        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

94
CA 11-01041
PRESENT: CENTRA, J.P., FAHEY, PERADOTTO, CARNI, AND MARTOCHE, JJ.


NICHOLAS B. BOSWORTH, JR., PLAINTIFF-APPELLANT,

                    V                             MEMORANDUM AND ORDER

MARYROSE W. BOSWORTH, DEFENDANT-RESPONDENT.


DAMON MOREY LLP, BUFFALO (CHRISTOPHER A. CARDILLO OF COUNSEL), FOR
PLAINTIFF-APPELLANT.

PAUL A. VANCE, BUFFALO (JAMES P. RENDA OF COUNSEL), FOR
DEFENDANT-RESPONDENT.


     Appeal from an order of the Supreme Court, Erie County (John F.
O’Donnell, J.), entered January 31, 2011. The order directed
plaintiff to pay certain tax liabilities.

     It is hereby ORDERED that the order so appealed from is affirmed
without costs.

     Memorandum: Plaintiff’s sole contention on appeal is that
Supreme Court erred in concluding that the terms of the parties’
separation agreement, which was incorporated but not merged into the
judgment of divorce, rendered him responsible for the tax liability of
defendant arising from defendant’s status as a shareholder of PMC
Gage, Inc. (PMC), a subchapter S corporation. Pursuant to the
separation agreement, defendant’s shares in PMC were transferred to
plaintiff in approximately June 2006. The separation agreement also
provided that, in exchange for the transfer of defendant’s interest in
PMC to him, plaintiff would “indemnify and hold [defendant] harmless
from any claim or liability associated with or arising out of PMC . .
. .”

     According to defendant, the transfer of her shares in PMC caused
her to incur federal and state income tax liability in the amount of
$227,915. By order to show cause, defendant sought, inter alia, to
enforce that part of the separation agreement requiring plaintiff to
indemnify defendant for any claim or liability associated with or
arising out of PMC. The court granted the motion, and we affirm.
“ ‘[A] separation agreement that is incorporated into but not merged
with a [judgment of divorce] is an independent contract binding on the
parties’ ” (Makarchuk v Makarchuk, 59 AD3d 1094, 1094, quoting Merl v
Merl, 67 NY2d 359, 362; see Matter of Gravlin v Ruppert, 98 NY2d 1,
5). After giving effect and meaning to every term of the separation
agreement (see Village of Hamburg v American Ref-Fuel Co. of Niagara,
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                                                         CA 11-01041

284 AD2d 85, 89, lv denied 97 NY2d 603), we conclude that the broad
language of that agreement required plaintiff to indemnify defendant
for the federal and state income tax liability at issue.

     All concur except CENTRA, J.P., and CARNI, J., who dissent and
vote to modify in accordance with the following Memorandum: We
respectfully disagree with the conclusion of our colleagues that the
terms and conditions of the parties’ separation agreement, when read
as a whole, require plaintiff to indemnify defendant for her personal
income tax liability. We therefore dissent.

     There are two provisions in the separation agreement that control
our analysis. The first requires defendant “to indemnify and hold
[plaintiff] harmless from any liability arising out of her income or
any joint tax return.” The second requires plaintiff “to indemnify
and hold [defendant] harmless from any claim or liability associated
with or arising out of PMC Gage, Inc. . . .” In 2006, defendant owned
100% of the shares of PMC Gage, Inc. (PMC), a subchapter S
corporation, for approximately 45% of the tax year. Pursuant to the
separation agreement, defendant transferred all of her shares of PMC
to plaintiff, who then owned 100% of the shares for approximately 55%
of the 2006 tax year. As a result of her ownership of the shares of
PMC, defendant received a Schedule K-1 from PMC reflecting business
income of $669,752. That income resulted in a personal income tax
liability to defendant of $227,915 for the 2006 tax year. It is
undisputed that such tax liability does not constitute a claim by the
federal and state government against PMC, and it cannot be said that
it is a liability of PMC. Instead, it is a personal income tax
liability of defendant for the 2006 tax year in which defendant filed
individually and not jointly with plaintiff. Notably, plaintiff also
received a Schedule K-1 from PMC for his pro rata share of the income,
and he reported that income on his 2006 tax return. It is further
worth noting that defendant was employed by PMC in 2006 and received
wages. Thus, in applying the interpretation of the separation
agreement set forth by defendant and the majority, we would be led to
the untenable conclusion that plaintiff was responsible for the
personal income tax on the wages paid to defendant by PMC simply
because they were “associated with or aris[e] out of PMC . . . .”

     The separation agreement unequivocally requires defendant “to
indemnify and hold [plaintiff] harmless from any liability arising out
of her income or any joint tax return.” The majority fails to explain
how defendant’s personal income tax liability is not expressly
encompassed by that provision of the agreement but, rather, the
majority concludes, without analyzing or referencing that provision,
that the “broad language” of the separation agreement requires
plaintiff to indemnify defendant for her personal income tax
liability. We cannot agree and conclude that Supreme Court erred in
granting that part of defendant’s motion seeking to enforce the
separation agreement insofar as it allegedly requires plaintiff to
indemnify defendant for her personal income tax liability. We
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                                                         CA 11-01041

therefore would modify the order accordingly.




Entered:   March 23, 2012                       Frances E. Cafarell
                                                Clerk of the Court
