptial agreement is invalid should be granted, and the certified question should be answered in the negative.
* * * * * * * * * * * * * * * * *
Order reversed, with costs, plaintiff’s motion for summary judgment determining that the parties’ prenuptial agreement is invalid granted, and certified question answered in the negative. Opinion [*10]by Judge Graffeo. Chief Judge Lippman and Judges Read, Smith, Pigott and Rivera concur. Judge Abdus-Salaam took no part.

Decided May 30, 2013 Footnotes

Footnote 1: At about the same time this agreement was executed, the Legislature enacted Real Property Law § 309-a which codified model language to be used in a certificate of acknowledgment involving a signer who was not acting on behalf of a corporation (see L 1997, ch 179). That new statute, which remains in effect, indicated that an acknowledgment should read as follows (or “conform substantially” with the following): “On the [insert date] before me, the undersigned, personally appeared [insert name of signer], personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument” (Real Property Law § 309-a). The new language did not become mandatory until September 1999. It was intended to clarify existing law and encourage uniformity in filed deeds; it did not alter the substantive requirements for a valid acknowledgment that appear elsewhere in the Real Property Law, as discussed above.
Footnote 2: The wife argues that this issue was not preserved in the motion court but we agree with the Appellate Division majority that such an argument was evident from the husband’s submission of the notary public affidavit in response to the wife’s motion for summary judgment, a submission that was cited by Supreme Court in the oral decision denying summary judgment. Since the parties admitted in Supreme Court that their signatures were authentic and made no claims of fraud or duress, there was only one reason for the husband to proffer the notary public affidavit to cure the purported deficiency in the certificate of acknowledgment. The fact that Supreme Court did not reach the “cure” argument because it concluded (incorrectly) that the acknowledgment was not defective does not render the issue unpreserved for review.
Footnote 3: Several of the cases the husband relies on for the contrary proposition involve proving a signature through use of subscribing witnesses, a different procedure governed by other provisions of the Real Property Law (see Matter of Maul, 287 NY 694 [1942] [where wife signed waiver of right of election in presence of two subscribing witnesses, who also signed the document, fact that signatures of subscribing witnesses were not acknowledged at that time did not render document unenforceable]; Matter of Saperstein, 254 AD2d 88 [1st Dept 1998] [where wife executed waiver of right of election in presence of subscribing witness, who signed the document at that time attesting to that fact, subscribing witness could secure document evidencing proof of execution later on, after the husband died]). These cases neither involve Domestic Relations Law § 236B(3) nor the acknowledgment method of validating a document. Moreover, the precedent suggests that there may be a distinction between the absence of an acknowledgment relating to the signature of a party and the absence of an acknowledgment relating to the signature of a subscribing witness (compare Matter of Warren, 16 AD2d 505 [2d Dept], affd 12 NY2d 854 [1962] with Matter of Maul, supra, 287 NY 694).

HILLMAN v. MARETTA. April 22, 2013

Posted on: February 21, 2017 at 4:22 am, in

The A/B Trust used to be one of the most popular estate planning products in a lawyer’s arsenal. Here’s how it previously worked: The first spouse dies and that spouse’s assets are placed into a trust using the first spouse’s estate tax exemption. The second spouse dies and their assets go to the children using the second spouse’s estate tax exemption. The assets in the first spouse’s trust then are passed to the children, thereby using both spouses estate tax exemption.
After years of this, the estate tax code was re-written combining the spouse’s exemptions making the A/B trust obsolete for this purpose. Some lawyers continue to use this method of estate planning even though it does some things poorly and others not at all. Although an A/B trust will pass the assets to the beneficiaries as good as other products, it has problems in the areas of privacy, asset protection, and Medicaid planning.
First, an A/B method of estate planning offers absolutely NO asset protection benefits while both spouses are alive and minimal protection after one spouse passes. In fact, if an attorney for a lawsuit checks a person who created an A/B trust for assets, they will see that they still own the assets in their name. While both spouses are alive, depending on how the lawyer drew up the estate plan, either each spouse has their assets in their own name with a will including a testamentary trust (a trust that doesn’t exist until death) or they each have their own revocable trust with half the marital assets.The A/B Trust used to be one of the most popular estate planning products in a lawyer’s arsenal. Here’s how it previously worked: The first spouse dies and that spouse’s assets are placed into a trust using the first spouse’s estate tax exemption. The second spouse dies and their assets go to the children using the second spouse’s estate tax exemption. The assets in the first spouse’s trust then are passed to the children, thereby using both spouses estate tax exemption.
Having assets in one’s own name or assets in a revocable trust doesn’t help for asset protection. In both scenarios, one has access to the assets, which means that one’s creditors can attach these assets as well as courts in the event of a lawsuit. After one spouse passes, the will creates an irrevocable trust or, alternatively, the revocable trust becomes irrevocable. The deceased spouse’s assets are now in an irrevocable trust and protected from creditors and the courts, but chances are that the prime years to get sued or go in debt happened a long time ago. Why not have an irrevocable trust in the first place?The A/B Trust used to be one of the most popular estate planning products in a lawyer’s arsenal. Here’s how it previously worked: The first spouse dies and that spouse’s assets are placed into a trust using the first spouse’s estate tax exemption. The second spouse dies and their assets go to the children using the second spouse’s estate tax exemption. The assets in the first spouse’s trust then are passed to the children, thereby using both spouses estate tax exemption.
An A/B trust also offers little protection from a Medicaid spend-down. Again, like above, while the spouses are alive, they will be subject to a Medicaid spend-down in order to qualify for long-term care benefits. The community spouse can keep a predetermined amount, but the rest will be spent down to a minimal amount ($1,500-2,000, depending on the state). Also, again, once one spouse dies, those assets are protected from the spend-down, but the other half of the assets are subject to the other spouses long-term care bills. An irrevocable trust would protect 100% of all of the assets.The A/B Trust used to be one of the most popular estate planning products in a lawyer’s arsenal. Here’s how it previously worked: The first spouse dies and that spouse’s assets are placed into a trust using the first spouse’s estate tax exemption. The second spouse dies and their assets go to the children using the second spouse’s estate tax exemption. The assets in the first spouse’s trust then are passed to the children, thereby using both spouses estate tax exemption.
An A/B trust doesn’t really do anything well. Instead of protecting half of the assets, a good irrevocable trust can protect all of the assets. The irrevocable trust takes all of the assets out of both spouse’s names so that they don’t own them anymore. If they don’t have title, the assets aren’t counted by Medicaid, aren’t included in the calculation for the estate tax, and cannot be found in a public record as being owned by you, thus they can’t be taken by creditors in the event of a lawsuit. In fact, if an attorney for a prospective lawsuit checks a person who created an irrevocable trust to hold assets, they won’t see any assets in your name and the lawyer probably won’t be interested in taking the case against you on a contingency basis. The lawsuit is stopped before it starts. There is a downside of an irrevocable trust; the persons creating it don’t have ownership of the assets past what they put in the trust documents. So, for the scared, there is the A/B trust and for the protected, the Ultra Trust irrevocable trust.The A/B Trust used to be one of the most popular estate planning products in a lawyer’s arsenal. Here’s how it previously worked: The first spouse dies and that spouse’s assets are placed into a trust using the first spouse’s estate tax exemption. The second spouse dies and their assets go to the children using the second spouse’s estate tax exemption. The assets in the first spouse’s trust then are passed to the children, thereby using both spouses estate tax exemption.

Federal Trade Commission (FTC) U.S. v. Ameridebt

Posted on: February 21, 2017 at 4:21 am, in

The Federal Trade Commission (FTC) has sued AmeriDebt, Inc., DebtWorks, Inc., and Andris Pukke for misrepresentations and deceptive omissions under the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 41-58. It has also sued AmeriDebt for violations of the disclosure requirements under the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801(a) et seq. The FTC alleges that Defendants, operating in common as a non-profit credit counseling service, defrauded consumers with debt problems by offering to fashion debt repayment plans for them, then deducting for their own benefit payments the consumers made under the plans without disclosing those deductions to the consumers. The FTC has also sued Pamela Pukke as Relief Defendant to recover such proceeds of these transactions as have been received by her husband, Andris Pukke, and transferred to her.
The FTC has filed a motion pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), requesting that the Court enter a preliminary injunction appointing a receiver, freezing the assets of Andris Pukke and DebtWorks, Inc. (collectively “Defendants”), *561 561requiring an accounting from them, and directing that Andris Pukke repatriate assets he has transferred offshore. 1The Court held oral argument on the motion and took it under advisement. On April 20, 2005 the Court entered an Order granting the Motion. This Opinion sets forth the reasons for the Court’s decision.

II.

