| Simkin v Blank |
| 2011 NY Slip Op 00001 [80 AD3d 401] |
| January 4, 2011)<> |
| Appellate Division, First Department |
| Steven Simkin, Appellant, v Laura Blank,Respondent. |
—[*1] Emery Celli Brinckerhoff & Abady LLP, New York (Richard D. Emery of counsel), forrespondent.
Order, Supreme Court, New York County (Saralee Evans, J.), entered January 5, 2010, whichgranted defendant's motion to dismiss pursuant to CPLR 3211, reversed, on the law, without costs, themotion denied and the complaint reinstated.
Initially, we note that on a CPLR 3211 motion to dismiss, "the court must afford the pleadings aliberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of everypossible inference" (EBC I, Inc. v Goldman,Sachs & Co., 5 NY3d 11, 19 [2005]).
Plaintiff is a partner at a large New York law firm and defendant is the deputy senior universitydirector of labor relations at a university in New York. The parties married in 1973, separated in 2001,and were divorced during the summer of 2006. On June 27, 2006, they entered into an agreement todivide their property (hereinafter referred to as the agreement). Due to the length of their marriage, theyagreed to an approximately equal division of marital property. They also agreed that property would bevalued as of September 1, 2004 (hereinafter referred to as the cut-off date).
Plaintiff received the parties' Scarsdale house and three of their automobiles; defendant receivedtheir Manhattan apartment (encumbered by a $370,000 mortgage) and an Audi. The parties agreedthat each would keep accounts titled in his or her name. Plaintiff paid defendant $6,250,000 andtransferred a further $368,000 to equalize the parties' retirement accounts.
Each party acknowledged "that the property he or she is receiving or retaining pursuant to thisArticle represents a fair and reasonable share of the marital property." The agreement contains mutualreleases as well as a merger clause.
In the amended complaint, plaintiff alleges that at the time of their agreement the parties believedthat they owned an account (hereinafter referred to as the Madoff Account) with Bernard L. MadoffInvestment Securities which was their largest asset (purportedly $5.4 million as of the cut-off date). Of$6,618,000 that plaintiff paid defendant pursuant to the 2006 agreement, $2.7 million was attributableto defendant's share of what the parties believed to be their $5.4 million Madoff Account. This accountwas titled in plaintiff's name. Plaintiff alleges [*2]that in reality, there wasno such account because Madoff was running a Ponzi scheme.
In the parties' agreement, plaintiff released, inter alia, "any and all claims to or upon the property of[defendant] . . . whether now owned or hereafter acquired or received, to the end that sheshall have free and unrestricted right to dispose of her property now owned or hereafter acquired orreceived, free from any claim or demand of [plaintiff]." The releases in the parties' agreement did notbar plaintiff's claims as a matter of law (seee.g. Littman v Magee, 54 AD3d 14, 15 [2008]).
Plaintiff pleads mutual mistake with the requisite particularity (see CPLR 3016 [b]; Pludeman v Northern Leasing Sys., Inc., 10NY3d 486, 491 [2008]), and the amended complaint states a cause of action for reformationbased on mutual mistake (see e.g. Banker vBanker, 56 AD3d 1105 [2008]; House v Wechsler, 104 App Div 124 [1905]).Contrary to defendant's contention, mutual mistake can be based on a statement by a third party(see e.g. D'Antoni v Goff, 52 AD2d 973 [1976]; House, 104 App Div at 127). Thecases cited by defendant where claims were dismissed pursuant to CPLR 3211 (a) (5) did not involvemutual mistake.
The documentary evidence proffered by defendant (see CPLR 3211 [a] [1]) does notutterly refute plaintiff's factual allegations or conclusively establish a defense as a matter of law (see e.g. McCully v Jersey Partners, Inc., 60AD3d 562 [2009]). With respect to the branch of defendant's motion based upon CPLR 3211 (a)(7), even though defendant submitted documents, "dismissal should not eventuate" unless she showsthat a material fact alleged by plaintiff "is not a fact at all and unless it can be said that no significantdispute exists regarding it" (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). Such isnot the case here.
