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Madoff Investor Can Sue Ex Over $2.7 Million Divorce Accord

By Karen Freifeld - Jan 4, 2011 10:24 PM GMTl

A New York law firm partner who said he paid his ex-wife $2.7 million of the purported value of his account with Bernard Madoff can sue her to revise their 2006 agreement because of thePonzi scheme, an appeals court ruled.

Today’s decision overturns a lower-court ruling dismissing the suit by Steven Simkin, chairman of Paul, Weiss, Rifkind, Wharton & Garrison LLP’s real estate department. Simkin sued his former wife, Laura Blank, in state court in Manhattan in February 2009 after Madoff’s fraud became public.

The state’s Appellate Division, First Department, reinstated the complaint, citing the doctrines of “mutual mistake” and “unjust enrichment.” Two of the five justices dissented.

“Even though there is an express contract between the parties, it is unclear whether it covers the current dispute; therefore, plaintiff may plead unjust enrichment,” the court’s majority said.

The decision also made a distinction between a mistake in valuation and Simkin’s theory of “mutual mistake” as to the existence of the account itself because of Madoff’s scheme.

Simkin said he and his ex-wife believed they owned an account with Bernard L. Madoff Investment Securities LLC, which was their largest asset, according to the decision. Of the $6.6 million that Simkin paid Blank under their 2006 agreement, he said $2.7 million was attributable to her share of a Madoff account valued at $5.4 million. He’s seeking restitution from her.

‘Completely Erroneous’

Blank’s lawyer, Richard Emery of Emery Celli Brinckerhoff & Abady LLP in New York, called today’s decision “completely erroneous” and vowed to take the case to the New York state Court of Appeals, the state’s highest court.

“Of course, we have sympathy for Simkin’s loss, but it doesn’t mean that everybody he did business with should have their money clawed back just because he paid them believing he had more money than he did,” Emery said in a phone interview. “Is every divorce agreement to be revisited when values change in the future?”

Simkin and his attorney, Mark Alcott, of counsel to Paul Weiss, didn’t immediately return calls seeking comment.

The two appeals judges who disagreed with the court’s majority said the decision “undermines decades of established precedent favoring finality in divorce cases.”

‘Divorced’ From Reality

“The conclusion the majority reaches, not only fails to follow precedent, but is truly ‘divorced’ from reality,” according to the dissenting opinion.

Simkin and Blank married in 1973 and have two children, according to court papers. They separated in 2001 and entered into an agreement to divide their property in 2006.

Simkin, who got the Scarsdale, New York, house, agreed to pay $6.25 million to Blank, and rolled $368,000 over to her retirement account. Blank, who gave up spousal support, got theirManhattan apartment with a $370,000 mortgage.

“The agreement does not mention the Madoff account, but Steven liquidated part of the account to fund his payments to Laura under the agreement,” the dissenting opinion said. “He did not liquidate the rest of the Madoff account after the parties divorced and he continued to invest in it.”

Investors in Madoff’s Ponzi scheme lost $20 billion in principal, according to Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC. Account statements at the time of Madoff’s arrest in December 2008 reflected $65 billion in nonexistent investments.

Picard hasn’t asserted a claim against Simkin, according to the dissent.

Madoff is serving 150 years in prison after pleading guilty in 2009 to running the biggest Ponzi scheme ever.

The case is Simkin v. Blank, 101501/2009, New York State Supreme Court, Appellate Division, First Department (Manhattan).

To contact the reporter on this story: Karen Freifeld in New York state Supreme Court atkfreifeld@bloomberg.net