Law Lessons from Puerta v. Puerta, N.J. Super. Chanc. Div. (Jones, J.S.C.), DOCKET No FM-15-589-14, April 7, 2016:
The entire controversy doctrine is a rule which generally requires a party to bring all claims against the other party in the same case, so as to prevent fragmented litigation. The rule, however, is not absolute, particularly when weighed against other important policies and principles of fairness in a court of equity.
Under Rule 1:1-2 and Rule 4:50-1(f), the family court may, in order to prevent a substantial injustice, exercise discretion to reopen previously completed divorce proceedings to address issues of equitable distribution which were not otherwise addressed or waived in a matrimonial settlement agreement, or raised by either party in a formally filed “Notice of Final Judgment” under Rule 5:5-10.
New Jersey’s equitable distribution statute, N.J.S.A 2A:34-23.1 was enacted on September 13, 1971, and in pertinent part stated the following:
In all actions where a judgment of divorce . . . is entered, the court may make such award . . . to the parties, in addition to alimony and maintenance, to effectuate an equitable distribution of the property . . . which was legally and beneficially acquired by them during the marriage.
In Sibilia v. Sibilia, 123 N.J. Super 211 (Ch. Div. 1973), the trial court implemented a strict interpretation of the specific statutory language, “is entered”, to conclude that an application for equitable distribution by a party must be made pre-judgment, as part of the divorce action. Further, the Sibilia conclusion is essentially that when a judgment of divorce “is entered” without addressing equitable distribution, such omission may result in the loss of any equitable distribution claims . Said Sibilia: “The court can only act to distribute equitably property acquired during the marriage if the prayer for that relief is before it at trial.” Id. at 212.
The present, 2016 version of the equitable distribution statute, though amended and modified since its original enactment still contains the “is entered” language which was the focal point of Sibilia. Specifically, N.J.S.A. 2A:34-23(h) sets forth , in pertinent part, the following:
. . . (I)n all actions where a judgment of divorce . . . is entered, the court may make such award . . . to the parties, in addition to alimony and maintenance, to effectuate an equitable distribution of the property . . . which was legally and beneficially acquired by them during the marriage . . . .
Sibilia was a brief trial court opinion which is now over forty years old. The opinion did not provide significant factual detail of the specific factual circumstances underlying the matter, including much information about why plaintiff had allegedly not sought equitable distribution at the time of the divorce in the first place. Further, the decision was issued very shortly after the effective date of the Legislature’s original enactment of New Jersey’s equitable distribution statute, and before there was any significant opportunity for the impact of the Act to take root and grow as a matter of fundamental matrimonial law, remedial legislation and social policy in New Jersey. Further, Sibilia had no major history of extensive interpretation in subsequent reported case law.
Sibilia did not address certain additional equitable principles and factors which are sufficiently important to warrant analysis and consideration. These additional factors include, but are not limited to: (1) the flexible nature of the entire controversy doctrine under Rule 4:30(A), relative to a liberal and remedial interpretation of the equitable distribution statute; (2) the applicability of Rule 1:1-2 and Rule 4:50-1(f) to accomplish equity and fairness; (3) the policy of avoiding forfeiture and unjust enrichment in a court of equity , and (4) the social significance of equitable distribution itself.
A strict, Sibilia-type reading and interpretation of the language of equitable distribution statute does not summarily bar a court from considering, as a matter of fundamental fairness, a party’s post judgment application for equitable distribution of the parties’ real property on its substantive merits. To the contrary, as a matter of equity, the right of a partner in a long-term marriage to fairly share in the value of the parties’ major marital asset is strongly supported by the spirit of the equitable distribution statute itself, which may outweigh any generalized competing need to prohibit the claim in order to discourage fragmented litigation.