The motion court and the dissent both err in relying on the claim—which was not indefendant's affidavit—that, for several years after the parties' agreement, plaintiff could haveredeemed what the parties believed to be their account for cash in excess of its supposed value as ofthe cut-off date selected by the parties (see e.g. Rovello v Orofino Realty Co., 40 NY2d 633,636 [1976]). Both the motion court and the dissent also err by resolving a fact—the assumptionon which the parties relied in dividing their property—in defendant's favor on a motion to dismiss(see Viskovich v Walsh-Fuller-Slattery, 16 AD2d 67 [1962], affd 13 NY2d 1100[1963] [trial was held when the plaintiff alleged that state of facts assumed to exist at time of the parties'agreement did not, in fact, exist]).
Indeed, the dissent speculates as to plaintiff's expectations that the "Madoff account. . . continue its highly profitable performance" and asserts "[a]ccordingly, he alone tookon the risk that he might not be able to recoup his investment" citing Reiss v Financial PerformanceCorp. (97 NY2d 195, 201 [2001]).
A couple of observations are in order. First, in the context of a CPLR 3211 motion, plaintiff'smotivations as alleged by defendant are irrelevant because the allegations in the amended complaintmust be accepted as true. Second, Reiss is a declaratory injunction action concerning a stockswap; no allegation of mutual mistake is present.
Further, even though there is an express contract between the parties, it is unclear whether it coversthe current dispute; therefore, plaintiff may plead unjust enrichment (see e.g. IIG Capital LLC v Archipelago,L.L.C., 36 AD3d 401, 405 [2007]), and the amended complaint states such a cause of action(see Simonds v Simonds, 45 NY2d 233, 242 [1978]).
Finally, defendant and the dissent ignore the allegations of mutual mistake as to the actual existenceof the account itself. Both defendant and the dissent attempt to foreclose plaintiff's claims bytransmogrifying the claim of mutual mistake into a claim of mistake in valuation.[*3]
The dissent states: "[a]t the time of the agreement, Steven hadan account in his name with [Madoff]." Untrue. Steven never had an account in his name withMadoff; on Madoff's own admission there were no accounts within which trades were made on behalfof investors.
The dissent then states, "Steven liquidated part of the account to fund his payments to Laura."Untrue. In Madoff's Ponzi scheme what appeared to Steven and Laura to be a partial liquidation of anaccount was simply a payment to Steven that came from funds deposited by a more recent "investor" inwhat the "investor" believed was his own account.
The dissent further observes, "[Steven] did not liquidate the rest of the Madoff account. . . and he continued to invest in it." Untrue. There was no account which could beliquidated, as became apparent when Madoff received $7 billion worth of"liquidation" calls from investors in 2008. Nor was Steven "investing" in an account; his furthercontributions went directly to pay other "investors" in the scheme. Concur—Tom, Andrias andCatterson, JJ.
Gonzalez, P.J., and Moskowitz, J., dissent in a memorandum by Moskowitz, J., as follows: Todaythe majority unravels a carefully negotiated divorce settlement in which the husband received the benefitof his bargain. Instead of enforcing the plain language of the agreement between the parties, the majorityrelies on the doctrine of "mutual mistake" to rewrite it. However, even if one accepts that mutualmistake is the appropriate analysis, the complaint fails. It fails first because the alleged mutual mistakedoes not involve a fundamental assumption of the contract. It further fails because the alleged mistakedid not exist at the time the parties entered into their agreement. Moreover, the majority's approachundermines decades of established precedent favoring finality in divorce cases. Thus, the conclusion themajority reaches, not only fails to follow precedent, but is truly "divorced" from reality.The Separation Agreement
Plaintiff Steven Simkin and defendant Laura Blank[FN1]married in 1973 and have two children, born in 1981 and 1984. The parties separated in 2001. OnJune 27, 2006, they entered into an agreement to divide their property (the agreement). The agreementinvolved a complex series of transactions—a fact the complaint fails to take into account. Thedivision of property was quite specific. Steven, the monied spouse, was to pay Laura an aggregate sumof $6,250,000: "As and for an equitable distribution of property, excluding pension and retirement funds. . . and in satisfaction of the Wife's support and marital property rights, the Husband shallpay to the Wife an aggregate and all inclusive amount of $6,250,000." In exchange, Laura waived allspousal support, and, upon payment, was to convey "all her right, title and interest" to the parties'residence in Scarsdale, New York to Steven. Laura also received the parties' Manhattan apartmentand the $370,000 mortgage that encumbered it. In addition, Steven rolled over to Laura's retirementaccount an additional $368,000 "[t]o equalize the [*4]difference invalue between the Husband's Retirement Accounts and the Wife's Retirement Accounts" as "the partieshave agreed to divide the value of such accounts equally." This part of the agreement addressing thedivision of retirement accounts is the only place that mentions equal division or equalization of specificproperty. The parties also acknowledged in the agreement that they were waiving rights to equitabledistribution of their property.
