Decisions of Interest

In February 2009, Bernard Madoff admitted to conducting a Ponzi scheme, depleting the “accounts” of numerous investors in his fund. At the time of the parties' divorce 2 ' years prior to this revelation, the parties believed that the account there was worth $5.4 million. Based on these facts, the plaintiff husband commenced an action against his ex-wife, seeking reformation of the settlement agreement based on mutual mistake, and alleging a cause of action for unjust enrichment. His amended complaint asserted that the settlement agreement had attempted to divide the parties' assets equally, to include a 50-50 division of the Madoff account, and that $2,700,000 of his wife's $6,250,000 distributive payment represented her “share” of the Madoff account. He therefore asked the court to “determine the couple's true assets with respect to the Madoff account,” and alter the settlement terms so that each received a half interest in the actual value of the Madoff account. The second cause of action sought restitution from the 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.

The wife moved to dismiss, and Supreme Court granted that motion, but the Appellate Division reinstated the action.

New York's high court concluded that the amended complaint failed to state a cause of action based on mutual mistake because the alleged “mistake” did not undermine the foundation of the settlement, as required by case law. Da Silva v. Musso, 53 NY2d 543. Specifically, the agreement never purported to split the marital assets on a 50/50 basis, and did not mention the Madoff account or its supposed value at the time of the agreement. Instead, the contract stated that the wife was being given a payment of $6,250,000 “in satisfaction of [her] support and marital property rights,” and her release of various claims and inheritance rights.

In addition, the court found the husband's contention that the Madoff account was nonexistent at the time of the agreement ' and that both parties were mistaken as to its existence ' was incorrect, as the account did exist, at least in some form. In fact, the husband had withdrawn funds from the Madoff account in order to pay part of the settlement to the wife. Thus, the Madoff account was not akin to a piece of real property the parties thought they owned but, in fact, did not.

In reversing the appellate decision and reinstating Supreme Court's order of dismissal, the Court of Appeals stated, “This situation, however sympathetic, is more akin to a marital asset that unexpectedly loses value after dissolution of a marriage; the asset had value at the time of the settlement but the purported value did not remain consistent. Viewed from a different perspective, had the Madoff account or other asset retained by [the] husband substantially increased in worth after the divorce, should [the] wife be able to claim entitlement to a portion of the enhanced value? The answer is obviously no. Consequently, we find this case analogous to the Appellate Division precedents denying a spouse's attempt to reopen a settlement agreement based on post-divorce changes in asset valuation.”

Tax Issues Are Not Family Court Matters

Supreme Court, Oswego County, erred in ordering a divorcing couple to take all their future “issues relative to income tax deductions and exemptions [concerning] the children” to Family Court, as Family Court jurisdiction is generally limited to child support and custody matters ' and tax deductions or exemptions are not an element of support (see Matter of John M.S. v. Bonni L.R., 49 AD3d 1235). Warner v. Warner, 2012 N.Y. App. Div. LEXIS 3291 (4th Dept. 4/27/12) (Smith, J.P., Lindley, Sconiers and Martoche, JJ.).

Parents Subject to Jurisdiction of New York Courts

The Appellate Division, Fourth Department, determined that the respondent parents were subject to the jurisdiction of New York's courts because they availed themselves of the privilege of conducting their activities in the State of New York by voluntarily placing their child in an aunt's temporary custody there. In the Matter of Chautauqua County Department of Social Services v. Rita M.S., 2012 N.Y. App. Div. LEXIS 3285 (4th Dept. 4/27/12)( Scudder, P.J., Smith, Centra, Fahey and Peradotto, JJ.).

A father and step-mother convicted of child abuse in New Mexico asked the New Mexico Children, Youth and Families Department (CYFD) to transfer custody of the girls to the children's aunt, who resides in New York, rather than send them into foster care. CYFD and the aunt entered into a “safety contract,” which provided for the aunt to take care of the children, and also directed her to seek financial assistance from the children's father and step-mother, if such were needed. New York's courts were soon called upon to order child support payments for the children's maintenance, and a support order was issued. To establish jurisdiction over the out-of-state parents, the court relied on Family Court Act ' 580-201 (5), which confers jurisdiction over such parents when the subject child resides within New York “as a result of the acts or directives of the individual” from whom support is sought.