The entire controversy doctrine is presently set forth in Rule 4:30A, and generally requires parties to raise all transactionally related claims in the same action. K-Land Corp. v. Landis Sewerage Auth., 173 N.J. 59, 69-71 (2002). The doctrine reflects a long-held preference that related claims and matters arising among related parties be adjudicated together rather than in separate, successive, or fragmented litigation. Kent Motor Cars, Inc. v. Reynolds and Reynolds, Co., 207 N.J. 428, 443 (2011). Rule 4:30A seeks to avoid piecemeal issues or duplicate lawsuits. Id. at 445. New Jersey courts have held that the entire controversy doctrine may be applied in family court actions. See Brennan v. Orban, 145 N.J. 282, 290 (1996); Oliver v. Ambrose, 152 N.J. 383, 394 (1990).
The entire controversy doctrine, however, is not so rigid and inflexible as to mandate a prohibition against further claims in every single instance, regardless of the specific facts and equities presented. As noted by the New Jersey Supreme Court, the polestar for the application of the entire controversy doctrine is judicial fairness. K-Land v. Landis Sewerage, supra, 173 N.J. at 74; Oliver v. Ambrose, supra, 152 N.J. at 395-96. Thus, despite its policy supporting joinder of claims, the boundaries of the entire controversy doctrine are not limitless. It remains an equitable doctrine whose application is left to judicial discretion based on the factual circumstances of an individual case. Brennan v. Orban, supra, 145 N.J. at 290. While there is a goal of achieving economy of judicial resources, there is also a purpose of ensuring fairness to parties. Kent Motor Cars , supra, 207 N.J. at 443. The means of accomplishing these goals rest with the court. Id. at 445. [Judicial economy is only one consideration, and such concerns do not always automatically override the overall objective of fairness to litigants. See Oliver, supra, 152 N.J. at 403. Hence, equitable considerations may relax mandatory joinder requirements when joinder would be unfair. Id. at 395-96. Rule 4:30A requires joinder of claims, but grants authority to a trial judge to create a “safe harbor” in an appropriate case. Kent Motor Cars, supra, 207 N.J. at 445.]
Hence, depending on the factual circumstances of a case, and in the spirit of achieving fairness, a court of equity may in appropriate circumstances consider the substance of a matter, notwithstanding the competing policy considerations behind the entire controversy doctrine.
There are at least two court rules which, by their nature, arguably permit equitable relaxation of Rule 4:30A and the entire controversy doctrine in appropriate circumstances. The first rule is Rule 1:1-2, which states that unless otherwise stated, any rule may be relaxed or dispensed with by the court in which the action is pending if adherence would result in injustice. [Further, Rule 1:3-4 permits a court to enlarge the time fixed for the doing of an act except as expressly prohibited by law. While Rule 1:3-4(c ) itemizes certain rules that cannot be relaxed, Rule 4:30A is not included on the list. Accordingly, by inference, a court of equity has the ability to relax Rule 4:30A and the entire controversy doctrine when necessary to prevent an injustice.] The second rule is Rule 4:50-1(f) , which states that a court may relieve a party from a final judgment or order for various stated reasons, including “any other reason justifying relief from the operation of the judgment or order.” While Rule 4:50-2 generally requires that a “Rule 4:50-1” motion for relief based upon fraud or mistake be filed within one year of the date of the judgment or order at issue, this limitation does not necessarily apply to a motion for relief brought under Rule 4:50-1(f). Pursuant to Rule 4:50-1(f), a court may afford relief at any time in exceptional circumstances, provided such application is filed within a reasonable time under such circumstances. See Moore v. Hafeeza, 212 N.J. Super 399, 406-07 (Ch. Div. 1986). Accordingly, a court may under appropriate factual circumstances relax the procedural rules regarding the entire controversy doctrine in order to achieve fairness and equity.