In addition, in the paragraph covering "Intangible Personal Property," Steven recognized that heretained "all right, title and interest in and to all bank, brokerage and similar financial accounts in hisname, including his capital account as a partner at Paul Weiss." Similarly, the preceding paragraphstates that "[w]ife shall retain all right, title and interest in and to all bank, brokerage and similar financialaccounts in her name." The article of the agreement addressing "debts" states that "[h]usband covenantsand agrees to pay all debts, charges and liabilities incurred by him before or after the execution of thisagreement for which Wife may be or may become liable and to keep Wife free and harmless andindemnified of and from all and any such debts, charges or liabilities heretofore and hereafter contractedby him." Laura made a reciprocal covenant.
The parties also entered into mutual releases whereby they agreed to release "any and all claims toor upon the property of [the other]" whether real or personal and agreed to release and discharge theother from: "All debts, sums of money, accounts, contracts, claims, causes or causes of action, suits,dues, reckonings, bonds, bills, specialities, covenants, controversies, agreements, promises, variances,trespasses, damages, judgments, executions and demands whatsoever, in law or in equity, which eachof them had, now has or hereafter can, shall or may have by reason of any matter from the beginning ofthe world to the execution of this agreement." The parties acknowledged that they entered theagreement freely and had obtained independent legal advice. The agreement also contains a mergerclause: "No oral statement or prior written matter, extrinsic of this agreement, shall have any force oreffect. The parties are not relying on any representation other than those expressly set forth herein." Italso states that "[t]his agreement is entire and complete and . . . no representations,agreements, promises, undertakings or warranties of any kind or nature have been made by eitherparty."
At the time of the agreement, Steven had an account in his name with Bernard L. MadoffInvestment Securities (the Madoff account), that was supposed to consist of securities and other assets.The agreement does not mention the Madoff account, but Steven liquidated part of the account to fundhis payments to Laura under the agreement. Pursuant to the agreement, Steven retained title to all hisaccounts, including this account. He did not liquidate the rest of the Madoff account after the partiesdivorced, and he continued to invest in it. As we all now know, Bernie Madoff was operating theworld's largest Ponzi scheme. Today, the Madoff account is presumably worthless.
As mentioned earlier, in exchange for Laura giving up spousal support, all interest in the maritalhome in Scarsdale, New York and certain personal property, Steven paid Laura $6.25 million.Although the agreement says nothing of the kind, Steven now claims that $2.7 million of the $6.25million he gave her was Laura's share of the Madoff account. He arrives at this [*5]figure by claiming that: (1) the parties were supposed to divide thisparticular marital asset equally; and (2) as of the valuation date of September 1, 2004, the partiesvalued the Madoff account at $5.4 million.The Complaint
Plaintiff seeks to reform the settlement agreement on the grounds of mutual mistake and seekspayment from Laura of an amount to be determined as restitution, indemnity or otherwise. Steven'sfar-flung request for relief relies on the theory that the Madoff account never really existed and thereforethe parties were mistaken when they valued it at $5.4 million as of September 1, 2004. Because of this"mutual mistake," the parties' supposed intention to divide this asset equally did not come to fruition.Steven therefore seeks to reform the agreement. He also asserts a claim for unjust enrichment/restitutionclaiming Laura has been unjustly enriched based on the mutual mistake concerning the Madoff accountand that she should pay him restitution that "would put the parties in the position they intended." Withinhis claim for unjust enrichment, Steven also contends that, should the trustee overseeing the liquidationof Madoff Securities seek clawback from Steven, Laura should provide an indemnification and defense.Steven asserts this claim against Laura even though the trustee has not asserted a claim against him andmay never do so.