The background of this litigation is set forth in FTC. v. AmeriDebt, 343 F.Supp.2d 451 (D.Md.2004). In brief, the FTC alleges that Defendants (except for Pamela Pukke) operated as a common enterprise to deceive consumers into paying for high-cost debt management plans in violation of Section 5 of the FTC Act, 15 U.S.C. § 45(a). After extensive discovery, the FTC filed a Motion for Summary Judgment Against DebtWorks and Andris Pukke, requesting that they be found liable, and that they be permanently enjoined and ordered to make restitution of some $172 million to injured consumers. That motion is currently pending. Meanwhile, the FTC alleges that since 2002, when Defendants became aware of the investigation that led to this lawsuit, Andris Pukke in particular has been actively dissipating Defendants’ assets by making transfers to close friends and relatives, to trusts (both domestic and offshore), and by living a lavish lifestyle. 2 For example, since 2003 Pukke and DebtWorks have transferred over $2.8 million to individuals who never worked for DebtWorks, including Pukke’s father in Latvia, his girlfriend Angela Chittenden, and his wife Pamela, as well as at least $1.6 million to a company controlled by Pukke, Infinity Resources Group. In addition, less than two months after the FTC served AmeriDebt and DebtWorks with Civil Investigative Demands in May and August 2002, Pukke attempted to establish domestic and offshore trusts which the FTC asserts were part of an effort to put his assets out of reach of the FTC and other creditors. 3 Pukke, however, appears to retain substantial control over three primary trusts: The Pukke 2002 Family Irrevocable Trust (located in Delaware with estimated assets *562 562of over $8.8 million), The P Family Trust (established under the laws of the Caribbean island of Nevis with estimated assets of $9 million), and The P II Family Trust (established under the laws of the Cook Islands with estimated assets of $1.3 million). Lastly, the FTC catalogs numerous expenditures Pukke has made out of DebtWorks’ funds to maintain personal residences, yachts and vacations unrelated to DebtWorks’ business. The FTC asserts that if this behavior is allowed to continue, there is a substantial risk that it will not be able to satisfy any final order granting equitable monetary relief that may be entered in this case.

III.

Defendants oppose the Motion for Preliminary Injunction on the grounds that: (a) the Court lacks jurisdiction to grant the requested relief; (b) the FTC has failed to meet its burden of demonstrating a likelihood of success on the merits; (c) the FTC has failed to show that the balance of equities favors the entry of a preliminary injunction; and (d) any order granting the requested relief would violate the Anti-Injunction Act, 28 U.S.C. § 2283, and improperly interfere with the priority of federal tax liens. 4

A. Jurisdiction

Pursuant to Section 13(b) of the FTC Act, “in proper cases the Commission may seek, and after proper proof, the court may issue a permanent injunction.” 15 U.S.C. § 53(b). The authority to grant such relief includes the power to grant any ancillary relief necessary to accomplish complete justice, including ordering equitable relief for consumer redress through the repayment of money, restitution, rescission, or disgorgement of unjust enrichment. FTC v. Febre, 128 F.3d 530, 534 (7th Cir.1997). To insure that any final relief is complete and meaningful, the court may also order any necessary temporary or preliminary relief, such as an asset freeze. FTC v. Gem Merch. Corp., 87 F.3d 466, 469 (11th Cir.1996). Exercise of this broad equitable authority, which is vested in the court’s sound discretion, is particularly appropriate where the public interest is at stake. Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S.Ct. 1086, 90 L.Ed. 1332 (1946) (citing Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 88 L.Ed. 754(1944)).
Defendants contend that the Court’s jurisdiction to order the relief requested by the FTC is limited to “proper cases,” which they contend are only those in which the FTC seeks “to halt a straightforward violation of section 5 that require[s] no application of the FTC’s expertise to a novel regulatory issue,” citing FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1028 (7th Cir.1988). Defendants argue that since the FTC admitted in a press conference in November 2003 that this case involves “novel and difficult legal issues” rather than those involved in a routine fraud case, jurisdiction does not lie.
The FTC responds that a “proper case” under Section 13(b) is simply one that involves a violation “of any provision of law enforced by the Commission.”Gem Merch., 87 F.3d at 468; FTC v. Evans Prods. Co., 775 F.2d 1084, 1086-87 (9th Cir.1985) (“In attempting to limit § 13(b) to cases involving `routine fraud’ or violations of previously established FTC rules, [Defendant] misreads both the case law … and the legislative history.”); FTC v. *563 563Va. Homes Mfg. Corp., 509 F.Supp. 51, 54 (D.Md.1981); FTC v. Mylan Labs., Inc., 62 F.Supp.2d 25, 36 (D.D.C.1999). Since, according to the FTC, Defendants Pukke and DebtWorks used deceptive claims to induce consumers to purchase their product in violation of Section 5, this is a “proper case” under Section 13(b) over which this Court should exercise jurisdiction. 5
The Court agrees with the FTC’s reading of “proper case” and that it has jurisdiction to order the requested relief under Section 13(b) of the Act.

B. Likelihood of Success on the Merits

Before a district court may enter a preliminary injunction under Section 13(b), it must (i) consider the FTC’s likelihood of success on the merits and (ii) weigh the equities. FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1343 (4th Cir.1976). This test is different from that used for private litigants, who must also prove irreparable injury, because in an FTC action harm to the public interest is presumed. FTC v. Affordable Media, 179 F.3d 1228, 1233 (9th Cir.1999); Va. Homes Mfg. Corp., 509 F.Supp. at 59.
For their part, Defendants contend that for the FTC to prove a violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), it must demonstrate that their actions involved a material misrepresentation or omission “likely to mislead the consumer acting reasonably in the circumstances to the consumer’s detriment,” Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431, 1435 (9th Cir.1986), a burden the FTC cannot carry.
First, say Defendants, the FTC has failed to demonstrate that their statements were likely to mislead consumers. Instead the facts show that AmeriDebt was actually a non-profit entity whose customers were asked for an initial enrollment contribution which was understood to be voluntary, and that AmeriDebt in fact did educate and counsel its customers with respect to finances and credit. In addition, in contrast to the FTC’s claim that the allegedly misleading statements were likely to result in detriment to consumers, Defendants cite evidence tending to show that enrollment in their program actually benefitted consumers. Finally, Defendants argue that the FTC has not shown that it can succeed against DebtWorks and Pukke on theories of vicarious liability, since it has not established the various factors that courts require to determine the existence of a common enterprise.
The FTC submits that Defendants are arguing the merits of the case under a summary judgment standard. The burden for prevailing on a motion for a preliminary injunction under Section 13(b) is far more lenient. Specifically, the FTC “meets its burden on the `likelihood of success’ issue if it shows preliminarily, by affidavits or other proof, that it has a fair and tenable chance of ultimate success on the merits.” FTC v. Beatrice Foods Co., 587 F.2d 1225, 1229 (D.C.Cir.1978). This, the FTC submits, it has done through the exhibits entered in support of its Motion for Summary Judgment, viz. deposition testimony, declarations, and extensive documentary evidence. This evidence, according to the FTC, strongly suggests that AmeriDebt, DebtWorks, and Pukke operated as a common enterprise to *564 564deceive consumers into purchasing high-cost debt management plans, and then funneled the profits to Pukke and companies he owned. 6 Equally important, says the FTC, is the fact that on deposition, relying on the Fifth Amendment, Andris Pukke refused to respond to virtually every question asked of him with respect to issues relevant to whether the FTC is likely to prevail on the merits, and as a result of the Court may, in this civil proceeding, draw negative inferences about what he did or did not do. Baxter, 425 U.S. at 318-19, 96 S.Ct. 1551;ePlus Tech., Inc., 313 F.3d at 179.
The Court agrees that Pukke’s refusal to answer questions about his possible dissipation of assets, coupled with the exhaustive evidence marshaled by the FTC in support of its Motion for Summary Judgment, establish that the FTC has “a fair and tenable chance of ultimate success on the merits.”

C. Balancing the Equities

Although a district court must weigh the public and private equities in an FTC action for injunctive relief, courts have held that the public interest should receive greater weight in such proceedings. World Travel, 861 F.2d at 1030. The Fourth Circuit has gone so far as to say that private injuries “are not proper considerations for granting or withholding injunctive relief under Section 13(b).” Food Town Stores, 539 F.2d at 1346.
Even so, Defendants argue that the injunctive relief the FTC seeks is unwarranted because all the transfers of which it complains transpired prior to his “financial reverses,” and in any case there has been “no extravagance and no offshore transfers.”
Apart from urging that Pukke’s alleged personal hardship be given little weight, the FTC points out that under the injunction Pukke will still be allowed to earn income through gainful legitimate employment and at the same time will have a mechanism through which to seek reasonable living expenses and attorney’s fees. In contrast, the public interest in preserving the possibility of effective relief at the end of litigation requires the appointment of a receiver, an asset freeze, an accounting, and a repatriation of all transferred assets before they are completely dissipated.
The Court agrees with the FTC that in balancing the equities, the public interest predominates and will be best served by the appointment of a receiver, an asset *565 565freeze, an accounting, and a repatriation of Defendants’ assets.

