Eric Solotoff, a partner in our Roseland, New Jersey office and editor of our New Jersey Family Law Blog recently posted a blog entry on bad faith negotiating and its detrimental effect on settling cases. Eric’s point is well taken: there are times in family law cases when people lose sight of their goals and try to land a (proverbial) shot on the other person. Empty demands, veiled threats, and open hostility become the rules of the game rather than honest discussions on finding a resolution and that rarely leads to a satisfying outcome for either side or their counsel.
Following up on Mark Ashton’s “celebrity” themed blog entry on the Los Angeles Dodgers’ ownership, another high profile individual is having a residual effect on divorces: Bernie Madoff.
Mr. Madoff’s crimes are well-documented and high profile. His arrest has given rise to a media niche on scan artists, including Montgomery County’s own “Madoff”, Robert L. Krikorian, who was recently convicted of a Ponzi scheme and sentenced to three to seven years in jail for bilking investors out of (a paltry) $870,500.00 over about four years. If you rip off your investors you are labeled a “Madoff.”
But in being duped, should people get the chance to redo the a Marital Settlement Agreement negotiated and executed years before the fraud was discovered? That is the question being asked in New York where a well-heeled couple split their assets in 2006, including a large investment account with Madoff. Wife pulled her money from the investment, while Husband kept his in. You probably can guess what happens next: Husband’s money gets lost in the Madoff scandal while Wife continues to live well in her Upper East Side apartment.
The question before the New York bar is whether Husband can sue to have the Marital Settlement Agreement reopened and the funds Wife retained redistributed to account for his Madoff loses. Sides are being taken in this dispute and many practitioners view a favorable outcome to Husband as having wide reaching implications to contract law and beyond; it calls into question whether a deal is ever really “done.”
The crux of Husband’s case rests on the argument that the parties’ Agreement (contract) is nullified by “mutual mistake;” they were both mistaken by the existence of an account with Madoff. It appears that Husband is arguing in that they were both mistaken their belief that they had an account containing millions of dollars with Madoff. – the Madoff fraud proves they, in fact, had no “account” with Madoff. So, even if they had moved $1 million dollars over to Madoff, they really weren’t investing it. Madoff stole just stole it…except for the $6.6 million cash payment Husband swung over to Wife from the account.
This case basically sets up the possibility that events subsequent to an agreement could allow for a total reexamination of the deal. Interestingly, we had (have) a national crisis over real estate values (many would argue millions of frauds were committed), yet I am not aware of any parties successfully trying to re-litigate a deal in which they kept the marital residence and off-set its equity value with cash assets. No one is successfully re-litigating their stock holdings that tanked. In my experience, a client and her husband split their stock account when they separated; my client moved her money into cash, while Husband – allegedly a financial guru – keep his in stocks. Two years later, my client has retained most of her money in cash, while husband has lost all of his money to his lifestyle and stock market. Husband unsuccessfully argued that Wife should bear some of the liability because the assets were marital in nature, but the court held that he was responsible for his portion of the money.
In New York, Husband’s case looks, in many respects, as a brazen attempt to capitalize on a highly publicized crime for which neither party had any knowledge or control over. The only control they had was how they decided to invest their individual pieces of the marital estate after the divorce. Wife chose to pull her money out; Husband opted to keep his in. Wife mitigated her risk; Husband appeared to have raised the stakes.
After a trial court dismissal, the New York appellate court reached a 3-to-2 decision in favor of Husband’s right to sue to revise the deal based on “mutual mistake.” Whether he will successfully revise the deal remains to be seen.
Eric Solotoff, a partner in our Roseland, New Jersey office, recently posted a piece on our New Jersey Family Law Blog about his experience with a mediator who sought to apply “settlement anxiety” on the parties to help force a settlement in the case.
Eric explores the ethical and practical application of “settlement anxiety” in settling cases and it is an interesting topic for practitioners and litigants, alike.