To reform a contract on the ground of mutual mistake, the mutual mistake must involve a"fundamental assumption of the contract" (True v True, 63 AD3d 1145, 1147 [2009]). "[P]roof of mistake must beof the highest order and must show clearly and beyond doubt that there has been a mistake" (id.[internal quotation marks, citations and brackets omitted]). "When the writing expresses the actualagreement it cannot be reformed and a stipulation, not assented to, can never be added" (Curtis vAlbee, 167 NY 360, 364 [1901]).
In this case, the alleged mutual mistake does not undermine any "fundamental assumption" in thecontract. Nothing in the agreement states that the parties agreed to divide the Madoff account equally.Nothing in the agreement attributes $2.7 million to Laura's share of the Madoff account. Indeed, theagreement does not even mention the Madoff account, even though this account was supposedly the"couple's largest asset." With the exception of a payment to equalize their retirement accounts, theagreement does not state that the parties were to divide any particular asset equally. Nor does theagreement dictate how Steven was to pay Laura. Significantly, however, the agreement does mentionthat, for Steven's payment of $6.25 million, Laura was to forego spousal support, acquire propertyencumbered by a mortgage and forego her share of the parties' residence in Scarsdale as well as certainvaluable personalty.
As the agreement does not address how Steven was to pay Laura, he was free to put together thefund by other means such as a home equity loan or borrowing against his retirement account. That hechose to liquidate in part the Madoff account, does not diminish one iota the amount that was due Lauraunder the agreement. To suggest otherwise contradicts the terms of the written agreement (compare Lusk v Lusk, 55 AD3d 408,408 [2008] [although separation agreement did not address specific contingency of a tax refund from apostdivorce amended return, wife was entitled to half of refund pursuant to clear terms of the agreementstating that refunds "shall be divided equally"]; True v True, 63 AD3d at 1147-1148 [courtfound mutual mistake as to number of shares defendant was to receive where the stipulation betweendivorcing spouses specifically referred to the shares as being available for division between theparties]). The Court of Appeals has repeatedly warned that "an omission or mistake in a contract doesnot constitute an ambiguity . . . Even where a contingency has been omitted, we will not[*6]necessarily imply a term since courts may not by construction addor excise terms, nor distort the meaning of those used and thereby make a new contract for the partiesunder the guise of interpreting the writing" (Reiss v Financial Performance Corp., 97 NY2d195, 199 [2001] [internal quotation marks and citations omitted]). In total disregard for clear Court ofAppeals precedent, the complaint, under the guise of a "mistake," seeks to rewrite the agreementbetween the parties. Steven received exactly what he bargained for, including sole title to a house inScarsdale. To require Laura to give back any of the $6.25 million would result in a serious windfall toSteven, who received valuable consideration in exchange for this payment and, notably, does notsuggest that he give back half the house or commence spousal support payments.
One would think that Steven would not have signed an agreement in which he waived equitabledistribution if the parties had agreed to divide each particular asset equally. The parties were certainlycapable of discussing equal division of specific property. They did so with respect to only one asset, theretirement accounts.
