Bernard Madoff Bankruptcy Update

On January 4, 2011, The AmLaw Daily reported in “New Year, More Madoff: Paul Weiss Partner Can Sue, While Former Associates Fight Back” that a New York state appellate court ruled Paul, Weiss, Rifkind, Wharton & Garrison real estate chair can sue his ex-wife over $2.7 million in Madoff-related loss. In December 2009, it was reported in the San Francisco Chronicle that the real estate partner at Paul Weiss Rifkind Wharton & Garrison sought to renegotiate his $6.6 million divorce settlement with his ex-wife of over 30 years, arguing he paid her more than he would have agreed if he knew of fraudulent investment statements from the Bernard Madoff firm.

Bernard Madoff’s trading firm filed bankruptcy after the ponzi scandal news. Based on Madoff investment statements, the real estate partner thought he had $5.4 million in an account he later realized to be worthless. He agreed to pay $2.7 million to the ex-wife, in cash in a 2006 divorce. In 2009, acting Supreme Court Justice Saralee Evans in Manhattan, NY held that while the real estate chair’s decision to hold on to the Madoff account may have been “improvident,” the court did not have an equitable basis to set the divorce agreement aside.

In dismissing the real estate partner’s lawsuit, Evans wrote, “There is no evidence that defendant was unjustly enriched. In 2006, at the time of their agreement, each of the parties received the benefit of his and her bargain.” The recent 2011 decision overturns the lower court decision dismissing the lawsuit filed in February 2009. The Paul Weiss attorney can now sue his ex-wife over $2.7 million in cash he paid her.

In reinstating the attorney’s complaint, the three-judge majority cited the contract concepts of “mutual mistake” and “unjust enrichment”. Court records show that the couple were married in 1973, separated in 2001, and divorced in July 2006. In suing the ex-wife, the attorney claimed his ex-wife got a windfall, after paying the ex-wife a total of $6.6 million in the divorce.

The ex-wife might appeal the decision to the state’s highest court in Albany, NY. Two judges dissented from the decision. According to the AmLaw Daily article, The New York Times’s DealBook reported in December 2009 a link between Paul Weiss and the Madoff bankruptcy. When Bernard Madoff’s oldest son committed suicide, the New York Times reported that the son’s stepfather-in-law, a Paul Weiss of counsel, found Madoff son’s body in a New York apartment, and then contacted a Paul Weiss partner who has been representing Bernard Madoff’s two sons since Bernard Madoff surrendered to law enforcement in December 2008.