D. Anti-Injunction Act and Tax Lien Considerations

Defendants’ final argument is that any court order granting the FTC’s request for relief would violate the Anti-Injunction Act (AIA), 28 U.S.C. § 2283, because it would in effect enjoin Pukke from making payments pursuant to the pendente lite support decree he and Pamela have entered into in state court. In addition, Defendants maintain that any injunction would prevent “Mr. Pukke from dealing with his obligations to the IRS, and would interfere with the IRS liens which have precedence over any interest that the FTC could attempt to assert.” The Court rejects both arguments.
The AIA instructs that “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. § 2283. The FTC submits that the AIA does not apply to the United States or its agencies. Leiter Minerals, Inc. v. United States, 352 U.S. 220, 225, 77 S.Ct. 287, 1 L.Ed.2d 267 (1957);Mitchum v. Foster, 407 U.S. 225, 235-36, 92 S.Ct. 2151, 32 L.Ed.2d 705(1972). Moreover, it says, a grant of relief in this case would not improperly affect the Pukkes’ divorce case since Maryland has long recognized the doctrine of constructive trust which requires that any proceeds of wrongdoing may be properly ordered held in trust for the victims of the wrongdoing.Bowie v. Ford, 269 Md. 111, 118-19, 304 A.2d 803, 808-09 (Md.1973). Freezing the assets in this case would do no more than effectuate Maryland law by preserving the Pukkes’ ill-gotten gains for eventual return to their victims. Finally, the FTC points out that the state court pendente lite decree is a consent decree, i.e., it is one in which Andris Pukke, Pamela Pukke, and presumably their counsel themselves fixed the amount of money he would pay to her each month. Thus, in addition to a base payment of $30,000 per month, Pukke has agreed to pay the mortgages on family residences, private schooling for the parties’ children, and a host of other add-ons. His total average payments certainly approach, may even exceed, six figures per month. The FTC argues that Defendants should not be permitted to use their divorce proceedings to redistribute, shield, and divert assets that may ultimately belong to consumer victims.
The FTC also disputes Defendants’ reference to unspecified “IRS liens” as a reason for the Court to deny relief in this case. Under the same doctrine of constructive trust previously referred to, even if the IRS has placed liens on Defendants’ assets, those liens would not attach to property that was wrongfully obtained from consumers, precisely what the FTC alleges in this case. See FTC v. Crittenden, 823 F.Supp. 699, 703 (C.D.Cal.1993), aff’d, 1994 WL 59803 (9th Cir.1994). Defendants leave this argument unanswered.
The Court agrees with the FTC’s arguments and concludes that neither the AIA nor any possible IRS liens bar the granting of preliminary injunctive relief in the present case.

IV.

Turning to the order proposed by the FTC, which Defendants objected to, the Court, with a few minor exceptions, has adopted the order submitted by the FTC. Specifically:
1) The Court has named Robb Evans & Associates, LLC, Sun Valley, California as Receiver, based on that entity’s extensive experience in locating and marshaling assets, including those located offshore. The Court *566 566notes that Robb Evans has worked on over 100 asset retrieval cases and has marshaled over a billion dollars in assets. Despite the fact that Robb Evans is located in California, the Court accepts the FTC’s representation that much of the discovery in the case has already been conducted which can be shared electronically, so that any need for Robb Evans personnel to travel back and forth to Maryland will be limited;
2) The Court finds no Fifth Amendment problem in requiring Andris Pukke to provide information under oath. The Court’s Order simply requires him to provide an accounting of assets, a standard provision in asset freeze orders. When ordered to provide an accounting, Pukke will be free to assert any Fifth Amendment privilege he might have, after which the FTC may seek an order of contempt. At that point, the issue will be ripe for the Court’s consideration.See FTC v. Phoenix Avatar, 2004 WL 1746698, *13-15 (N.D.Ill.2004);
3) The Court has revised slightly the proposed order and has required that information be turned over in ten (10) business days rather than five (5);
4) As for the provisions requiring Defendants to provide information to the AmeriDebt Trustee, the Court has rejected Defendants’ argument that because the Trustee may have claims against the Defendants, he is an adverse party who should not have access to asset information. As the FTC points out, the Bankruptcy Code (11 U.S.C. § 543) provides that, to the extent a Receiver holds property of the bankruptcy estate, he is a custodian of that property and is obliged to turn it over at the Trustee’s request. If there is any overlap between the property of the bankruptcy estate and that of the receivership, the notice provisions of the Court’s order will enable the Trustee and the parties to sort these issues out in due course;
5) The Court has also rejected Defendants’ suggestion that their attorneys fees should routinely be subject to court review and approval as opposed to approval by the Receiver, or that payment of the fees should be consistent with Defendants’ retainer agreement. To the extent Defendants feel aggrieved by any decision of the Receiver in this regard they may always file a petition for review with the Court;
6) As for living expenses, the Court does not agree that Andris Pukke should be allowed to continue servicing existing mortgage payments or make payments to his wife pursuant to a consent pendente lite order of the Circuit Court for Montgomery County. Pukke may spend freely any income earned from gainful employment and, if need be, he can obtain financial assistance from his friends and family. He may also seek expenses from any frozen funds after prior written approval by the Receiver or the Court. As for mortgage payments, since Pukke’s residences will become Receivership property, the Receiver may take whatever acts are necessary to conserve, hold and manage these properties;
7) The Court believes that the FTC proposal regarding the periodic accounts of the Receiver is sensible. The Receiver must provide a preliminary report to the Court ninety (90) days after being appointed and thereafter at regular intervals of three (3) months until discharged. Any more *567 567frequent accounting would unnecessarily increase expenses. The Receiver’s compensation is always subject to Court approval;
8) Defense Counsel will be provided with copies of any Receiver’s reports filed with the Court;
9) As for ex parte filings by the Receiver, the Court accepts that this is a standard provision. The Receiver may file an ex parte Affidavit of Non-Compliance whenever any person or entity fails to deliver or transfer any Receivership Property or otherwise fails to comply with that person or entity’s obligations under the Order. The Court may also authorize Writs of Possession or Sequestration or other equitable writs requested by the Receiver, and the Court may take other appropriate action including requiring notice to Defendants;
10) As far as the power of the Court to compel trustees to turn over trust assets to the Receiver, the Order requires Defendants, not the trustees, to turn over trust assets to the Receiver. If Andris Pukke, who appears to maintain substantial de facto control over the trusts, violates this Order and fails to repatriate assets in the trusts, the FTC may move for contempt, at which point Defendants will be free to argue the impossibility of performance, an argument the Court may or may not find persuasive.

V.

For all the foregoing reasons, the FTC’s Motion for Preliminary Injunction (Paper No. 103) was GRANTED by Order of the Court dated April 20, 2005.
—————

Notes:

1. Earlier in these proceedings, AmeriDebt filed a petition under Chapter 11 of the Bankruptcy Code and Mark D. Taylor was appointed as the Chapter 11 Trustee. On March 25, 2005 the FTC announced a settlement with the AmeriDebt Trustee, which will not be final until the Bankruptcy Court and District Court enter orders approving it. Since the settlement agreement is not final, the Trustee appeared on behalf of AmeriDebt in these proceedings and advised the Court that he agrees that the relief requested by the FTC is “necessary to prevent the further erosion of the Estate assets.”
2. When questioned about the dissipation of assets at his March 24, 2005 deposition, Pukke invoked his Fifth Amendment right against self-incrimination. As a result, the FTC asserts and the Court agrees that in this civil proceeding the Court may draw appropriate adverse inferences against him with respect to the allegations of dissipation. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 318-19, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976);ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 179 (4th Cir.2002).
3. In support of this contention, the FTC cites a letter dated January 30, 2003 written by the attorney who created the trusts, Jonathan Gopman. In the letter Gopman explains that:
[O]ne of the benefits of [Pukke’s] foreign wealth protection structure is its ability to protect the underlying assets from the claims of future unforeseen creditors. The most effective method of protecting the underlying assets … is to hold [them] in an appropriate foreign jurisdiction and for each trust to have relatively few (if any) U.S. contacts. Therefore, should [Pukke’s] financial situation change or should he become (or potentially become) subject to litigation, I have informed him that it is important … to reevaluate the status of this structure and consider potential modifications that will help ensure the optimal protection of the underlying wealth.
4. Pamela Pukke joins Defendants in arguing that any order of this Court would violate the Anti-Injunction Act by interfering with a consent pendente lite order she and Andris Pukke entered into in divorce proceedings presently pending in the Circuit Court for Montgomery County, Maryland.
5. The FTC argues that Defendants misconstrue World Travel. There, they say, the Seventh Circuit held that Congress expected that the FTC could “at least” rely on Section 13(b) to halt a straightforward violation of Section 5. But rather than barring a reliance on Section 13(b) in more novel cases, as Defendants suggest, the World Travel court in fact observed that a “substantial argument can be made” that the FTC can rely on Section 13(b) “for any violation of a statute administered by the FTC.” 861 F.2d at 1028.