The majority ignores the plain language in the agreement. Instead, it leans on the doctrine of "mutualmistake" to rewrite the agreement between the parties. However, even under the majority's theory, thecomplaint cannot stand. Under the settled doctrine of mutual mistake, the alleged mistake must exist atthe time the parties executed their agreement (Matter of Gould v Board of Educ. of SewanhakaCent. High School Dist., 81 NY2d 446, 453 [1993]). The amended complaint repeatedlyidentifies the mistake to be that the parties thought they had an investment account worth $5.4 million,when it was actually nonexistent. However, this allegation clearly conflicts with the allegation in theamended complaint that Steven withdrew actual money from this "nonexistent" account at the same timein 2006 to pay Laura. Thus, even looking at the amended complaint in isolation (i.e., without theagreement), plaintiff has failed to plead a mutual mistake that existed at the time the parties entered intotheir contract.
The majority also relies heavily on the circumstance that this is a motion to dismiss. However, amotion to dismiss is not an opportunity to set aside the clear language of a properly executed agreement(see Riverside S. Planning Corp. vCRP/Extell Riverside, L.P., 13 NY3d 398 [2009]; see also Sweeney v Sweeney, 71 AD3d 989, 991 [2010] ["(w)hen themoving party offers evidentiary material, the court is required to determine whether the proponent of thepleading has a cause of action, not whether she has stated one" (internal quotation marks and citationomitted)]). The majority also makes the conclusory assertion that the documentary evidence "does notutterly refute plaintiff's factual allegations or conclusively establish a defense as a matter of law" butnever explains why. Indeed, the majority barely addresses the agreement at all except to acknowledgethat there is an express contract between the parties but claims, without explanation or addressing thearguments in this dissent, why it is "unclear whether it covers the current dispute."
The majority faults the citation to Reiss v Financial Performance Corp. (97 NY2d 195[2001]), on the ground that this case did not involve a claim of mutual mistake. What the majority failsto comprehend is that plaintiff's theory of mutual mistake is irrelevant because the express terms of theagreement address the situation at hand. Reiss requires New York courts to enforce theexpress language of an agreement even where the results contradict expectations and disadvantage oneparty, while arguably resulting in a windfall to the other (97 NY2d at 199-201; see alsoMcCaughey v McCaughey, 205 AD2d 330 [1994] [no reformation of agreement even thoughhusband lost his job as an investment banker where husband received substantial benefits, [*7]including a house, and was aware of the possibility he might becomeunemployed a year after he made the agreement]).
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 legionof cases denying a spouse's request to open up a divorce settlement where the final value of an assetwas not what the parties believed at the time of the divorce (see e.g. Greenwald v Greenwald,164 AD2d 706, 721 [1991], lv denied 78 NY2d 855 [1991] [post-trial depreciation of twoinvestment accounts did not entitle husband to new trial because "post-trial changes in value may not beused to reallocate the distribution of marital assets to strike a more equitable balance"]). Certainly, hadthe Madoff account substantially increased in value, Laura would not be able to share those benefits(see e.g., Etzion v Etzion, 62AD3d 646 [2009], lv dismissed 13 NY3d 824 [2009] [no mutual mistake where marketvalue of warehouse property substantially increased in value after City announced rezoning plansubsequent to the divorce]; Kojovic vGoldman, 35 AD3d 65 [2006], lv denied 8 NY3d 804 [2007] [wife precluded fromchallenging validity of settlement agreement where husband sold his minority interest in company afterdivorce]; Siegel v Siegel, 132 AD2d 247 [1987], appeal dismissed 71 NY2d 1021[1988], lv denied 74 NY2d 602 [1989] [plaintiff's motion for a new trial denied when artistDiego Giacommetti died after the trial and artwork, now defendant's sole property, substantiallyincreased in value]). Steven negotiated successfully to retain the Madoff account, presumably becausehe expected the Madoff account to continue its highly profitable performance. After the valuation dateof September 1, 2004, he invested more money in it. Accordingly, he alone took on the risk that hemight not be able to recoup his investment (see Reiss, 97 NY2d at 201 [noting while "(w)eshould not assume that one party intended to be placed at the mercy of the other . . . (, i)tdoes not follow, however, that Financial should be given a comparable remedy to save it from theconsequences of its own agreements and its own decision"]). Laura cannot be responsible for Steven'sindependent decision to continue to hold his investment with Madoff. Just as she would not havebenefitted from any increase in the value of the account, she should not have to bear the burden of itsloss.
