In 2011 I wrote a story about Steve Simkin, a prominent real estate lawyer at New York mega-firm Paul, Weiss. An unwitting victim of Bernie Madoff’s ponzi scheme, Mr. Simkin signed an agreement with his wife, lawyer Laura Blank in 2006, before Madoff’s massive fraud unravelled, dividing their family assets between the two of them. Part of the deal saw Ms. Blank receive compensation for her one-half interest in Mr. Simkin’s investment portfolio valued at $5.4 million dollars and held by Bernie Madoff.
In 2008 Mr. Simkin realized he was a victim of Madoff’s criminal scheme. The truth was there was no account with Madoff’s company and the monthly statements were forgeries. Simkin filed a lawsuit against his ex-wife seeking to recover the funds he paid her for her share of the portfolio. Simkin’s lawyer argued that Ms. Blank had received a “windfall” on the basis of a “mutual mistake”. He sought a variation of the agreement and reimbursement from his ex-wife.
A Manhattan trial judge didn’t see it that way and tossed out Simkin’s lawsuit. She ruled there had been no mistake, because at the date of the separation agreement the account held funds. The fact the account was later worth nothing was not a “mutual mistake”.
Mr. Simkin immediately appealed and in a 3-2 decision in his favour, the Appeal Court ruled that Simkin’s claim was legitimate and ought to proceed in the lower court.
In a stinging dissent Justice Karla Moskowitz held that the majority decision trampled on years of well-settled law that “a deal is a deal”. She opined that when the agreement was signed the account had value and to adjust the division of assets because one asset had declined in value was “divorced from reality”.
The legal concepts set out in the dissenting opinion, mirror the laws in British Columbia with respect to a Court’s hesitancy to overrule or set aside a separation agreement negotiated by the parties in good faith and with independent legal advice.
The reason why separation agreements should not be easily varied is exemplified by the Simkin case. Another example? If a couple divorced, with the wife retaining the family home and the husband retaining other assets of equal value, it would be ridiculous for the wife to come back two years later and say, “The real estate market has dropped and my home is now only worth half the value it was at the date of the separation agreement, please pay me more money to account for this change in value.”
Of course, Ms. Blank appealed the Court of Appeal decision and in 2011 I made the following prediction:
“I believe at the end of the day, which could be years away, the pain caused by Madoff’s swindle will be suffered only by Mr. Simkin. Do I believe that is fair? Not really, but the law set out in the fourteen page dissent is compelling.”
Sure enough, with all appeals now completed, Mr. Simkin alone bears the burden of Madoff’s fraud, while Ms. Blank is permitted to retain the “overpayment” of $2.7 million.
It is likely that Steve Simkin’s plight will attract little sympathy, given the enormous salaries earned by “biglaw” partners in New York City. Website abovethelaw.com suggests a salary range of $600,000 to $900,000 per annum. Nice work if you can get it!