Add Annotation for this Paragraph

6. The FTC also points out that it is not required to prove individual consumer reliance or injury in order to ultimately prevail and obtain consumer redress; it need only establish that a material misrepresentation or omission was made that was likely to mislead consumers acting reasonably under the circumstances. FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir.2003); FTC v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir.1994); FTC v. Kuykendall, 371 F.3d 745, 764-66 (10th Cir.2004) (en banc). Moreover, the FTC disputes the relevance of the findings of Defendants’ two experts that few consumers complained to AmeriDebt about its practices or that some consumers actually benefitted from their debt management plans. The FTC argues that lack of consumer complaints is not a defense under the FTC Act, and that the measure of consumer injury is the amount paid by consumers for the product or service — regardless of the value gained. FTC v. Amy Travel Serv., 875 F.2d 564, 572 (7th Cir.1989); Detroit Auto. Purchasing Serv’s, Inc. v. Lee,463 F.Supp. 954, 968 (D.Md.1978); McGregor v. Chierico, 206 F.3d 1378, 1388-89 (11th Cir.2000); FTC v. Figgie Int’l, Inc., 994 F.2d 595, 605-06 (9th Cir.1993).
The Court need not resolve these issues at this juncture, which are more properly addressed at the summary judgment stage. For present purposes it will suffice if the FTC demonstrates that there is factual and legal authority for concluding that the FTC has a “fair and tenable chance of ultimate success on the merits.”
—————

U.S. v. Rogan, 2012 WL 1107836 (N.D.Ill., Slip Copy, March 29, 2012)

Posted on: February 21, 2017 at 4:21 am, in

The Federal Trade Commission (FTC) has sued AmeriDebt, Inc., DebtWorks, Inc., and Andris Pukke for misrepresentations and deceptive omissions under the Federal Trade Commission Act (FTC Act), 15 U.S.C. §§ 41-58. It has also sued AmeriDebt for violations of the disclosure requirements under the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801(a) et seq. The FTC alleges that Defendants, operating in common as a non-profit credit counseling service, defrauded consumers with debt problems by offering to fashion debt repayment plans for them, then deducting for their own benefit payments the consumers made under the plans without disclosing those deductions to the consumers. The FTC has also sued Pamela Pukke as Relief Defendant to recover such proceeds of these transactions as have been received by her husband, Andris Pukke, and transferred to her.
The FTC has filed a motion pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), requesting that the Court enter a preliminary injunction appointing a receiver, freezing the assets of Andris Pukke and DebtWorks, Inc. (collectively “Defendants”), *561 561requiring an accounting from them, and directing that Andris Pukke repatriate assets he has transferred offshore. 1The Court held oral argument on the motion and took it under advisement. On April 20, 2005 the Court entered an Order granting the Motion. This Opinion sets forth the reasons for the Court’s decision.

II.

The background of this litigation is set forth in FTC. v. AmeriDebt, 343 F.Supp.2d 451 (D.Md.2004). In brief, the FTC alleges that Defendants (except for Pamela Pukke) operated as a common enterprise to deceive consumers into paying for high-cost debt management plans in violation of Section 5 of the FTC Act, 15 U.S.C. § 45(a). After extensive discovery, the FTC filed a Motion for Summary Judgment Against DebtWorks and Andris Pukke, requesting that they be found liable, and that they be permanently enjoined and ordered to make restitution of some $172 million to injured consumers. That motion is currently pending. Meanwhile, the FTC alleges that since 2002, when Defendants became aware of the investigation that led to this lawsuit, Andris Pukke in particular has been actively dissipating Defendants’ assets by making transfers to close friends and relatives, to trusts (both domestic and offshore), and by living a lavish lifestyle. 2 For example, since 2003 Pukke and DebtWorks have transferred over $2.8 million to individuals who never worked for DebtWorks, including Pukke’s father in Latvia, his girlfriend Angela Chittenden, and his wife Pamela, as well as at least $1.6 million to a company controlled by Pukke, Infinity Resources Group. In addition, less than two months after the FTC served AmeriDebt and DebtWorks with Civil Investigative Demands in May and August 2002, Pukke attempted to establish domestic and offshore trusts which the FTC asserts were part of an effort to put his assets out of reach of the FTC and other creditors. 3 Pukke, however, appears to retain substantial control over three primary trusts: The Pukke 2002 Family Irrevocable Trust (located in Delaware with estimated assets *562 562of over $8.8 million), The P Family Trust (established under the laws of the Caribbean island of Nevis with estimated assets of $9 million), and The P II Family Trust (established under the laws of the Cook Islands with estimated assets of $1.3 million). Lastly, the FTC catalogs numerous expenditures Pukke has made out of DebtWorks’ funds to maintain personal residences, yachts and vacations unrelated to DebtWorks’ business. The FTC asserts that if this behavior is allowed to continue, there is a substantial risk that it will not be able to satisfy any final order granting equitable monetary relief that may be entered in this case.

III.

Defendants oppose the Motion for Preliminary Injunction on the grounds that: (a) the Court lacks jurisdiction to grant the requested relief; (b) the FTC has failed to meet its burden of demonstrating a likelihood of success on the merits; (c) the FTC has failed to show that the balance of equities favors the entry of a preliminary injunction; and (d) any order granting the requested relief would violate the Anti-Injunction Act, 28 U.S.C. § 2283, and improperly interfere with the priority of federal tax liens. 4

A. Jurisdiction

Pursuant to Section 13(b) of the FTC Act, “in proper cases the Commission may seek, and after proper proof, the court may issue a permanent injunction.” 15 U.S.C. § 53(b). The authority to grant such relief includes the power to grant any ancillary relief necessary to accomplish complete justice, including ordering equitable relief for consumer redress through the repayment of money, restitution, rescission, or disgorgement of unjust enrichment. FTC v. Febre, 128 F.3d 530, 534 (7th Cir.1997). To insure that any final relief is complete and meaningful, the court may also order any necessary temporary or preliminary relief, such as an asset freeze. FTC v. Gem Merch. Corp., 87 F.3d 466, 469 (11th Cir.1996). Exercise of this broad equitable authority, which is vested in the court’s sound discretion, is particularly appropriate where the public interest is at stake. Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S.Ct. 1086, 90 L.Ed. 1332 (1946) (citing Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 88 L.Ed. 754(1944)).
Defendants contend that the Court’s jurisdiction to order the relief requested by the FTC is limited to “proper cases,” which they contend are only those in which the FTC seeks “to halt a straightforward violation of section 5 that require[s] no application of the FTC’s expertise to a novel regulatory issue,” citing FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1028 (7th Cir.1988). Defendants argue that since the FTC admitted in a press conference in November 2003 that this case involves “novel and difficult legal issues” rather than those involved in a routine fraud case, jurisdiction does not lie.
The FTC responds that a “proper case” under Section 13(b) is simply one that involves a violation “of any provision of law enforced by the Commission.”Gem Merch., 87 F.3d at 468; FTC v. Evans Prods. Co., 775 F.2d 1084, 1086-87 (9th Cir.1985) (“In attempting to limit § 13(b) to cases involving `routine fraud’ or violations of previously established FTC rules, [Defendant] misreads both the case law … and the legislative history.”); FTC v. *563 563Va. Homes Mfg. Corp., 509 F.Supp. 51, 54 (D.Md.1981); FTC v. Mylan Labs., Inc., 62 F.Supp.2d 25, 36 (D.D.C.1999). Since, according to the FTC, Defendants Pukke and DebtWorks used deceptive claims to induce consumers to purchase their product in violation of Section 5, this is a “proper case” under Section 13(b) over which this Court should exercise jurisdiction. 5
The Court agrees with the FTC’s reading of “proper case” and that it has jurisdiction to order the requested relief under Section 13(b) of the Act.

