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Patricia Cohen v. Steven Cohen

March 30, 2011


The opinion of the court was delivered by: Richard J. Holwell, District Judge


Plaintiff Patricia Cohen ("Patricia") brings this action seeking damages from her former husband, defendant Steven Cohen ("Steven"), his brother, Donald Cohen, ("Donald"), and their former business partner, Brett Lurie ("Lurie"), for defrauding her of a share of an investment made during her marriage to Steven. Patricia alleges claims for civil RICO, common law fraud, breach of fiduciary duty, and unjust enrichment. Steven and Donald have moved to dismiss the claims against them as time-barred and for failure to state a claim for which relief can be granted. For the reasons that follow, the motion is granted.


Patricia's Second Amended Complaint ("2AC") alleges as follows. Patricia married Steven in 1979. (2AC ¶ 13.) At that time, Steven was a proprietary trader at Gruntal & Co. ("Gruntal"), a securities firm in New York, New York. (Id. ¶ 12.) By 1985, Steven had become a very successful trader, but the Cohens' marriage was far from a success, and they discussed the possibility of a divorce. (Id. ¶¶ 14-15.)

In January 1986, Steven created SAC Trading Corporation ("SAC"), a New York corporation. (Id. ¶16.) Steven owned 100% of the stock of the corporation and served as President. Donald served as SAC's Treasurer and Lurie served as SAC's Secretary and counsel. (Id.) Other than the Cohens' apartment, all of the Cohens' marital assets were held by SAC. (Id.) Also in January 1986, Steven told Patricia that he planned to invest "millions of dollars" held by SAC in a real estate venture headed by Lurie whereby properties in Queens, New York would be converted to co-op apartments. (Id. ¶¶ 17, 59.) This was the "Lurie Investment."

The Lurie Investment

According to the 2AC, the Lurie Investment was a fraud. The properties were purchased by SAC either alone or along with Lurie. (Id. ¶ 56.) Lurie drafted fraudulent offering plans for proposed co-ops, provided them to Steven, and used the mails to send them to potential purchasers. (Id. ¶ 56, 60.) Though the 2AC does not allege that Steven affirmatively approved these offering plans, it does allege that he did not propose any "substantive changes" to them. (Id.) In any event, the 2AC alleges that Steven was aware that the offering plans were fraudulent because they represented that Lurie was making required payments when he was not and failed to disclose that Lurie had fallen behind on his financial obligations regarding the conversions. (Id. ¶ 58.)

When Lurie could no longer make payments on the properties, they fell into bankruptcy. (Id. ¶ 61.) Lurie was ultimately convicted in New York state court of crimes arising out of the project, including fraud. (Id. ¶ 62.) In 1987, Steven and SAC sued Lurie over the Lurie Investment "and related financial issues" and Lurie allegedly paid Steven $5.5 million to settle that suit ("the 1987 Settlement"). (Id. ¶ 39.) The complaint appears to allege that this sum was paid to a "secret, unnamed company which 'held the profits' of SAC." (Id.)

What Steven and Donald told (or did not tell) Patricia about all of this forms the core of this case. Patricia alleges that Steven and Donald told her in 1986 that Steven's entire share of the Lurie Investment-"almost $9 million"-had been lost, but that the loss could not yet be written off as such until the properties entered foreclosure or bankruptcy. (2AC ¶ 20.) Patricia alleges that these statements were false because "Lurie had actually repaid $5.5 million to Steven by January 1987." (Id. ¶ 21.)

