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Tuesday, February 14, 2012

Almost Live Blog of the Simkin v. Blank Oral Argument [Madoff Mutual Mistake Case]

What better way to spend Valentine's Day than to (almost live) blog the Simkin v. Blank oral argument before the New York Court of Appeals?  The argument includes a shout out to Rose of Aberlone. 

It does not appear that Judge Smith partook.  Video should be posted to the web in the next week.

Richard D. Emery (for Blank, appellant):

[Reserves 3 minutes for rebuttal]

Theme: this case is about finality and valuation.

There is a policy of finality and repose, especially in domestic relations context.  Walsh and Centro cases control on releases – if a release trumps fraud, should also trump mutual mistake.

Judge Pigott: Suppose shoe was on other foot and the non-moneyed spouse was rendered destitute -- finality rules?  It depends.  Here, parties got the benefit of the bargain.  

Judge Jones: Wasn't the agreemet based and founded on certain assumptions that turned out not to be so?  All agreements are founded on assumptions that turn out not to be true, that is the risk of making an agreement.

Judge Lippman: Is the defining difference between this and other mutual mistake cases that, here, the mistake was about valuation? Yes, mistaken valuation doesn't give rise to mutual mistake case.  In fact, account was cashed in at the time.

Judge Graffeo: Is this about value of account at time of agreement? Wasn’t there some withdrawal at the time in order to pay Blank; money was there at time? Yes, shout out to Prof. Siegel’s treatise; don’t fall for pleading ploys. These are conclusory allegations that mean nothing in the context of the actual case.

Judge Graffeo: Was it agreed that there would be a 50-50 split of this account? If so, does that matter? That was not mentioned in agreement all.  Many separation agreements will say 50-50 split per account; different situation here - he could have chosen to do whatever he wanted to pay her here (e.g. take loan from Paul Weiss) and he chose to withdraw from account.

Judge Pigott: Isn’t the existence of the account an issue of fact?  Court does not have to rollover and counterfactually accept what is obviously not the case.  And, account existed.  Just not worth what they thought.  There was money in it and money paid out of it.  At time, Madoff accounts were paying -- so, counterfactual allegation that court need not accept.

Judge Lippman: What happens now with Madoff accounts?  There will be no clawbacks; he did get insurance money and  tax write offs.  Has value now, had value then.  Pure valuation case.

Judge Read: So no mutual mistake here? Right - each side got the benefit of the bargain here. Just a mistake in valuation.

Judge Ciparick: Did the parties contemplate as a 5-50 split?  No, my client wanted $6 mill plus house, etc and he got the rest.

Judge Graffeo: How is this different than a case where we set aside the agreement for fraud?  This is an asset that is not worth what it was thought to be worth -- your decision in Walsh makes plain that the public policy of repose trumps innocent fraud. 

Judge Jones: Different if wife knew of the wrongful valuation?  Yes, then she would be knowingly getting fruits of fraud - would be a different case. 

Judge Ciparick: Is this different than asset valued at a certain sum that later tanks?  No different from every single deal where stocks are exchanged.

 Judge Ciparick: Should we go with value of account as of date of agreement? Yes.

Judge Graffeo: What about the unjust enrichment claim?  We have a valid contract, unjust enrichment claim is superfluous.  Window dressing contract claim to attack a valid agreement.

Allan J. Arffa (for Simkin, respondent):

Judge Lippman: How is this different than a valuation case?  Why is this not the same as a stock that turns out the be worth less than thought?  The thing they thought they had never existed.

Judge Lippman: But isn’t it in essence the same thing – because, here, there was a Ponzi scheme?  No.  The account didn’t exist; it wasn't the thing they thought it was.

Judge Lippman: Didn’t Simkin draw on the account at the time? Yes, but they didn't know he was actually drawing on other people's money.

Judge Lippman: How could the account not exist? He withdrew the money?  It didn't exist in the way he thought it did.

Judge Lippman: What if had stock and turns out fraud relating to business that stock represents.  Why different?  There you have stock; known thing was stock, it existed. 

Judge Read: What if it was Enron stock?  Still had stock in a corporation; it had attributes of stock.  Here, interest was fictitious.

Judge Ciparick: What if the asset was a house but it turns out the title was bad?  That is mutual mistake - if you don't own what you think you own, there is a mutual mistake.

Judge Lippman: How do we draw the line here – why isn’t this just a valuation case? How do we distinguish between the subject matter existing and it not being worth as much as thought?  We are on a motion to dismiss.  At the time they contracted, they didn’t own an account; they didn’t have securities; the account was a total fiction.

Judge Graffeo: Did they try to cash out in June 2006? Would they have been paid?  Paid from proceeds of other investors.  Would not have been redeeming account as they thought = stealing.

Judge Pigott:  You argue for reformation of this part of the agreement, not the entire agreement? Issue for down the road; what to reform is a remedy issue. 

Judge Graffeo: Where is it in agreement that you agreed to split the asset 50-50?  It is our allegation that this is what the parties intended. The parol evidence rule and statute of frauds do not apply.  Shout out to Rose of Aberlone: in the pregnant cow case, the contract did not say we are selling you a barren cow.

Judge Graffeo: I’m trying to understand, do you want us to set aside the entire agreement? That is a matter of relief; we can discuss whether to reform or rescind later. 

Judge Lippman: What about finality? When does a matrimonial case end? Isn’t there a policy argument for finality?  Here's the problem: if you say finality trumps, then there is no mutual mistake -- writes doctrine out of the law. 

Judge Lippman: But the divorce was 6 years ago, doesn't amount of time matter?  It matters regarding relief.

Judge Lippman: What is rule? 10 or 6 or 20 years?  Not one mutual mistake case that raises finality.  Depends on circumstances.

Judge Pigott: You win the appeal.  They answer. Then what? Jury decides?  Yes, jury hears testimony; finality gets played into standards for materiality of mistake.

Judge Lippman: Answer Judge Piggott’s question.  What exactly does the jury decide here?

Judge Pigott : Does the jury decide whether there was an ccount or not?  Existence v. value of account: question of fact or law?  Question of fact; these are question of intent.

Judge Pigott: Can you get there if there was no account?  If no account existed, aren’t you entitled to summary judgment?  If the account did exist, aren’t they entitled to summary judgment?  This was a ponzi scheme.

Judge Lippman: With all the attention on Madoff, etc., a jury is going to determine whether this ponzi scheme made account nonexistent?  Yes, for jury to decide.

Judge Lippman: What is the significance of time passing here since divorce?  This factors into relief but to say we are going to ignore that there was this massive fraud and half assets of this family turned out not to exist -- not fair.  On marital cases, equitable principles may trump finality.  And, again, we are just at motion to dismiss stage.

Rebuttal:

Judge Pigott: Say the asset was gold bars in a safe deposit box and it turns out that Uncle Bernie took them; no longer there? Here, did know account was liquid at time of agreement and even took money out of it.  And account has value now; Simkin has recovered some money and has tax write offs.  Not so worthless he'd give away now.

Closing point: talking about domestic relations.  6 years since divorce; let spouses go off and live their lives.  Human thing; not about finality words; about a woman entangled with a husband she wants to get away from.

Judge Pigott: What if we turn the tables?  You'd be arguing the opposite for her?  No, my client would not have gone after him; she wants nothing to do with him.

[Meredith R. Miller]

http://lawprofessors.typepad.com/contractsprof_blog/2012/02/almost-live-blog-of-the-simkin-v-blank-oral-argument-madoff-mutual-mistake-case.html

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