The parents' appeal alleged, inter alia, that they were not subject to New York's jurisdiction because they merely acquiesced to the children's being moved to New York, so they had not availed themselves of the privilege of carrying on activities in that state. They cited to the U.S. Supreme Court decision in Kulko v. Superior Ct. of California, 436 U.S. 84, in which that court held California's courts could not exercise jurisdiction over an out-of-state father who merely permitted his child to move with her mother to California.

In affirming the trial court's exercise of jurisdiction over the Rita M.S. parents, the Fourth Department stated, “Unlike in Kulko, where the father assented to his daughter's desire to live with her mother in California, here respondents chose to send the children to New York after they were ordered to have no contact with the children. Respondents notified CYFD that they wished the children to reside with the children's aunt in New York rather than being placed in foster care in New Mexico, and they executed the necessary documents to facilitate the transfer of the children to the aunt. Respondents' voluntary decision to place the children with the aunt in New York and their formal acts in effectuating that decision constitute more than mere acquiescence.”

Ponzi Scheme Victim Has No Recourse Against Ex-Wife

In an April 3 decision, the Court of Appeals of New York reversed an order of the Appellate Division, First Department, declaring a man bilked in a Ponzi scheme had a right to seek recision of his and his ex-wife's settlement agreement on the basis that both were mistaken as to the existence of an investment account. Simkin v. Blank, 2012 N.Y. LEXIS 618 (N.Y. 4/3/12) (Graffeo, J., Lippman, Ciparick, Read, Pigott and Jones).

The parties were married nearly 30 years, both holding high-powered positions at the time of their 2006 divorce: he as an partner in a New York law firm and she as a university employee (she is also an attorney). Each of them was represented by counsel over the two-year period prior to the divorce, during which they negotiated the terms of their detailed, 22-page settlement agreement. The agreement divided between the parties various real estate holdings, cars, retirement accounts, bank accounts, etc., with the husband retaining certain unspecified brokerage accounts ' one of which was maintained by Bernard L. Madoff Investment Securities. Each party further agreed to waive or discharge any debts or further claims against the other. The agreement stated that the parties considered the property division therein to be “fair and reasonable,” but did not state that they intended for it to reflect an equal distribution or other designated percentage division of the marital estate. The only provision within the agreement referencing an equal division of marital property was a reference to equalizing the values of their 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.”

In February 2009, Bernard Madoff admitted to conducting a Ponzi scheme, depleting the “accounts” of numerous investors in his fund. At the time of the parties' divorce 2 ' years prior to this revelation, the parties believed that the account there was worth $5.4 million. Based on these facts, the plaintiff husband commenced an action against his ex-wife, seeking reformation of the settlement agreement based on mutual mistake, and alleging a cause of action for unjust enrichment. His amended complaint asserted that the settlement agreement had attempted to divide the parties' assets equally, to include a 50-50 division of the Madoff account, and that $2,700,000 of his wife's $6,250,000 distributive payment represented her “share” of the Madoff account. He therefore asked the court to “determine the couple's true assets with respect to the Madoff account,” and alter the settlement terms so that each received a half interest in the actual value of the Madoff account. The second cause of action sought restitution from the 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.

The wife moved to dismiss, and Supreme Court granted that motion, but the Appellate Division reinstated the action.

New York's high court concluded that the amended complaint failed to state a cause of action based on mutual mistake because the alleged “mistake” did not undermine the foundation of the settlement, as required by case law. Da Silva v. Musso , 53 NY2d 543. Specifically, the agreement never purported to split the marital assets on a 50/50 basis, and did not mention the Madoff account or its supposed value at the time of the agreement. Instead, the contract stated that the wife was being given a payment of $6,250,000 “in satisfaction of [her] support and marital property rights,” and her release of various claims and inheritance rights.