The Cohens' Divorce

In 1988, Steven and Patricia separated and began negotiating a separation agreement, a process in which each Cohen was represented by counsel. (Id. ¶ 22.) During those negotiations, Steven prepared a "Statement of Financial Condition" as of July 1, 1988 on which the value of "Queens Coop-Brett Lurie Investment" was listed as $8,745,169. (Id. ¶ 22; see also Dec. of Martin Klotz in Supp. of Defs.' Mot. to Dismiss ("Klotz Dec.") Ex. F at 2.) Steven directed this statement to be sent by United States Mail in 1989. (2AC ¶ 23.) Also during the negotiations, supporting his assertions with documents, Steven told Patricia and her attorney, that he still could not declare the Lurie Investment lost because there had been no foreclosure or bankruptcy decree regarding the property. (Id. ¶ 24.) Patricia alleges that Steven never told Patricia that he had obtained the 1987 Settlement or that SAC's funds were held in a "secret account." (Id. ¶¶ 21, 25, 29.) Patricia alleges that, in reliance on these representations, she "agreed to a settlement in which the investment was deemed to be lost-i.e. worthless." (Id. ¶ 26.) Thus Patricia appears to allege that Steven and Donald committed fraud by representing that the Lurie Investment was worth nothing when, in fact, Steven had received $5.5 million from Lurie in the 1987 Settlement.

On December 15, 1989, the Cohens, still represented by counsel, entered into a "Stipulation of Settlement and Separation Agreement" (the "Separation Agreement") (Id. ¶ 22; Klotz Dec. Ex. D.) In Articles 14.1, 14.2, and 14.3, the Cohens acknowledged, inter alia, that they each had been represented by counsel. Article 14.4 provided as follows:

Each party acknowledges a degree of familiarity with and knowledge of the financial circumstances of the other and each party is of the opinion that he and she are sufficiently informed of income, assets, property and financial prospects of the other. Husband has provided wife with his net worth statement and the statement of financial condition dated as of July 1, 1988, provided, however, that Husband makes no representation as to the value of the interest in a second and third mortgage on various properties involved in cooperative conversions in Queens, New York in which the investment was listed on his statement of financial condition dated as of July 1, 1988 at a value of $8,745,169. (Klotz Dec. Ex. D at 43-44.) Article 14.5 provided as follows:

Each party acknowledges that respective counsel have advised that under the Equitable Distribution Law of the State they are each entitled to a full disclosure and valuation of all property owned by the other party and that the complete financial disclosure which could be required if this matter continued in litigation has not been obtained, but both parties have advised their counsel that they are aware of these facts and desire to curtail discovery, are unwilling to litigate the issues and desire to proceed with this Agreement on the limited financial data supplied to date and their own knowledge of the other party's financial affairs. (Id. at 44.) And Article 19 provided in relevant part as follows:

19.3 This agreement is entire and complete and embodies all understandings and agreements between the parties.

19.4 No representations or warranties have been made by either party to the other, or by anyone else, except as expressly set forth in this Agreement. This Agreement is not being executed in reliance upon any representation or warranty not expressly set forth herein.

(Id. at 50.) Patricia alleges that the representations in Article 14 were "fraudulently made to induce [her] to sign the Separation Agreement" and that she "relied on [Steven's] representations [in the Separation Agreement] and in the Financial Statement that he had 'fully disclosed' all his property to her, in consenting to the Separation Agreement." (2AC ¶ 29.)

At Steven's direction, the Settlement Agreement was sent to Patricia and her attorney by United States Mail. (2AC ¶ 29.) By judgment dated March 13, 1990, into which the Separation Agreement was incorporated but not merged, Steven and Patricia were divorced. (Id. ¶ 22; Klotz Dec. Ex. E.)

The 1991 Action

In 1991, Patricia brought an action in the Supreme Court of New York, New York County to increase the child support and maintenance owed to her under the Separation Agreement. (2AC ¶ 30.) In her motion, Patricia asked the court to set "aside the Separation Agreement between the parties upon the grounds that it is unconscionable and was procured by fraud and economic duress." (Klotz Dec. Ex. G at 2.) Patricia also submitted an affidavit dated March 20, 1991 in which she affirmed as follows:

