Over the past 20 years, the attorneys at my divorce law firm here in New Jersey have handled countless cases involving family-owned businesses. From a lawyer’s perspective, a divorce case becomes quite complicated when one spouse is a member of a family owned business while the other spouse is not involved whatsoever.
When representing the spouse in a New Jersey divorce who does not have a concern with the business, they need their attorney to discover facts in order to ensure that they receive their rightful amount of support and equitable distribution with respect to their marital interest. On the other hand, as a lawyer representing the person involved in their family’s business, we must explain that their family (mother, father, siblings, etc.) must cooperate with the discovery process. Now I embrace that a “family” wants to do whatever they can to protect the business, which may have been around for generations. However, if that litigant’s family does not comply with any and all court orders regarding discovery, the family member getting divorced may face paying attorneys fees for their soon to be ex-spouse. Moreover, the other family members may face sanctions to the Superior Court of New Jersey. Let’s explore.
Discovery, is a pre-trial procedure in a divorce in which each party can obtain evidence from the other party or parties by means of discovery devices such as a request for answers to interrogatories, and request for production of documents. As an experienced family law attorney I know first-hand how integral divorce is to a divorce proceeding. Discovery is the backbone of the evidentiary and factual record, and New Jersey Family Part courts place great importance on the proper production of these documents. The court will go so far as to award counsel fees as sanctions to third parties that fail to comply with discovery demands.
In Gore v. Gore, during the course of the divorce proceeding, husband John E. Gore sought discovery from his wife’s attorneys, Durnan & Associate, LLC, as to her, Sarah Gore’s interest in the same entity. William Durnan, the appellant, is Sarah’s father and the manager of Durnan & Associates. Durnan appealed the trial court’s orders awarding attorney’s fees and costs to John as sanctions for Durnan’s failure to comply with John’s discovery requests, and the subsequent denial of reconsideration. The New Jersey Appellate Division reviewed the record in consideration of the contentions advanced on appeal, and affirmed the trial court order.
The discovery in this divorce case revealed that Sarah reported non-passive income and dividends from her ownership in the LLC. As a result, John filed a subpoena for Durnan to produce business records and appear for a deposition regarding the LLC. Durnan countered by moving to quash the subpoena. He stated, among other reasons, that there was no income available to Sarah as a consequence of her ownership interest in the LLC, and thus, any discovery into the entity was “irrelevant, futile and harassing.”
The Family Part judge handling the motion wrote a comprehensive and detailed opinion, and determined that John was permitted to “probe and determine whether the asset is one that is relevant to the issue of determining support in this matter.” Then, the judge noted that Sarah listed the LLC as an asset on her case information statement. A Case Information Statement is a document which is filed with the court setting forth the financial details of your case. The required information includes your income, your spouse’s/partner’s income, a budget of your joint life style expenses, a budget of your current life style expenses including the expenses of your children, if applicable, an itemization of the amounts which you may be paying in support for your spouse/partner or children if you are contributing to their support, a summary of the value of all assets. It is extremely important that the Case Information Statement be as accurate as possible because you are required to certify that the contents of the form are true. It helps establish your lifestyle which is an important component of alimony/spousal support and child support.
The motion judge also noted that the parties had filed a joint federal tax return that reported the non-passive income and dividends. Because of its inclusion on the case information statement, and the joint tax return, the judge found that the LLC was “a relevant consideration when considering the alimony factors and/or equitable distribution factors. . . of this matter and [is] within the rage of matters that should be discoverable.” As a result, the motion to quash was denied under an order dated September 27, 2013, with the judge reserving the right to asses fees against any party that was uncooperative or failed to negotiate in good faith.
Another subpoena was issued on February 7, 2014, which requested the production of specific documents from Durnan. While Durnan did provide some of the requested documents, and an affidavit in response to the second subpoena, John contended that the supplied documentation was “materially deficient: and failed to address specific requests set forth in the subpoena. Subsequently, the Family Part judge ordered, on two separate occasions, that Durnan comply with the subpoena. In January 2015, John filed a motion which sought three things. First, to direct Durnan and to produce the records requested in the subpoena. Second, to find Durnan and the LLC in contempt of the previous orders. And finally, to impose counsel fees and costs against Durnan. In response, Durnan provided a seven page letter to the judge in response to the motion, and appeared pro se at oral argument on the motion. Durnan argued that he had either provided the requested documents or the documents did not exist and. He also claimed that Sarah had never received any money from the LLC.
The second Family Part Judge noted that Durnan had failed to produce discovery documents and responses. Moreover, neither Sarah nor Durnan had provided him with enough documentation to determine if Durnan had completely complied with the subpoenas. Therefore, the judge again ordered Durnan to comply with the subpoenas, also specifically to provide statements from the LLC accounts. The judge further granted counsel fees and cost under Rule 4:23-2, to be paid within ten days. If Durnan failed to pay the fees, the order provided that John could request a civil arrest warrant to the judge for his consideration.
Durnan filed an order to show cause for reconsideration. He argued that he was in substantial compliance with the subpoena requests, and that the judge lacked authority to issue sanctions against him as a non-party. His application was denied and Durnan appealed to the New Jersey Appellate Division. On appeal Durnan argued that as a non-party to the divorce he could not be subject to sanctions under Rule 4:23-2(b).
The New Jersey Appellate Division is required to give deference to the Family Part’s decision because the court’s special jurisdiction and expertise in family matters. The New Jersey Appellate Court, however, does not owe a similar deference to a trial judge’s interpretation of the law and the legal consequences that flow from established facts.
Durnan was issued a subpoena under Rule 1:9-2 for the production of documents and attendance at a deposition. Instead of a response, Durnan filed a motion to quash the subpoena. The motion was denied in a detailed written opinion. During the course of the next two years, John requested numerous other documents from Durnan. His failure to comply with these requests resulted in the issuance of two more subpoenas. Ultimately John filed the motion to find Durnan in contempt of the prior orders, and failure to obey the subpoena. Durnan, of course, opposed all of these requests and subpoenas. He stubbornly maintained his belief that the LLC and his monetary matters were not important to the divorce litigation. The New Jersey Appellate Division found that the Family Part judge acted properly in at this point in considering the request the sanctions which he deemed appropriate. The appellate panel found it has been customary to award court costs and counsel fees as necessary to prosecute or defend a matrimonial action in an efficient manner. Furthermore, a trial court has inherent discretionary power to impose sanctions for failure to make discovery, subject only to the requirement that they be just and reasonable given the circumstances. Generally, an appellate court will not interfere in the trial court’s ruling on discovery matters unless there is an abuse of discretion. Therefore, the New Jersey Appellate Division was justified in imposing sanctions against Durnan and the LLC. The counsel fee award was in response to Durnan’s flagrant disobedience and non-compliance with three years of orders.
If you face a similar situation, please contact my office to learn more about how we may help you.