Generally speaking, equity abhors forfeiture. See Dunkin’ Donuts of America, Inc. v. Middletown Donut Corp., 100 N.J. 166, 182 (1985); McQueen v. Brown and Cook, 342 N.J. Super 120, 130 (App. Div., 2001). A denial of a party’s ability to pursue equitable distribution may, in some cases, be essentially tantamount to a forfeiture of that party’s legitimate interest in a major asset of the marriage. Further, a party’s involuntary or unknowing forfeiture may consequently result in an unjust enrichment of the other party. Unjust enrichment rests on the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another. See, e.g., Goldsmith v. Camden County Surrogate’s Office, 408 N.J. Super. 376, 382 (App. Div. 2009); Callano v. Oakwood Park Homes Corp., 91 N.J. Super. 105, 108 (App. Div. 1966). When a person receives a benefit, and it is inequitable to permit that person to retain the benefit without paying fair compensation or consideration for same, the doctrine of unjust enrichment permits a court of equity to fashion an appropriate remedy.
The concept of avoiding forfeiture and unjust enrichment is particularly compelling in the realm of family court and equitable distribution, a right which the New Jersey Legislature has considered significant enough to warrant the implementation of an entire multi-part statute, N.J.S.A. 2A:34-23.1. This statute sets forth a series of specific factors for a court to consider in determining how to equitably distribute marital assets, [New Jersey’s equitable distribution statute, N.J.S.A 2A:34-23.1, includes the following factors for judicial consideration:
1) the duration of the marriage or civil union; 2) the age and physical and emotional health of the parties; 3)the income or property brought to the marriage or civil union by each party; 4)the standard of living established during the marriage or civil union; 5) any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution; 6) the economic circumstances of each party at the time the division of property becomes effective; 7) the income and earning capacity of each party, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for the children, and the time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonable comparable to that enjoyed during the marriage or civil union; 8) the contribution by each party to the education, training or earning power of the other; 9) the contribution of each party to the acquisition, dissipation, preservation, depreciation, or appreciation in the amount or value of the marital property, or the property acquired during the civil union as well as the contribution of a party as a homemaker; 10) the tax consequences of the proposed distribution to each party; 11) the present value of the property; 12) the needs of a parent who has physical custody of a child to own or occupy the marital residence or residence shared by partners in a civil union couple and to use or own household effects; 13) the debts and liabilities of the parties; 14)the need for creation, now or in the future, of a trust fund to secure reasonable medical or educational costs for a spouse, partner in a civil union couple or children; 15) the extent to which a party deferred achieving their career goals; 16) any other factor which the court may deem relevant.] and is read in conjunction with N.J.S.A. 2A:34-23(h), which as previously referenced, authorizes the family court to effectuate an equitable distribution of the property, both real and personal, which was legally and beneficially acquired by them or either of them during the marriage, in all actions where a judgment of divorce is entered. In this case, a judgment of divorce has in fact previously been entered, but was done so in this very same action. Pursuant to Rule 4:50-1 and Rule 1:1-2, the case may potentially be re-opened in order to accomplish fairness under the totality of the specific factual circumstances by addressing equitable distribution of the parties’ jointly purchased real estate, which simply was not adjudicated one way or the other in the pre-judgment proceedings.
The distribution of marital property is responsive to the significant concept that marriage is a shared enterprise, a joint undertaking that is in many ways akin to a partnership. Rothman v. Rothman 65 N.J. 219, 229 (1974). In Rothman, the New Jersey Supreme Supreme Court underscored the importance of one’s right to equitable distribution, and acknowledged the role of a supportive spouse as a homemaker, spouse and parent, as warranting one’s right to a fair share of family assets accumulated during the marriage. Ibid. Rothman further emphasized that the non-remunerated efforts of raising children, making a home, performing a myriad of personal services and providing physical and emotional support are, among other ingredients of the marital relationship which are entitled to substantial recognition. See Gibbons v. Gibbons, 174 N.J. Super 107, 113 (App. Div. 1980), rev’d on other grounds 86 N.J. 515 (1981).