B. Likelihood of Success on the Merits

Before a district court may enter a preliminary injunction under Section 13(b), it must (i) consider the FTC’s likelihood of success on the merits and (ii) weigh the equities. FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1343 (4th Cir.1976). This test is different from that used for private litigants, who must also prove irreparable injury, because in an FTC action harm to the public interest is presumed. FTC v. Affordable Media, 179 F.3d 1228, 1233 (9th Cir.1999); Va. Homes Mfg. Corp., 509 F.Supp. at 59.
For their part, Defendants contend that for the FTC to prove a violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), it must demonstrate that their actions involved a material misrepresentation or omission “likely to mislead the consumer acting reasonably in the circumstances to the consumer’s detriment,” Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431, 1435 (9th Cir.1986), a burden the FTC cannot carry.
First, say Defendants, the FTC has failed to demonstrate that their statements were likely to mislead consumers. Instead the facts show that AmeriDebt was actually a non-profit entity whose customers were asked for an initial enrollment contribution which was understood to be voluntary, and that AmeriDebt in fact did educate and counsel its customers with respect to finances and credit. In addition, in contrast to the FTC’s claim that the allegedly misleading statements were likely to result in detriment to consumers, Defendants cite evidence tending to show that enrollment in their program actually benefitted consumers. Finally, Defendants argue that the FTC has not shown that it can succeed against DebtWorks and Pukke on theories of vicarious liability, since it has not established the various factors that courts require to determine the existence of a common enterprise.
The FTC submits that Defendants are arguing the merits of the case under a summary judgment standard. The burden for prevailing on a motion for a preliminary injunction under Section 13(b) is far more lenient. Specifically, the FTC “meets its burden on the `likelihood of success’ issue if it shows preliminarily, by affidavits or other proof, that it has a fair and tenable chance of ultimate success on the merits.” FTC v. Beatrice Foods Co., 587 F.2d 1225, 1229 (D.C.Cir.1978). This, the FTC submits, it has done through the exhibits entered in support of its Motion for Summary Judgment, viz. deposition testimony, declarations, and extensive documentary evidence. This evidence, according to the FTC, strongly suggests that AmeriDebt, DebtWorks, and Pukke operated as a common enterprise to *564 564deceive consumers into purchasing high-cost debt management plans, and then funneled the profits to Pukke and companies he owned. 6 Equally important, says the FTC, is the fact that on deposition, relying on the Fifth Amendment, Andris Pukke refused to respond to virtually every question asked of him with respect to issues relevant to whether the FTC is likely to prevail on the merits, and as a result of the Court may, in this civil proceeding, draw negative inferences about what he did or did not do. Baxter, 425 U.S. at 318-19, 96 S.Ct. 1551;ePlus Tech., Inc., 313 F.3d at 179.
The Court agrees that Pukke’s refusal to answer questions about his possible dissipation of assets, coupled with the exhaustive evidence marshaled by the FTC in support of its Motion for Summary Judgment, establish that the FTC has “a fair and tenable chance of ultimate success on the merits.”

C. Balancing the Equities

Although a district court must weigh the public and private equities in an FTC action for injunctive relief, courts have held that the public interest should receive greater weight in such proceedings. World Travel, 861 F.2d at 1030. The Fourth Circuit has gone so far as to say that private injuries “are not proper considerations for granting or withholding injunctive relief under Section 13(b).” Food Town Stores, 539 F.2d at 1346.
Even so, Defendants argue that the injunctive relief the FTC seeks is unwarranted because all the transfers of which it complains transpired prior to his “financial reverses,” and in any case there has been “no extravagance and no offshore transfers.”
Apart from urging that Pukke’s alleged personal hardship be given little weight, the FTC points out that under the injunction Pukke will still be allowed to earn income through gainful legitimate employment and at the same time will have a mechanism through which to seek reasonable living expenses and attorney’s fees. In contrast, the public interest in preserving the possibility of effective relief at the end of litigation requires the appointment of a receiver, an asset freeze, an accounting, and a repatriation of all transferred assets before they are completely dissipated.
The Court agrees with the FTC that in balancing the equities, the public interest predominates and will be best served by the appointment of a receiver, an asset *565 565freeze, an accounting, and a repatriation of Defendants’ assets.

D. Anti-Injunction Act and Tax Lien Considerations

Defendants’ final argument is that any court order granting the FTC’s request for relief would violate the Anti-Injunction Act (AIA), 28 U.S.C. § 2283, because it would in effect enjoin Pukke from making payments pursuant to the pendente lite support decree he and Pamela have entered into in state court. In addition, Defendants maintain that any injunction would prevent “Mr. Pukke from dealing with his obligations to the IRS, and would interfere with the IRS liens which have precedence over any interest that the FTC could attempt to assert.” The Court rejects both arguments.
The AIA instructs that “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. § 2283. The FTC submits that the AIA does not apply to the United States or its agencies. Leiter Minerals, Inc. v. United States, 352 U.S. 220, 225, 77 S.Ct. 287, 1 L.Ed.2d 267 (1957);Mitchum v. Foster, 407 U.S. 225, 235-36, 92 S.Ct. 2151, 32 L.Ed.2d 705(1972). Moreover, it says, a grant of relief in this case would not improperly affect the Pukkes’ divorce case since Maryland has long recognized the doctrine of constructive trust which requires that any proceeds of wrongdoing may be properly ordered held in trust for the victims of the wrongdoing.Bowie v. Ford, 269 Md. 111, 118-19, 304 A.2d 803, 808-09 (Md.1973). Freezing the assets in this case would do no more than effectuate Maryland law by preserving the Pukkes’ ill-gotten gains for eventual return to their victims. Finally, the FTC points out that the state court pendente lite decree is a consent decree, i.e., it is one in which Andris Pukke, Pamela Pukke, and presumably their counsel themselves fixed the amount of money he would pay to her each month. Thus, in addition to a base payment of $30,000 per month, Pukke has agreed to pay the mortgages on family residences, private schooling for the parties’ children, and a host of other add-ons. His total average payments certainly approach, may even exceed, six figures per month. The FTC argues that Defendants should not be permitted to use their divorce proceedings to redistribute, shield, and divert assets that may ultimately belong to consumer victims.
The FTC also disputes Defendants’ reference to unspecified “IRS liens” as a reason for the Court to deny relief in this case. Under the same doctrine of constructive trust previously referred to, even if the IRS has placed liens on Defendants’ assets, those liens would not attach to property that was wrongfully obtained from consumers, precisely what the FTC alleges in this case. See FTC v. Crittenden, 823 F.Supp. 699, 703 (C.D.Cal.1993), aff’d, 1994 WL 59803 (9th Cir.1994). Defendants leave this argument unanswered.
The Court agrees with the FTC’s arguments and concludes that neither the AIA nor any possible IRS liens bar the granting of preliminary injunctive relief in the present case.

IV.

Turning to the order proposed by the FTC, which Defendants objected to, the Court, with a few minor exceptions, has adopted the order submitted by the FTC. Specifically:
1) The Court has named Robb Evans & Associates, LLC, Sun Valley, California as Receiver, based on that entity’s extensive experience in locating and marshaling assets, including those located offshore. The Court *566 566notes that Robb Evans has worked on over 100 asset retrieval cases and has marshaled over a billion dollars in assets. Despite the fact that Robb Evans is located in California, the Court accepts the FTC’s representation that much of the discovery in the case has already been conducted which can be shared electronically, so that any need for Robb Evans personnel to travel back and forth to Maryland will be limited;
2) The Court finds no Fifth Amendment problem in requiring Andris Pukke to provide information under oath. The Court’s Order simply requires him to provide an accounting of assets, a standard provision in asset freeze orders. When ordered to provide an accounting, Pukke will be free to assert any Fifth Amendment privilege he might have, after which the FTC may seek an order of contempt. At that point, the issue will be ripe for the Court’s consideration.See FTC v. Phoenix Avatar, 2004 WL 1746698, *13-15 (N.D.Ill.2004);
3) The Court has revised slightly the proposed order and has required that information be turned over in ten (10) business days rather than five (5);
4) As for the provisions requiring Defendants to provide information to the AmeriDebt Trustee, the Court has rejected Defendants’ argument that because the Trustee may have claims against the Defendants, he is an adverse party who should not have access to asset information. As the FTC points out, the Bankruptcy Code (11 U.S.C. § 543) provides that, to the extent a Receiver holds property of the bankruptcy estate, he is a custodian of that property and is obliged to turn it over at the Trustee’s request. If there is any overlap between the property of the bankruptcy estate and that of the receivership, the notice provisions of the Court’s order will enable the Trustee and the parties to sort these issues out in due course;
5) The Court has also rejected Defendants’ suggestion that their attorneys fees should routinely be subject to court review and approval as opposed to approval by the Receiver, or that payment of the fees should be consistent with Defendants’ retainer agreement. To the extent Defendants feel aggrieved by any decision of the Receiver in this regard they may always file a petition for review with the Court;
6) As for living expenses, the Court does not agree that Andris Pukke should be allowed to continue servicing existing mortgage payments or make payments to his wife pursuant to a consent pendente lite order of the Circuit Court for Montgomery County. Pukke may spend freely any income earned from gainful employment and, if need be, he can obtain financial assistance from his friends and family. He may also seek expenses from any frozen funds after prior written approval by the Receiver or the Court. As for mortgage payments, since Pukke’s residences will become Receivership property, the Receiver may take whatever acts are necessary to conserve, hold and manage these properties;
7) The Court believes that the FTC proposal regarding the periodic accounts of the Receiver is sensible. The Receiver must provide a preliminary report to the Court ninety (90) days after being appointed and thereafter at regular intervals of three (3) months until discharged. Any more *567 567frequent accounting would unnecessarily increase expenses. The Receiver’s compensation is always subject to Court approval;
8) Defense Counsel will be provided with copies of any Receiver’s reports filed with the Court;
9) As for ex parte filings by the Receiver, the Court accepts that this is a standard provision. The Receiver may file an ex parte Affidavit of Non-Compliance whenever any person or entity fails to deliver or transfer any Receivership Property or otherwise fails to comply with that person or entity’s obligations under the Order. The Court may also authorize Writs of Possession or Sequestration or other equitable writs requested by the Receiver, and the Court may take other appropriate action including requiring notice to Defendants;
10) As far as the power of the Court to compel trustees to turn over trust assets to the Receiver, the Order requires Defendants, not the trustees, to turn over trust assets to the Receiver. If Andris Pukke, who appears to maintain substantial de facto control over the trusts, violates this Order and fails to repatriate assets in the trusts, the FTC may move for contempt, at which point Defendants will be free to argue the impossibility of performance, an argument the Court may or may not find persuasive.