"In general, a final judgment of divorce issued by a court having both subject matter and personaljurisdiction has the effect of determining the rights of the parties with respect to every material issue thatwas actually litigated or might have been litigated" (Rainbow v Swisher, 72 NY2d 106, 110[1988]). "[A]bsent unusual circumstances or explicit statutory authorization, the provisions of thejudgment are final and binding on the parties, and may be modified only upon direct challenge"(id.). The reason courts routinely reject attempts to revalue assets is obvious. To recognizeunforeseen changes in the value of property to modify the distribution "would effectively undermine thefinality of judgments in matrimonial actions" (Siegel v Siegel, 132 AD2d at 254; see alsoKojovic, 35 AD3d at 68 [barring wife's action "out of respect for the integrity and finality ofdivorce settlements"]; Greenwald, 164 AD2d at 722 [same]). As the Court of Appeals hasnoted, the "essential objective" in a matrimonial action "is to dissolve the marriage relationship"(Boronow v Boronow, 71 NY2d 284, 290 [1988]). To continue unnecessary litigation is"particularly perverse" in the divorce context because it continues the relationship and conflict betweenthe parties (id. at 291). By accepting plaintiff's argument, the majority effectively grants leave tolitigants in matrimonial actions to seek repeatedly to modify final judgments based on allegations thatcertain of the assets distributed may have depreciated in value or disappeared because of outsideevents since the time of the trial or settlement and [*8]judgment. Themajority's decision will result in chaos, not only for the court system, but for the litigants as well, whodeserve finality and to move on (see Denburg v Parker Chapin Flattau & Klimpl, 82 NY2d375, 383 [1993] ["a settlement produces finality and repose upon which people can order theiraffairs"]).
Finally, the motion court properly rejected Steven's claim for unjust enrichment. "Where the partiesexecuted a valid and enforceable written contract governing a particular subject matter, recovery on atheory of unjust enrichment for events arising out of that subject matter is ordinarily precluded" (IDT Corp. v Morgan Stanley Dean Witter &Co., 12 NY3d 132, 142 [2009], citing Clark-Fitzpatrick, Inc. v Long Is. R.R. Co.,70 NY2d 382, 388 [1987]). Steven cannot assert an alternative claim for unjust enrichment becausethe terms of the agreement control.
To the extent the unjust enrichment claim seeks to compel Laura to indemnify and defend Stevenfrom any attempts by the trustee overseeing the liquidation of Madoff Securities to seek clawback fromSteven, this lawsuit is not yet ripe, and indeed may never be.[FN2]First, the trustee is not pursuing Steven at this time. Moreover, for the trustee ever to recover againstSteven as an innocent investor in a Ponzi scheme, the trustee would likely have to show that Stevenwas: (1) a "net winner" and (2) that amounts Steven received in profit were within the limitations period(see e.g. Donell v Kowell, 533 F3d 762, 776 [9th Cir 2008], cert denied 555 US—, 129 S Ct 640 [2008]; CiticorpTrust Bank, FSB v Makkas, 67 AD3d 950, 952 [2009] [statute of limitations for constructivefraud under New York's Debtor and Creditor Law is six years from the date of the fraudulenttransfer]). Thus, if and when Steven will be liable is a far-off contingency (see Heine v Heine,176 AD2d 77, 91 [1992] [tax impact evidence too speculative to support a claim for credit for taxes]).Accordingly, the unjust enrichment claim should be dismissed as speculative. Whether Steven can statea claim for unjust enrichment against Laura, if and when the trustee does bring a claim against Steven, isa question for another day.
Footnote 1: This dissent adopts the samedelineations as are in the complaint and therefore refers to plaintiff as "Steven" and defendant as"Laura."
Footnote 2: The majority does not address thispoint.