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Steven Simkin v. Laura Blank

April 3, 2012

STEVEN SIMKIN, RESPONDENT,
v.
LAURA BLANK, APPELLANT.



The opinion of the court was delivered by: Graffeo, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

The primary issue before us is whether plaintiff has presented facts sufficient to support the reformation or setting aside of the parties' marital settlement agreement based on a claim of mutual mistake pertaining to an investment account. We conclude that plaintiff has failed to state a cause of action and therefore dismiss the amended complaint.

Plaintiff Steven Simkin (husband) and defendant Laura Blank (wife) married in 1973 and have two children. Husband is a partner at a New York law firm and wife, also an attorney, is employed by a university. After almost 30 years of marriage, the parties separated in 2002 and stipulated in 2004 that the cut-off date for determining the value of marital assets would be September 1, 2004. The parties, represented by counsel, spent two years negotiating a detailed 22-page settlement agreement, executed in June 2006. In August 2006, the settlement agreement was incorporated, but not merged, into the parties' final judgment of divorce.

The settlement agreement set forth a comprehensive division of marital property. Husband agreed to pay wife $6,250,000 "[a]s and for an equitable distribution of property . . . and in satisfaction of the Wife's support and marital property rights." In addition, wife retained title to a Manhattan apartment (subject to a $370,000 mortgage), an automobile, her retirement accounts and any "bank, brokerage and similar financial accounts in her name." Upon receipt of her distributive payment, wife agreed to convey her interest in the Scarsdale marital residence to husband. Husband received title to three automobiles and kept his retirement accounts, less $368,000 to equalize the value of the parties' retirement accounts. Husband further retained "bank, brokerage and similar financial accounts" that were in his name, two of which were specifically referenced -- his capital account as a partner at the law firm and a Citibank account.

The agreement also contained a number of mutual releases between the parties. Each party waived any interest in the other's law license and released or discharged any debts or further claims against the other. Although the agreement acknowledged that the property division was "fair and reasonable," it did not state that the parties intended an equal distribution or other designated percentage division of the marital estate. The only provision that explicitly contemplated an equal division was the reference to equalizing the values of the parties' retirement accounts. The parties further acknowledged that the settlement constituted:

"an agreement between them with respect to any and all funds, assets or properties, both real and personal, including property in which either of them may have an equitable or beneficial interest wherever situated, now owned by the parties or either of them, or standing in their respective names or which may hereafter be acquired by either of them, and all other rights and obligations arising out of the marital relationship."

At the time the parties entered into the settlement, one of husband's unspecified brokerage accounts was maintained by Bernard L. Madoff Investment Securities (the Madoff account). According to husband, the parties believed the account was valued at $5.4 million as of September 1, 2004, the valuation date for marital assets. Husband withdrew funds from this account to pay a portion of his distributive payment owed wife in 2006, and continued to invest in the account subsequent to the divorce. In December 2008, Bernard Madoff's colossal Ponzi scheme was publicly exposed and Madoff later pleaded guilty to federal securities fraud and related offenses.

As a result of the disclosure of Madoff's fraud, in February 2009 -- about 21/2 years after the divorce was finalized -- husband commenced this action against wife alleging two causes of action: (1) reformation of the settlement agreement predicated on a mutual mistake and (2) unjust enrichment. The amended complaint asserts that the settlement agreement was intended to accomplish an "approximately equal division of [the couple's] marital assets," including a 50-50 division of the Madoff account. To that end, the amended complaint states that $2,700,000 of wife's $6,250,000 distributive payment represented her "share" of the Madoff account. Husband alleges that the parties' intention to equally divide the marital estate was frustrated because both parties operated under the "mistake" or misconception as to the existence of a legitimate investment account with Madoff which, in fact, was revealed to be part of a fraudulent Ponzi scheme. The amended complaint admits, however, that funds were previously "'withdrawn' from the 'Account'" by husband and applied to his obligation to pay wife.

In his claim for reformation, husband requests that the court "determine the couple's true assets with respect to the Madoff account" and alter the settlement terms to reflect an equal division of the actual value of the Madoff account. The second cause of action seeks restitution from wife "in an amount to be determined at trial" based on her unjust enrichment arising from husband's payment of what the parties mistakenly believed to be wife's share of the Madoff account. Wife moved to dismiss the amended complaint on several grounds, including a defense founded on documentary evidence (see CPLR 3211 [a] [1]) and for failure to state a cause of action (see CPLR 3211 [a] [7]).

Supreme Court granted wife's motion and dismissed the amended complaint. The Appellate Division, with two Justices dissenting, reversed and reinstated the action (80 AD3d 401 [1st Dept 2011]). The Appellate Division granted wife leave to appeal on a certified question, and we now reverse and reinstate Supreme Court's order of dismissal.

Wife argues that the Appellate Division erred in reinstating the amended complaint because the allegations, even if true, fail to appropriately establish the existence of a mutual mistake at the time the parties entered into their settlement agreement. Rather, she claims that, at most, the parties may have been mistaken as to the value of the Madoff account, but not its existence. Wife also contends that allowing husband's claims to go forward years after the division of property and issuance of a divorce decree would undermine policy concerns regarding finality in divorce cases. Husband responds that the amended complaint states a viable claim because the parties were both unaware and misled as to the legitimacy of the Madoff account, which, in husband's view, "did not in fact ever exist" due to the fraud occasioned on investors.

On a motion to dismiss under CPLR 3211, the pleading is to be given a liberal construction, the allegations contained within it are assumed to be true and the plaintiff is to be afforded every favorable inference (see ABN AMRO Bank, N.V. v MBIA Inc., 17 NY3d 208, 227 [2011]). At the same time, however, "allegations consisting of bare legal conclusions as well as factual claims flatly contradicted by documentary evidence are not entitled to any such consideration" (Maas v Cornell Univ., 94 NY2d 87, 91 [1999] [internal quotation marks and citation omitted]). Moreover, a claim predicated on mutual mistake must be pleaded with the requisite particularity necessitated under CPLR 3016 (b).

Marital settlement agreements are judicially favored and are not to be easily set aside (see McCoy v Feinman, 99 NY2d 295, 302 [2002]; Christian v Christian, 42 NY2d 63, 71-72 [1977]). Nevertheless, in the proper case, an agreement may be subject to rescission or reformation based on a mutual mistake by the parties (see Matter of Gould v Board of Educ. of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 [1993]; Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]). Similarly, a release of claims may be avoided due to mutual mistake (see Centro Empresarial Cempresa S.A. v America Movil, S.A.B. de C.V., 17 NY3d 269, 276 [2011]). Based on these contract principles, the parties here agree that this appeal turns on whether husband's amended complaint states a claim for relief under a theory of mutual mistake.

We have explained that "[t]he mutual mistake must exist at the time the contract is entered into and must be substantial" (Gould, 81 NY2d at 453). Put differently, the mistake must be "so material that . . . it goes to the foundation of the agreement" (Da Silva v Musso, 53 NY2d 543, 552 [1981] [internal quotation marks and citations omitted]; see also 27 Lord, Williston on Contracts ยง 70:12 [4th ed] ["The parties must have been mistaken as to a basic assumption of the contract . . . Basic assumption means the mistake must vitally ...


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