Although the Separation Agreement was executed on December 15, 1989, plaintiff would not disclose his income for 1989 and insisted upon filing a separate income tax return. Because we were still married, and there were fifteen days left in the year, plaintiff could have filed a joint return with me. However, he chose to file under married filing separately even though it meant paying a higher tax. I must assume that he did this because he did not want to disclose his substantially increased income. (Id. at 2-3.) Steven submitted his own affidavit on May 1, 1991 (Dec. of Howard Foster in Supp. of Pl.'s Opp. to Defs.' Mot. to Dismiss ("Foster Dec.") Ex. B") in which he affirmed as follows:

15. The reason I did not file a joint income tax return with my wife for 1989 was not that I did not want to disclose my income. Why would I hide the fact that my income had decreased so drastically? The simple reason I filed separately is that when the tax returns were due defendant was making things difficult for me and was very uncooperative. I did not want to have to ask her to sign extensions of time to file, since I was not ready to file on April 15. Rather than get involved with her deductions and her problems, I chose to file separately.

16. Prior to entering into the Agreement defendant was furnished with a copy of a statement of our financial condition as of July 1, 1988. This statement indicated a net worth of $16,930,537, $8,745,169 of which was represented by a real estate deal with Brett Lurie (coop mortgages) and this was so indicated on the statement. The Brett-Lurie deal is presently involved in bankruptcy proceedings. Even then I suspected that this would happen because the general partner was in default. I am writing it off as totally worthless. Subtracting the value of Brett-Lurie from my net assets at that time means that my net worth was $8,185,368. Defendant's equitable distribution award pursuant to the Agreement was close to $5 million, or more than 50% of my net worth in the real world. Obviously, it was not unconscionable. (Foster Dec. Ex. B. at 8-9 (emphasis in original).) At Steven's direction, his signed affidavit was mailed to Patricia's counsel by U.S. Mail. (2AC ¶ 33.) Patricia alleges that this affidavit was false because Steven had received the 1987 Settlement and that the affidavit "succeed[ed] in preventing [her] from investigating the Lurie real estate deal." (Id. ¶¶ 32, 34.)

In response to Steven's affidavit, Patricia's counsel in the 1991 action, Martin S. Kera, submitted an affidavit dated August 9, 1991 in which he averred as follows:

3. Mr. Cohen's affidavit is most remarkable for what it doesn't contain. Conspicuously absent is his 1990 income tax information, his 1991 year to date income information and his official form Net Worth Affidavit which is required under the Uniform Court Rules. Defendant is entitled to an inference that plaintiff did not disclose his finances because it would reveal that he had made more money than he is stating in his affidavit in opposition. This clearly indicates the problem that Mrs. Cohen had with Mr. Cohen both during the matrimonial negotiations and the present time. He does not want to truthfully disclose his income. He didn't want to disclose it during the matrimonial proceedings and he is refusing to disclose it now before the Court.

4. Defendant and I believe that Mr. Cohen has not truthfully stated his income. Upon information and belief, Mr. Cohen did one of the following: (1) had payments of his income made to his wholly owned corporation, S.A.C. Trading Corp., (2) had payments of his income made directly to his brother Donald, who is his accountant, or (3) deferred payment of his compensation to a later year so that his income tax return during 1989 did not show his true income. In fact his 1989 tax return shows an address in Miami, Florida which I believe is his brother's office. It is believed that a true showing of Mr. Cohen's income and earnings for 1990 and 1991 will pick up some of the deferment of his compensation and give a true picture of his finances. (Klotz Dec. Ex. I at 1-2.) Patricia's brief before the Court also argued that Steven "misled [Patricia] into believing that he would not receive certain moneys from his employer Gruntal & Company, because they were needed to pay commissions to his employees. In fact, the commissions were less than anticipated. Plaintiff did in fact receive these moneys." (Foster Dec. Ex. A at 7.)

On August 6, 1991, Justice Schackman issued a decision in which he held, inter alia, that Patricia's "motion to set aside the separation agreement on the grounds it was procured by fraud and economic duress is permitted to be withdrawn without prejudice to institute a separate plenary action on this basis if [Patricia] is so advised." (Klotz Dec. Ex. J. at 1.) On January 6, 1992, Patricia and Steven signed an amendment to the Separation Agreement that modified some of the ...

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