Madoff Mutual Mistake Case Decided in Favor of Ex-Wife

We had previously mentioned (here and here) a lawsuit (by a PaulWeiss partner) to unravel a divorce settlement that included a payout to his wifefor the right to keep the $5.4 million (or so they thought) Madoffaccount.  As part of the settlementhusband paid wife $2.7 million in cash, and he sued wife to modify thesettlement agreement based on mutual mistake as to the value of the”account.” 

Earlier this week, Supreme Court, New York County (Evans,J), dismissed the complaint in its entirety.  The court explained: 

According to the Amended Complaintand despite the absence of any such statement in the written contract, theparties intended to divide the value of the parties’ assets equally as ofSeptember 1, 2004.  The AmendedComplaint further states that this intention was thwarted by the parties’mistaken belief that on the September 1, 2004 valuation date, plaintiff’sinvestment with the Madoff firm was worth $5.4 million.  The amended Complaint alleges that theMadoff firm in fact never engaged in any stock trades and as of the parties’valuation date, held no assets.  TheAmended Complaint concludes from this that plaintiff’s account was “afiction.”

The complaint does not contend,however, that the account had no value, only that, under the circumstances itwas “non-existent”.  Inurging that the Amended Complaint fails to state a viable cause of action,defendnat contends without contradiction that on September 1, 2004, and later,on June 27, 2006 when the parties entered into their agreement, and in fact,for the several years thereafter that plaintiff maintained this investment, itcould have been redeemed for cash, presumably significantly in excess of its2004 value.

A claim of mistake must be setforth with particularity, and the circumstances must be stated in detail. CPLR§3016{b}.  Here, the claim ofmistake is opaque, stating simply that the account at issue did not exist.  There is no assertion, however, that atthe time of the agreement the account could not be redeemed for value.  In fact, plaintiff allegedly liquidatedan undisclosed portion of his investment at the time of the agreement in Juneof 2006 to fund the payment of defendant’s equitable entitlement. [AmendedComplaint, para. 55].  Aninvestor’s ability to redeem an account for value, was the assumption on whichthe parties relied in dividing their property and in doing so they made nomistake.

* * * Viewed in their mostfavorable light, the Amended Complaint fails to articulate facts which if truewould establish a viable cause of action that the settlement agreement pursuantto which the parties divided all of their assets and were divorced, was theproduct of a mutual mistake.

Simkin v. Blank (Sup. Ct., NY County Dec. 22, 2009).

[Meredith R. Miller]