In divorce litigation, equity in a home is often the parties’ primary marital asset. See Daeschler v. Daeschler 214 N.J. Super 545, 553 (App Div. 1986). [Equitable distribution generally covers the period of time from the date of marriage to the date of filing of the complaint for divorce. See Painter v. Painter, 65 N.J. 196, 218 (1974).] For this reason, a fair equitable distribution of the equity in such property is often critical to each party’s ongoing financial stability. As stated in Daeschler, one of the main remedial goals of equitable distribution is “assuring the financial protection of the family.” Id.
The desirability of addressing equitable distribution of marital real estate, based upon the substantive merits and a fair assessment of the statutory factors, rather than by procedural default and forfeiture, was recently addressed in a different context by this court. In Clementi v. Clementi, 434 N.J. Super. 529 (Ch. Div. 2013), plaintiff-wife filed for divorce from defendant-husband following a long term marriage. The parties’ major marital asset was in fact their marital home After defendant defaulted, plaintiff filed a notice of final judgment, seeking sole ownership of the home and all of its equity.
Even though defendant had defaulted, the Clementi court declined to substantively determine the matter simply by virtue of defendant’s default itself. Instead, although defendant had defaulted, the court held that plaintiff still maintained an affirmative obligation to demonstrate why, following a long term marriage and under the totality of the circumstances, it would be fair and equitable to grant her request for an award of the entire equity in the parties’ marital home, to the complete exclusion of the other party, and how principles of equity would support such an unusual and one sided result. Id. at 538.
While a party’s failure to appear in divorce litigation is a relevant factor for consideration, it certainly is not the only factor upon which to base a judicial decision regarding ownership of the equity in significant marital property. Ultimately the goal of equitable distribution is to bring about a just division of marital assets. See Steneken v. Steneken, 183 N.J. 290, 299 (2005); Clementi, supra, 434 N.J. Super at 538. Clementi supports the appropriateness of effectuating equitable distribution of the former marital home through judicial analysis under the under the totality of the circumstances, rather than by limiting such analysis to the single issue of whether one party to the marriage failed to appear in the divorce litigation. Id.
Sometimes, a court must consider two or more relevant policies or goals which appear to conflict with each other. In such instances, a court must logically constructively interpret, analyze, and ultimately balance the conflicting policies and comparative factors, and determine from a matter of justice, fairness, and common sense, which policy and goal logically prevails. In this case, the purpose and goal of the entire controversy doctrine must be balanced against the purpose and goal of fairness relative to equitable distribution, particularly where there has never at any time been (1) any previous substantive judicial analysis of same, (2) any formal request by either party for such an analysis at an earlier date, or (3) any waiver and release of equitable distribution claims in a settlement agreement.
Even if a court does , in a particular factual circumstance, re-open a case upon post-judgment application to consider previously unaddressed issues of equitable distribution, such a decision does not mean that the entire controversy doctrine is somehow rendered irrelevant. Nor may a party seeking divorce be permitted to unilaterally and intentionally bifurcate his or her own case by purposefully leaving equitable distribution on the side, with a plan to come back after the fact and initiate a claim for equitable distribution. Certainly, the entire controversy doctrine is a viable concept in family court. Further, intentional bifurcation in family actions is generally prohibited except in rare cases. See Frankel v. Frankel, 274 N.J. Super 585, 591 (App. Div. 1994). Accordingly a divorce litigant’s premeditated plan to effectuate a self-created bifurcation, without requisite pre-approval and authorization by the court, would be fundamentally inappropriate. Direct or circumstantial evidence of such intent might well lead a court to deny a plaintiff’s claim to re-open a case to address equitable distribution after the fact.
Not every case, however, gives rise to such circumstances. Ultimately, facts rather than principles of law generally decide cases. McKinley v. Naters, 419 N.J. Super 205, 211 (Ch. Div. 2010). Moreover, equity never permits a rigid principle of law to smother the factual realities to which it is sought to be applied. American Assoc. of Univ. Profs v Bloomfield College, 129 N.J. Super 249, 274 (Ch. Div., 1974), aff’d, 136 N.J. Super 442 (App. Div., 1975). Even in default situations, the rules are flexible enough permit courts to vacate and re-open defaults or at times even default judgments, under appropriate and equitable factual circumstances. See Rule. 4:43-3 (permitting court to set aside default for good cause), and Rule 4:50-1.
