Chaos Continues in Corrupt New York Appellate Court

Lawyer May Seek Return of Ex's 'Windfall' From Madoff Account
The New York Law Journal by Noeleen G. Walder - January 5, 2011

A partner at Paul, Weiss, Rifkind Wharton & Garrison who fell prey to Bernard L. Madoff's massive Ponzi scheme will get a second shot at making his ex-wife return a multi-million dollar "windfall" he claims she received as a result of the fraud. As part of a divorce agreement, Steven Simkin, the chair of Paul Weiss' real estate department, paid Laura Blank some $2.7 million, a figure he believed amounted to half the value of an account the couple opened during their 30-year marriage with Mr. Madoff's investment firm. In a 3-2 ruling, the Appellate Division, First Department, overturned the decision of a Manhattan judge who had dismissed Mr. Simkin's claim that the pact should be revisited based on the couple's "material, mutual" mistake about the value of the account, which turned out to be worthless after Mr. Madoff's fraud unraveled. "Contrary to defendant's contention, mutual mistake can be based on a statement by a third party," the majority wrote in an unsigned ruling. In a sharply worded dissent, Justice Karla Moskowitz said the majority's approach in Simkin v. Blank, 3016, "undermine[d] decades of established precedent favoring finality in divorce cases." She added, "Thus, the conclusion the majority reaches, not only fails to follow precedent, but is truly 'divorced' from reality." Richard D. Emery of Emery Celli Brinckerhoff & Abady, who represented Ms. Blank, vowed to appeal. "If the majority is right, it means that no deal is a deal. It makes no sense in terms of financial transactions of any type, if you can't count on a date for valuation," he said in an interview. He stressed that this "is not a case of mutual mistake first and foremost because at the time, Simkin could have redeemed all the money from his Madoff [account] and in fact, he did redeem a substantial portion of it to pay his wife." Mr. Simkin and Ms. Blank, a senior director of labor relations at the City University of New York, separated in 2001.

In 2006, the year that their divorce was finalized, the pair signed an agreement, which provided that each party would receive roughly half of the couple's marital assets as of Sept. 1, 2004. Mr. Simkin received the couple's Scarsdale house and three of their cars, and Ms. Blank received their Manhattan apartment and an Audi. At the time, both parties believed that their largest marital asset was an account held in Mr. Simkin's name with Bernard L. Madoff Investment Securities LLC, which contained roughly $5.4 million in securities and other assets. After liquidating part of the account to fund his obligations to Ms. Blank under the agreement, Mr. Simkin continued to invest with Mr. Madoff, until he learned that he had been a victim of fraud. At this point, he sought to reform the agreement, which he claimed did not achieve the parties' goal of ensuring that each would keep approximately half of the marital assets. However, in December 2009, about one year after Mr. Madoff's arrest, Acting Supreme Court Justice Saralee Evans held that she had no equitable basis to set aside the pact (NYLJ, Dec. 24, 2009). "Here, the claim of mistake is opaque, stating simply that the account at issue did not exist. There is no assertion, however, that at the time of the agreement the account could not be redeemed for value," she wrote in dismissing Mr. Simkin's suit.

On appeal, Mr. Simkin argued that no precedent existed for the "proposition that a claim of mutual mistake as to the existence and nature of the underlying subject matter of a contract must allege that whatever existed in place of what the parties thought existed had no value." He also maintained that the lower court erred by relying on unsworn assertions in Ms. Blank's brief that said the account could have been redeemed in full for cash on the date of the agreement. The First Department agreed that dismissal of Mr. Simkin's suit was unwarranted. "The documentary evidence proffered by defendant…does not utterly refute plaintiff's factual allegations or conclusively establish a defense as a matter of law," the panel wrote. The panel faulted Ms. Blank and the dissent for "attempt[ing] to foreclose plaintiff's claims by transmogrifying the claim of mutual mistake into a claim of mistake in valuation." The majority also took the dissent to task for stating that at the time the couple entered into the agreement, Mr. Simkin had an account with Mr. Madoff. "Untrue. Steven never had an account in his name with Madoff; on Madoff's own admission there were no accounts within which trades were made on behalf of investors," the majority wrote. In a 14-page dissent, Justice Moskowitz, joined by Presiding Justice Luis A. Gonzalez, took aim at the majority for "unravel[ing] a carefully negotiated divorce settlement in which the husband received the benefit of his bargain." "Because Steven received significant value in exchange for the payment of $6.25 million to Laura, his retention of the Madoff account and subsequent losses render this case no different than the legion of cases denying a spouse's request to open up a divorce settlement where the final value of an asset was not what the parties believed at the time of the divorce," she wrote. She predicted that the majority's decision would lead to "chaos, not only for the court system, but for the litigants as well, who deserve finality and to move on." Justices Peter Tom, Richard T. Andrias and James M. Catterson made up the majority of the panel, which heard arguments on May 20, 2010. Mark H. Alcott of Paul Weiss represented Mr. Simkin. Mr. Madoff, who pleaded guilty to the massive Ponzi scheme, is serving a 150-year sentence in a federal prison in North Carolina. Noeleen G. Walder can be contacted at nwalder@alm.com.