V.

For all the foregoing reasons, the FTC’s Motion for Preliminary Injunction (Paper No. 103) was GRANTED by Order of the Court dated April 20, 2005.
—————

Notes:

1. Earlier in these proceedings, AmeriDebt filed a petition under Chapter 11 of the Bankruptcy Code and Mark D. Taylor was appointed as the Chapter 11 Trustee. On March 25, 2005 the FTC announced a settlement with the AmeriDebt Trustee, which will not be final until the Bankruptcy Court and District Court enter orders approving it. Since the settlement agreement is not final, the Trustee appeared on behalf of AmeriDebt in these proceedings and advised the Court that he agrees that the relief requested by the FTC is “necessary to prevent the further erosion of the Estate assets.”
2. When questioned about the dissipation of assets at his March 24, 2005 deposition, Pukke invoked his Fifth Amendment right against self-incrimination. As a result, the FTC asserts and the Court agrees that in this civil proceeding the Court may draw appropriate adverse inferences against him with respect to the allegations of dissipation. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 318-19, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976);ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 179 (4th Cir.2002).
3. In support of this contention, the FTC cites a letter dated January 30, 2003 written by the attorney who created the trusts, Jonathan Gopman. In the letter Gopman explains that:
[O]ne of the benefits of [Pukke’s] foreign wealth protection structure is its ability to protect the underlying assets from the claims of future unforeseen creditors. The most effective method of protecting the underlying assets … is to hold [them] in an appropriate foreign jurisdiction and for each trust to have relatively few (if any) U.S. contacts. Therefore, should [Pukke’s] financial situation change or should he become (or potentially become) subject to litigation, I have informed him that it is important … to reevaluate the status of this structure and consider potential modifications that will help ensure the optimal protection of the underlying wealth.
4. Pamela Pukke joins Defendants in arguing that any order of this Court would violate the Anti-Injunction Act by interfering with a consent pendente lite order she and Andris Pukke entered into in divorce proceedings presently pending in the Circuit Court for Montgomery County, Maryland.
5. The FTC argues that Defendants misconstrue World Travel. There, they say, the Seventh Circuit held that Congress expected that the FTC could “at least” rely on Section 13(b) to halt a straightforward violation of Section 5. But rather than barring a reliance on Section 13(b) in more novel cases, as Defendants suggest, the World Travel court in fact observed that a “substantial argument can be made” that the FTC can rely on Section 13(b) “for any violation of a statute administered by the FTC.” 861 F.2d at 1028.

Add Annotation for this Paragraph

6. The FTC also points out that it is not required to prove individual consumer reliance or injury in order to ultimately prevail and obtain consumer redress; it need only establish that a material misrepresentation or omission was made that was likely to mislead consumers acting reasonably under the circumstances. FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir.2003); FTC v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir.1994); FTC v. Kuykendall, 371 F.3d 745, 764-66 (10th Cir.2004) (en banc). Moreover, the FTC disputes the relevance of the findings of Defendants’ two experts that few consumers complained to AmeriDebt about its practices or that some consumers actually benefitted from their debt management plans. The FTC argues that lack of consumer complaints is not a defense under the FTC Act, and that the measure of consumer injury is the amount paid by consumers for the product or service — regardless of the value gained. FTC v. Amy Travel Serv., 875 F.2d 564, 572 (7th Cir.1989); Detroit Auto. Purchasing Serv’s, Inc. v. Lee,463 F.Supp. 954, 968 (D.Md.1978); McGregor v. Chierico, 206 F.3d 1378, 1388-89 (11th Cir.2000); FTC v. Figgie Int’l, Inc., 994 F.2d 595, 605-06 (9th Cir.1993).
The Court need not resolve these issues at this juncture, which are more properly addressed at the summary judgment stage. For present purposes it will suffice if the FTC demonstrates that there is factual and legal authority for concluding that the FTC has a “fair and tenable chance of ultimate success on the merits.”
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Frank R. ZOKAITES, Appellant v. PITTSBURGH IRISH PUBS

Posted on: February 21, 2017 at 4:18 am, in

ZOKAITES v. PITTSBURGH IRISH PUBS LLC
Frank R. ZOKAITES, Appellant v. PITTSBURGH IRISH PUBS, LLC and Colm
McWilliams, Appellees.
Argued Sept. 24, 2008. — December 11, 2008

BEFORE: KLEIN, POPOVICH and FITZGERALD, JJ.*
Jeffrey A. Hulton, Pittsburgh, for appellant.Kurt L. Sundberg, Erie, for appellees.