As a matter of fairness, and without in any way undermining the continued viability of the entire controversy doctrine, a family court may logically consider various equitable factors, and exercise reasonable discretion in determining, on a case by case basis, on whether to re-open prior uncontested divorce proceedings for the limited purpose of effectuating equitable distribution of a previously unaddressed major marital asset. By way of illustration and not limitation, such factors may include, but are not necessarily limited to, the following questions and considerations:
A) Why did the applicant not address equitable distribution in the underlying divorce litigation (i.e., mistake, excusable neglect, fraud by other party, etc)?
B) Would the applicant have likely had a significant entitlement to equitable distribution of the asset at issue, i.e., a meritorious claim of substance and a reasonable likelihood of success on the merits, had either party filed a request for equitable distribution in the divorce litigation?
C) Did the applicant expressly waive a claim for equitable distribution in a prior settlement agreement or divorce proceedings?
D) How much time has passed since the entry of the judgment, and if significant time has in fact passed since the judgment of divorce, why did the applicant not bring the application to re-open the proceedings at an earlier date?
E) Have the parties’ circumstances since the entry of the judgment of divorce significantly changed to such a degree that reopening the issue of equitable distribution would cause unreasonable hardship to the other party, or substantially prejudice his or her position to the point where no equitable adjustments could reasonably accommodate such changes?
F) Would the failure to address equitable distribution cause a forfeiture of a significant entitlement to share in a marital asset, and unjust enrichment of the other party, leading to an inequitable or unconscionable result under the factual circumstances of the case?
G) Does the parties’ failure to previously address equitable distribution result in ongoing ambiguity and clouding of rights and obligations relative to assets or debts?
H) Are there any other relevant equitable considerations to consider under the particular factual circumstances of the case?
The equitable doctrine of laches permits a court of equity to deny a party enforcement of a known right where an inexcusable and unexplained delay in enforcing that right has prejudiced the other party. County of Morris v. Fauver, 153 N.J. 80, 105 (1998). The time constraints for the application of laches, however, are not fixed, but are characteristically flexible. Lavin v. Bd. Of Educ., 90 N.J. 145, 151 (1982). Key factors to be considered in deciding whether to apply the doctrine of laches include the length of the delay, the reasons for the delay, and the changing conditions or either or both parties during the delay. Id., at 152.
Critically, the defense of laches involves more than simply the passage of time. Rather, there must be delay which has been prejudicial to the other party. See W. Jersey Title Guar. Co. v. Indus. Trust Co., 27 N.J. 144, 153 (1958). Rule 4:50-1(f) does not set a specific maximum time period in which an applicant may seek relief, so long as the delay was reasonable under the circumstances.
Still another factor relevant for contemplation and consideration is the inherent problem of a court applying a flexible rule of equitable distribution so inflexibly as to invite improper and manipulative conduct by litigants. If, for example, a party is absolutely prohibited under any circumstances from raising equitable distribution issues in a post-judgment setting, then fundamentally improper results could occur in a Clementi-type situation where the parties’ only major asset following a long-term marriage is only in a plaintiff’s name, and that plaintiff seeks sole ownership of all of the equity in same.