In addition, the court found the husband's contention that the Madoff account was nonexistent at the time of the agreement ' and that both parties were mistaken as to its existence ' was incorrect, as the account did exist, at least in some form. In fact, the husband had withdrawn funds from the Madoff account in order to pay part of the settlement to the wife. Thus, the Madoff account was not akin to a piece of real property the parties thought they owned but, in fact, did not.

In reversing the appellate decision and reinstating Supreme Court's order of dismissal, the Court of Appeals stated, “This situation, however sympathetic, is more akin to a marital asset that unexpectedly loses value after dissolution of a marriage; the asset had value at the time of the settlement but the purported value did not remain consistent. Viewed from a different perspective, had the Madoff account or other asset retained by [the] husband substantially increased in worth after the divorce, should [the] wife be able to claim entitlement to a portion of the enhanced value? The answer is obviously no. Consequently, we find this case analogous to the Appellate Division precedents denying a spouse's attempt to reopen a settlement agreement based on post-divorce changes in asset valuation.”

Tax Issues Are Not Family Court Matters

Supreme Court, Oswego County, erred in ordering a divorcing couple to take all their future “issues relative to income tax deductions and exemptions [concerning] the children” to Family Court, as Family Court jurisdiction is generally limited to child support and custody matters ' and tax deductions or exemptions are not an element of support ( see Matter of John M.S. v. Bonni L.R. , 49 AD3d 1235). Warner v. Warner , 2012 N.Y. App. Div. LEXIS 3291 (4th Dept. 4/27/12) (Smith, J.P., Lindley, Sconiers and Martoche, JJ.).

Parents Subject to Jurisdiction of New York Courts

The Appellate Division, Fourth Department, determined that the respondent parents were subject to the jurisdiction of New York's courts because they availed themselves of the privilege of conducting their activities in the State of New York by voluntarily placing their child in an aunt's temporary custody there. In the Matter of Chautauqua County Department of Social Services v. Rita M.S. , 2012 N.Y. App. Div. LEXIS 3285 (4th Dept. 4/27/12)( Scudder, P.J., Smith, Centra, Fahey and Peradotto, JJ.).

A father and step-mother convicted of child abuse in New Mexico asked the New Mexico Children, Youth and Families Department (CYFD) to transfer custody of the girls to the children's aunt, who resides in New York, rather than send them into foster care. CYFD and the aunt entered into a “safety contract,” which provided for the aunt to take care of the children, and also directed her to seek financial assistance from the children's father and step-mother, if such were needed. New York's courts were soon called upon to order child support payments for the children's maintenance, and a support order was issued. To establish jurisdiction over the out-of-state parents, the court relied on Family Court Act ' 580-201 (5), which confers jurisdiction over such parents when the subject child resides within New York “as a result of the acts or directives of the individual” from whom support is sought.

The parents' appeal alleged, inter alia, that they were not subject to New York's jurisdiction because they merely acquiesced to the children's being moved to New York, so they had not availed themselves of the privilege of carrying on activities in that state. They cited to the U.S. Supreme Court decision in Kulko v. Superior Ct. of California , 436 U.S. 84, in which that court held California's courts could not exercise jurisdiction over an out-of-state father who merely permitted his child to move with her mother to California.

In affirming the trial court's exercise of jurisdiction over the Rita M.S. parents, the Fourth Department stated, “Unlike in Kulko, where the father assented to his daughter's desire to live with her mother in California, here respondents chose to send the children to New York after they were ordered to have no contact with the children. Respondents notified CYFD that they wished the children to reside with the children's aunt in New York rather than being placed in foster care in New Mexico, and they executed the necessary documents to facilitate the transfer of the children to the aunt. Respondents' voluntary decision to place the children with the aunt in New York and their formal acts in effectuating that decision constitute more than mere acquiescence.”