1 Appellant Frank R. Zokaites appeals the order denying his Motion to Compel Member Interest to Sheriff as Trustee for Sale to Satisfy Judgment (Motion to Compel), which judgment was entered against Appellees Pittsburgh Irish Pubs, LLC and Colm McWilliams.1 We affirm.
2 A review of the record establishes the following undisputed facts; to-wit:
On November 21, 2005 [Appellant] obtained a judgment against [Appellees].[n. 1] On April 2, 2007, [Appellant] filed a writ of execution and unsuccessfully attempted to collect his judgment. Thereafter, on September 4, 2007 [Appellee] Pittsburgh Irish Pubs, LLC filed for bankruptcy under Chapter 11.
In an attempt to collect the outstanding judgment from [Appellee] Colm McWilliams, on September 24, 2007 [Appellant] presented to th[e trial c]ourt a Motion to Compel [․]. The Motion sought to compel [Appellee] Colm McWilliams to transfer his 20.5% outstanding member interests in [Appellee] Pittsburgh Irish Pubs, LLC and Molly Brannigans, LLC to the Allegheny County Sheriff for levy and sale. On September 24, 2007, th[e trial c]ourt granted the Motion to Compel and ordered [Appellee] McWilliams to transfer his member interests in [Appellee] Pittsburgh Irish Pubs, LLC and Molly Brannigans, LLC to the Sheriff.[n. 2]]] The Order noted that no one for [Appellees] appeared to contest the motion.
On October 3, 2007, [Appellee] McWilliams filed a Motion for Reconsideration of th[e trial c]ourt’s September 24, 2007 Order. Subsequently, th[e trial c]ourt granted the Motion for Reconsideration and vacated the order of September 24, 2007. Oral argument on the underlying Motion to Compel was held for October 4, 2007. At argument, bankruptcy attorney for [Appellee] Pittsburgh Irish Pubs informed th[e trial c]ourt of his intention to file a motion for extension of the automatic stay to [Appellee] Colm McWilliams in Bankruptcy Court. Based upon the representation of bankruptcy counsel for [Appellee] Pittsburgh Irish Pubs that the Motion to Extend the Stay would be immediately filed with the Bankruptcy Court, th[e trial c]ourt deferred a decision on the merits regarding the underlying Motion to Compel pending a decision by the Bankruptcy Court regarding the stay.
On November 27, 2007, Jeffrey A. Deller, United States Bankruptcy Judge for the Western District of Pennsylvania, entered an order denying [Appellee] Pittsburgh Irish Pubs’ Motion to Extend the Automatic Stay to [Appellee] McWilliams. Th[e trial c]ourt then scheduled re-argument on the Motion to Compel for February 11, 2008.[n. 3]
After argument on February 11, 2008 and consideration of the briefs filed by the parties, th[e trial c]ourt entered an order denying the motions to compel member interest on February 12, 2008.[n. 4].
_
Trial court opinion, 4/28/08, at 1-4, n. 1-4. Thereafter, on February 13, 2008, the order denying Appellant’s Motion to Compel was entered upon the docket pursuant to Pa.R.A.P. 301(a) (Requisites for an Appealable Order-Entry upon docket below). On March 5, 2008, Appellant filed a notice of appeal, which was followed by a Pa.R.A.P. 1925(b) statement on March 18, 2008, raising the question: “Whether the [trial c]ourt erred in holding that Pennsylvania law does not permit the [trial] court to compel the transfer of the member interest of a member of a limited liability company to the Sheriff for sale to satisfy a judgment against the member of the limited liability company?” Appellant’s brief, at 2.
3 In the process of unraveling the rights and obligations of Appellees against those of their creditors, we are guided by the principles set forth in the Statutory Construction Act of 1972, 1 Pa.C.S.A. §§ 1501-1991. See Hoffa v. Bimes, 954 A.2d 1241, 1244 (Pa.Super.2008); McCance v. McCance, 908 A.2d 905, 908 (Pa.Super.2006). Further, inasmuch as the present case involves Appellee McWilliams’ interest in various limited liability companies, the provisions of Pennsylvania’s Limited Liability Company Law2 will be examined to resolve the matter at hand. See Goldberg v. Winogradow, 2006 WL 3041979, *2, 2006 Conn.Super. Lexis 3067, *5 (filed October 12, 2006) (In assessing plaintiffs’ claim “seeking to satisfy their judgment through an order charging the defendant’s L[imited] L[iability] C[ompany] interests, analysis of the plaintiffs’ claims must be made not only in the context of [Connecticut] General Statutes § 52-356b, but also based on the limitations and guidelines set forth in the act.”). Lastly, in uncovering the intent of the General Assembly in enacting Chapter 89 (Limited Liability Companies), we may look to the Committee Comments to Chapter 89, which are intended to form the legislative history and be citable as such pursuant to 1 Pa.C.S.A. § 1939. See 15 Pa.C.S.A. § 8901 (Committee Comment-1994).
4 15 Pa.C.S.A. § 8924(a) defines “interest” of a member in a limited liability company as the “personal estate of the member and may be transferred or assigned as provided in writing in the operating agreement.” At first glance, it would appear that a member has carte blanche to transfer or assign his “interest” in a limited liability company. But the subsection cautions, “Unless otherwise provided in writing in the operating agreement, if all of the other members of the company other than the member proposing to dispose of his interest do not approve of the proposed transfer or assignment by unanimous vote or written consent, which approval may be unreasonably withheld by any of the other members, the transferee of the interest of the member shall have no right to participate in the management of the business and affairs of the company or to become a member. The transferee shall only be entitled to receive the distributions and the return of contributions to which that member would otherwise be entitled.” 15 Pa.C.S.A. § 8924(a). In the Comment immediately following Section 8924, we are further advised:
Unlike the Prototype Limited Liability Company Act, Chapter 89 does not define what a membership interest includes. Subsection (a) makes clear that a membership interest includes both economic rights and also rights to participate in the management of the business. If the nontransferring members do not unanimously approve of the transfer of a membership interest, the interest is divided into its economic rights (which are transferred) and its governance rights (which are not transferred). The implication is that if the other members do approve, a transfer of a membership interest will convey both the economic and the governance rights. See also 13 Pa.C.S.[A.] § 9318(d) and 15 Pa.C.S.[A.] § 8948.
Subject to a contrary agreement, a member can freely transfer only economic rights. Since the defined phrase “unless otherwise provided” is used in the second sentence of subsection (a), the contrary agreement may either relax that rule (e.g., permitting a transfer of governance rights without unanimous consent) or further restrict transfer (e.g., restricting the ability to transfer even economic rights).
****
By providing that a transfer or assignment does not convey governance rights absent unanimous consent, subsection (a) is intended to mean that generally all other rights of the member are transferred. Thus the transferee should ordinarily receive all tax benefits and burdens of a membership interest under flow-through taxation, including allocations of income, gain, loss, deductions and credits.
The “right to participate in the management of the business” that is retained by a member upon a nonapproved transfer is intended to include the right to vote, as well as rights to information and to compel dissolution of the company, and none of those rights will be available to the transferee. Some companies may wish to consider giving assignees a right to compel winding up to prevent them from being completely frozen in, and a right to information assignees need for tax purposes and to protect them from unfair dealing by the members. Alternatively, the assignor and assignee can contract or coordinate regarding the exercise of the retained rights of the assignor.
The provisions on transfer or assignment of a membership interest that the first sentence of subsection (a) authorizes to be set forth in writing in the operating agreement are intended to include, among other things, all of the provisions that the Delaware Limited Liability Company Act authorizes to be set forth in the limited liability company agreement of a Delaware limited liability company. 6 Del.Code § 18-101(7)a [․].
15 Pa.C.S.A. §8924 (Amended Committee Comment (2001)) (Supp. 2008) (emphasis added).
5 As is evident from a plain reading of the Section 8924 and the comments thereto,3 a membership interest in a limited liability company encompasses both economic rights (flow-through of monies and tax consequences) and governance rights (participation in the management of the business). Furthermore, Section 8924 proscribes the transfer of a member’s interest unless the non-transferring members approve the transaction. Absent unanimous approval, the member’s interest is divided into economic rights (which are transferred) and governance rights (which are not transferred). Subject to a contrary operating agreement, a member can freely transfer only economic rights.
6 Herein, albeit not privy to the operating agreement of Appellee McWilliams’ limited liability companies, Appellant advises, “The Operating Agreement[] of [. Appellee] Pittsburgh Irish Pubs, LLC provide[s] that in a case of involuntary transfer of a member’s interest, there is a right of first refusal for the company to purchase the interest, thus precluding the interests being levied upon, delivered to the Sheriff and sold at execution proceedings.” Appellant’s brief, at 4. This translates into a proposition where, as here, the judgment creditor (Appellant) attempts to obtain a debtor’s interest in a limited liability company and the resulting interest is divided in two-Appellant obtains the economic rights and the member-debtor (Appellee McWilliams) retains the governance rights. See Trial court opinion, 4/28/08, at 5.
7 There is a dearth of cases in this jurisdiction interpreting the scope of Pennsylvania’s Limited Liability Company Law. Notwithstanding such a fact, we are not without guidance as our sister states have dealt with an issue similar to the one presented here. Of those cases, the most influential is Brant v. Krilich, 835 N.E.2d 582 (Ind.Ct.App.2005), which dealt with Appellant Brant’s appeal of the trial court’s decision that, inter alia, Appellee Krilich was entitled to Appellant’s ownership interest in several limited liability companies (LLCs). It appears that Krilich and Brant entered into an agreement with respect to a shopping center in Florida, which Krilich agreed to purchase in return for a guarantee from Brant that the shopping center would produce an amount equal to 9-1/2% of Krilich’s 80% investment. When the shopping center failed, Krilich filed a complaint against Brant in Florida in the amount of $2,310,367.51 plus interest. The parties dismissed the complaint by stipulation, but it was reinstated by agreement on March 26, 1997. Almost two-and-one-half years later, each party filed motions for summary judgment. Krilich’s motion was granted and subjected Brant’s personalty to attachment and garnishment to satisfy the judgment. Brant’s cross-motion was also granted to deny Krilich a lien against Brant’s real estate. On appeal, the Court of Appeals of Indiana determined that the trial court erred in concluding that Krilich could not maintain a lien against Brant’s real property in Indiana with the domestication of the Florida judgment. However, as is herein relevant,