Under the Court Rules, a plaintiff seeking equitable distribution generally first must file and serve a Notice of Final Judgment under Rule 5:5-10. Under Clementi, it is not enough that a defendant defaults in order for plaintiff to obtain relief. Rather, plaintiff must also demonstrate that the requested relief is fair and equitable under the circumstances. If, however, the rules are interpreted so as to create an automatic and permanent forfeiture of a defendant’s right to share in the property if he or she does not raise the issue of equitable distribution in the divorce itself, then in a case where the marital home or other valuable real estate is only in the plaintiff’s name, all plaintiff would have to do obtain the entire house by forfeiture is simply not raise the issue of equitable distribution of the property in the divorce proceedings. By not requesting such relief in the complaint, and by not filing a notice of final judgment, a plaintiff could improperly do a simple end run around the terms and spirit of both Rule 5:5-10 and Clementi by first obtaining an uncontested divorce, and then utilizing the entire controversy doctrine to legally block defendant from ever raising the issue post-judgment, or collecting his or her equitable ownership share of the property. In other words, a plaintiff whose name is already on the house could intentionally and improperly strive to eliminate any equtable distribution interest his or her spouse has in the home by simply avoiding a claim for such relief at the time of divorce, while actually attempting to effectuate a forfeiture and extinguishment of defendant’s interest in a manner which may have never been ordered by the court following a detailed analysis of the factors enumerated under New Jersey’s equitable distribution statute, N.J.S.A 2A:34-23.1.
In Woliner v Woliner 132 N.J. Super 216, 221 (App. Div. 1975), the appellate panel held that a New Jersey court may in fact order equitable distribution in a post judgment application when a party previously obtained a judgment of divorce in a foreign state, which “expressly avoids any adjudication with respect to property rights.” Said the Court: “An award to the wife of her equitable share of marital property should not be denied simply because the marriage was terminated in another state or before action therefor is commenced, particularly where the statute creating that right does not require such an anomalous result.” Id. at 223-224. Further, the court noted:
. . . . Adoption of defendant’s position would, in our view, subvert the essential goals on this provision. A husband of wealth, for example, by the simple expedient of obtaining a foreign divorce on a bona fide change of domicile (feasible where the marital estate is a large one) could deprive the wife of a long-continuing marriage, a New Jersey domiciliary, of her right to a division of the marital estate. Her ineligibility would persist even should the husband eventually return to New Jersey at some point in the future. The irrationality of this possibility persuades us that the Legislature never intended this result. Id. at 224.
The New Jersey Supreme Court has held that courts should strive to construe written statutes, rules and laws in a manner which avoids an inequitable result, even when same appears to be dictated by a literal interpretation of the language. See Hubbard ex rel. Hubbard v. Reed, 168 N.J. 387, 392-93 (2001); See N.J.S.A. 1:1-1. When there is a legitimate question or ambiguity over whether the Legislature intended for an enactment to cover a certain situation, it is logical and appropriate for a court to presume that the Legislature at all times intended and desired to act fairly, equitably and reasonably. Cameron v. Cameron, 440 N.J. Super 158, 170 (Ch. Div. 2014); See Hubbard ex rel. Hubbard v. Reed, supra 168 N.J. at 392-93.
In summary, family court is a court of equity. Courts are well counseled to give a full range to equitable doctrines in dealing with matrimonial controversies. See Kazin v Kazin, 81 N.J. 85, 94 (1979). Depending on the circumstances, an equitable adjustment of the rights of the parties may vary from one case to another. Vasquez v. Glassboro Service Ass’n, 83 N.J. 86, 108 (1980); Clementi, supra, 434 N.J. Super at 540. Equity will not suffer an inequity without a remedy, and a court is to consider problems with reason and conscience with the goal of a just and equitable result. See Crane v. Bielski, 15 N.J. 342, 349 (1954).
The fundamental maxim that equity looks to the substance rather than the form of an issue in dispute. See Assocs. Home Equity Servs. Inc. v. Troup, 343 N.J. Super. 254, 276 (App. Div. 2001); Fortugno v. Hudson Manure Co., 51 N.J. Super. 482, 500-01 (App. Div. 1958); Ardito v. Bd. of Trs., Our Lady of Fatima Chapel, 281 N.J. Super. 459, 468 (Ch. Div. 1995). Applestein v. United Board & Carton Corp., 60 N.J. Super 333, 348-49 (Ch. Div, 1960), aff’d 33 N.J. 72 (1960). A court of equity is one of conscience, which should not pay homage to the mere form of an instrument or transaction when to do so would frustrate the law or justice. Id. at 348.
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