ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, December 24, 2009

Madoff Mutual Mistake Case Decided in Favor of Ex-Wife

Grinch We had previously mentioned (here and here) a lawsuit (by a Paul Weiss partner) to unravel a divorce settlement that included a payout to his wife for the right to keep the $5.4 million (or so they thought) Madoff account.  As part of the settlement husband paid wife $2.7 million in cash, and he sued wife to modify the settlement 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 Complaint and despite the absence of any such statement in the written contract, the parties intended to divide the value of the parties' assets equally as of September 1, 2004.  The Amended Complaint further states that this intention was thwarted by the parties' mistaken belief that on the September 1, 2004 valuation date, plaintiff's investment with the Madoff firm was worth $5.4 million.  The amended Complaint alleges that the Madoff firm in fact never engaged in any stock trades and as of the parties' valuation date, held no assets.  The Amended Complaint concludes from this that plaintiff's account was "a fiction."

The complaint does not contend, however, that the account had no value, only that, under the circumstances it was "non-existent".  In urging 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, it could have been redeemed for cash, presumably significantly in excess of its 2004 value.

A claim of mistake must be set forth with particularity, and the circumstances must be stated in detail. CPLR ยง3016{b}.  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.  In fact, plaintiff allegedly liquidated an undisclosed portion of his investment at the time of the agreement in June of 2006 to fund the payment of defendant's equitable entitlement. [Amended Complaint, para. 55].  An investor's ability to redeem an account for value, was the assumption on which the parties relied in dividing their property and in doing so they made no mistake.

* * * Viewed in their most favorable light, the Amended Complaint fails to articulate facts which if true would establish a viable cause of action that the settlement agreement pursuant to which the parties divided all of their assets and were divorced, was the product of a mutual mistake.

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

[Meredith R. Miller]

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