[T]he biggest point of contention among the parties throughout this proceeding is whether Krilich may be awarded Brant’s interests in the LLCs. The simple answer is “Yes.” Nonetheless, that interest is much more limited than that sought by Krilich. Indeed, that interest is limited to economic interests and nothing more.
Article 18 of Title 23 of the Indiana Code (Burns Code Ed. Repl. 1999), known as the Indiana Business Flexibility Act, controls the creation and operation of the LLCs in Indiana. Indiana Code § 23-18-6-2 states that the “interest of a member in a limited liability company is personal property.”
Krilich argues that because the interest in an LLC is personal property, it is subject to execution and a charging order is not the sole remedy for a judgment creditor, as argued by Brant, in seeking to satisfy a judgment against an owner of an LLC. Once again, we have little argument with Krilich’s position although the execution against the interest in an LLC would be indistinguishable from a charging order against an LLC because of the limitation of the term “interest” by the General Assembly.
Indiana Code § 23-18-1-10 defines “interest” as a “member’s economic rights in the limited liability company, including the member’s share of the profits and losses of the limited liability company and the right to receive distributions from the limited liability company.” Thus, while personal property is subject to execution according to Indiana Code § 34-55-8-2 (Burns Code Ed. Repl. 1998), the interest here is limited by I[ndiana] C[ode] § 23-18-1-10 to the economic rights and nothing more. Through execution Krilich may not receive any of Brant’s rights to participate in management, nor may Krilich inspect the books or records of the LLCs. See CALLISON, § 4:5 at 59 (stating that judgment creditors obtain no right to participate in management, inspect the books or records, or to force a sale of the membership interest).
The effect of this is essentially that a charging order is the only remedy for a judgment creditor against a member’s interest in an LLC. Indiana Code § 23-18-6-7 states that a judgment creditor may seek a charging order upon application to the court. To the extent a charging order is granted, the judgment creditor has only the rights of an assignee of the member’s interest in the LLC. Consequently, in any future proceeding, Krilich is not entitled to Brant’s membership in any LLC but may be able to receive a charging order against Brant’s interest[, which relates to his economic stake in the LLCs and not a management role].
Brant, 835 N.E.2d at 592 (footnote omitted); accord Goldberg, supra, 2006 WL 3041979, at *2, 2006 Conn.Super. Lexis 3067, at *5 (In an effort to collect a judgment, plaintiffs filed an application with court seeking an order that defendant turn over to a levying officer his shares in two limited liability companies; court refused: “The plaintiffs are attempting to assume the defendant’s ownership, rather than just the shares or profits to which the defendant may be entitled. The transfer of an ownership interest entails participation in the ‘management and affairs’ of the L[imited] L[iability] C [ompany]. This request is specifically proscribed by the language of [Connecticut] General Statutes § 34-170(a)(3). Because the plaintiffs are seeking an ownership interest, rather than merely [․] the right of an assignee of the defendant’s profits, the plaintiffs’ requests exceed the scope allowable for a charging order under General Statutes § 34-171. Consequently, this court denies [the plaintiffs’] application for order in aid of execution.”).
8 It is manifest from reading Pennsylvania’s Limited Liability Company Law, and the decisions of our sister states interpreting similar laws, that the purpose sought by our Legislature in promulgating our limited liability company statute was to preclude a judgment creditor from securing more than repayment of his debt by means of a “charging order,” which is the remedy for a judgment creditor against a member’s interest in a limited liability company. See Trial court opinion, 4/28/08, at 6, n. 5 (“[H]ere a transfer of [Appellee] McWilliams’ actual certificates and rights to participate in the management of the limited liability companies to [Appellant] would be inappropriate. [Appellant’s] proper remedy is to seek an order from th[e trial c]ourt for the distributions and the return of contributions to which [Appellee] McWilliams is entitled to from the L[imited] L[iability] C [ompanie]s[-This remedy is equatable to the charging order provided by Pennsylvania’s Partnership and Limited Partnership statutes. 15 Pa.C.S.A. § 8345; 15 Pa.C.S.A. § 8563].”); see also Brant, 835 N.E.2d at 592; PB Real Estate, Inc. v. DEM II Properties, 50 Conn.App. 741, 719 A.2d 73, 74 (1998) (After obtaining a deficiency judgment resulting from a mortgage foreclosure against defendants, plaintiff applied, pursuant to state statutes, for a charging order directed to a limited liability company; plaintiff was attempting to satisfy judgment from payments becoming due to individual defendants, each of whom owned a share of limited liability company).
9 Appellant cites Gulf Mortgage and Realty Investments v. Alten, 282 Pa.Super. 230, 422 A.2d 1090 (1980), to buttress the contention that a transfer of Appellee McWilliams’ membership interest in his limited liability companies is the appropriate remedy in this case. We think not.
10 The question posed in Gulf Mortgage was whether a judgment creditor may execute upon the shares of stock of a professional corporation involved in the practice of law. This Court held that the shares of the professional corporation were not exempt specifically from levy and execution by the provisions of Pennsylvania’s professional corporation law. On the contrary, although Pennsylvania’s professional corporation law may have prevented unlicensed persons from exercising control of shares obtained by judicial sale, it did not prevent the shares from being seized and sold to licensed persons or back to the corporation, or otherwise disposed of upon dissolution of the corporation. To hold otherwise would have been contrary to the public policy that debtors should pay their debts. Gulf Mortgage, 422 A.2d at 1097.
11 Herein, in contrast to Gulf Mortgage, Pennsylvania Limited Liability Company Law prohibits transferring or assigning a member’s interest without the unanimous approval of other members of the company. When such approval is not forthcoming, a judgment creditor is still entitled to the debtor-member’s economic rights (which are transferable) to satisfy the member’s indebtedness by seeking an order of court for the distributions and the return of contributions which Appellee McWilliams is entitled to from his limited liability companies. See 15 Pa.C.S.A. § 8924(a), Amended Committee Comment (2001) (Supp. 2008).4 When Appellant attempts to expand his recoupment efforts from one of just securing economic rights to also obtaining governance rights, we find this approach proscribed when viewed against the backdrop of Pennsylvania’s Limited Liability Company Law and applicable case law. See Brant; Goldberg, supra.
12 Accordingly, we affirm the order denying Appellant’s Motion to Compel the transfer/assignment of Appellee McWilliams’ member-interest in his limited liability companies to the sheriff for sale.
13 Order affirmed.
FOOTNOTES
1. Appellant is seeking to execute on certificates of ownership that Appellee McWilliams has in the entities known as Molly Brannigans, LLC and Appellee Pittsburgh Irish Pubs, LLC, the former of which is the entity that owns and operates the restaurant, while Appellee Pittsburgh Irish Pubs, LLC owns the real estate upon which the restaurant is located. Appellee McWilliams owns 20.5% of the outstanding member interests in both of these entities.It would appear that Appellee McWilliams persuaded Appellant to be an investor and also to make a loan to Appellee Pittsburgh Irish Pubs, LLC in the amount of $100,000.00. The loan was guaranteed by Appellee McWilliams. When Appellee Pittsburgh Irish Pubs, LLC defaulted on the loan, Appellant obtained a judgment by confession against Appellees in the amount of $121,980.50. Appellant’s brief, at 6.
FOOTNOTE. FN[n. 1] A Complaint in Confession of Judgment was filed by [Appellant] against [Appellees] in the amount of $121,980.50 plus continuing interest.
FOOTNOTE. FN[n. 2] The Order further provided that if the original member interests have not been issued or cannot be found or located within 5 days from the date of this order, [Appellee] McWilliams is directed to execute an affidavit to that effect and directed to cause [Appellee] Pittsburgh Irish Pubs, LLC and Molly Brannigans, LLC to issue the original certificates or to issue replacement certificates and to transfer the certificates to the Sheriff for levy and sale. Further, it was ordered that [Appellee] McWilliams shall be held in contempt of Court upon his failure to perform the foregoing acts and that the Allegheny County Sheriff is directed to enforce this Order an[d] to take [Appellee] McWilliams into custody and to transport[] him to th[e trial c]ourt for further contempt proceedings.
FOOTNOTE. FN[n. 3] On February 1, 2008 [Appellant] filed another Motion to Compel [Appellee] McWilliams’ Member Interest Transfer in Erie Irish Pubs, LLC and requested that the [trial c]ourt[] consider the Motion in conjunction with the previously filed Motion to Compel Member Interests in [Appellee] Pittsburgh Irish Pubs, LLC and Molly Brannigans, LLC.
FOOTNOTE. FN[n. 4] This Order encompassed both the Motion to Compel Member Interests in [Appellee] Pittsburgh Irish Pubs, LLC and Molly Brannigans, LLC and the Motion to Compel Member Interest Transfer in Erie Irish Pubs, LLC.
2. The Act of December 7, 1994, P.L. 703, No. 106, § 4, 15 Pa.C.S.A. § 8901 et seq.
3. 1 Pa.C.S.A. § 1921(b) states that when interpreting a statute whose words are clear and free from ambiguity, one may not disregard the letter of the statute under the pretext of pursuing its spirit.
4. 15 Pa.C.S.A. § 8924 expounds upon the limitations on the assignability or transferability of interests in a limited liability company, as well as explicitly stating that unless the operating agreement provides otherwise, an assignee or transferee only becomes a member of a limited liability company if the other members consent unanimously. There is no justification for this Court to ignore the intent of our Legislature to protect the close-knit structure of a limited liability company and violate the other members’ interests and rights by declaring that they must accept a judgment creditor of a member into full membership with all the rights appurtenant thereto when the judgment debtor could not transfer those rights himself. See also Brant, 835 N.E.2d at 592 n. 20.
OPINION BY POPOVICH, J.: