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Matrimonial Divorce Action Does not Preclude Business Divorce Action: Gorelik v Gorelik

Posted in Justice Demarest, Carolyn E., Kings, Res Judicata, Shareholder Dispute

In an April 12, 2012 decision by Justice Demarest, the court denied the defendants’ motion to dismiss the complaint on the grounds that the action is barred by a marital divorce action in New Jersey and resolved by a Marital Settlement Agrement. The husband, and individual plaintiff, and his wife, one of the defendants, were the sole shareholders of Prompt Enterprises Corp., the corporate plaintiff which the parties formed during their marriage. The plaintiffs alleged, inter alia, that the wife converted for her personal use, insurance premiums paid to the corporation as part of its business. In denying the motion, the court found that the action was not barred by New Jersey’s “entire controversy” doctrine, which is similar to New York’s doctrine of res judicata. Although the court noted that the entire controversy doctrine applies to divorce proceedings, and that the plaintiff could have reverse-pierced the corporate veil in the divorce action, it found that the action was not entirely barred because the corporate plaintiff was the real party in interest—the husband’s claim was derivative in nature—and it was not a party to the marital divorce action, and the husband did not expressly raise his current claims as part of the divorce action. The court also found that because the Matrimonial Settlement Agreement seemingly preserved the husband’s right to maintain a separate action relating to the corporation’s claims, and the corporation was not listed as an asset or liability of either party in the Matrimonial Settlement Agreement, it was ambiguous as to whether the issues relating to the corporation were intended to be resolved by the Marital Settlement Agreement. Therefore, the court deemed it unfair to the plaintiffs to bar the action based on the entire controversy doctrine.

Gorelik v Gorelik, Sup Ct Kings County, April 12, 2012, Demarest, J, Index No. 18450/11