*1 [951 821] NE2d NYS2d Cоmmodity Trading Commission, v Ste Respondent, Futures
phen al., Defendants, et and Janet Appel Walsh, Walsh lant; Exchange Respondent, v WG Commission, Securities Trading L.P., al., Defendants, et and Janet Investors, al., et Relief Appellant, Defendant. Walsh, May31, 2011; Argued decidedJune
POINTS OF COUNSEL (Steven City Law Kessler, Steven L. York New L. Offices of counsel), Wagner appellant. Kessler and Eric M. I. first certified should be answered in the affirmative (Wildenstein under the Wallis, facts of this case. & Co. v 641; Burns, 369; Price, Burns v NY2d NY2d Price v 69 NY2d 8; Fields, 158; DeJesus, Fields DeJesus v 90 NY2d *3 Majauskas Majauskas, 643; 481; v 61 Ostashko, NY2d Musso v 99; Swisher, 468 F3d v 106; Doe, Rainbow 72 NY2d Doe v 29 280.) 483; Misc Vandelli, 3d Vandelli v 266 AD2d II. The second certified should be answered in the under affirmative (Halsey Winant, 512, the facts of this case. v 258 NY 287 US Lopez, 620; 837; Joslin v 309 AD2d Matter American Inv. of Bank, 690; Bank v Marine Midland 191 AD2d United States v McCombs, 310; 30 F3d Marine Midland Bank v 120 Murkoff, 122, 875; AD2d Jeremias, 69 NY2d Southern Indus. v 66 AD2d Deposit 178; Malin, 12; Federal Co. v 802 F2d Ins. Marine Pappa, Batson, 8; Midland Bank-N.Y. v 70 Misc 2d Orbach v 601.) Supp F 117; 482 v 24 AD2d 17 NY2d Safie, Safie Nancy Doyle, Commodity Counsel, R. Assistant General Trading bar, of of Commission, Futures the District Columbia Washington, pro Berkovitz, vice, D.C., admitted hac Dan M. Commodity Trading Clement, Commission, Gloria P. for Futures meaning respondent. property” Do- I. “Marital within the of § proceeds of mestic Relations Law 236 does not include the Trading Kimberlynn (Commodity v fraud. Futures Commn. Cr. Sharp Ranch, Inc., 187; Kosmalski, 119; v 40 NY2d 276 F3d Corp., Republic Philippines v 209; re First Cent. Fin. 377 F3d of Cavanagh, Marcos, 344; 806 F2d Securities & Exch. Commn. v Chicago 129; Marcu, 122; v Tit. & 155 F3d Eberhard 530 F3d Corp., 60; & Exch. Trust Co. v Fox Theatres 69 F2d Securities & Co. v SAL, 1028; Commn. v 910 F2d Levi Strauss Unifund Trading Inc., 982; 51 F3d Federal Trade Commn. Sunrise Intl. 711.) Sunsites, A not Inc., v 665 F2d II. does Southwest according pay to the terms оf Debtor and “fair consideration”
165 a claim she faith relinquishes Creditor Law 272 when (Butner States, v United 48; of fraud. 440 US to the Stripe, 576; United v Red O’Brien, O’Brien v States 66 NY2d Shelly Doe, Matter v Inc., 792 756; 249 AD2d 1338; F Supp of Deposit Co. v Ma Questel, v Federal Ins. Kasinski 396; 99 AD2d Leasing Corp. Frank, 1054.) v lin, HBE III. 61 F3d 12; 802 F2d Schaberg’s This Court should not Ms. invitation accept resolve in her favor factual assertions. unsupported disputed (In Corp. Litig., re Sec. United Nortel Networks 129; 539 F3d Monsanto, Nickel v Bank Am. Natl. States v 1186; F2d 924 of Assn., Rothko, Trust & Matter Sav. 1134; 290 F3d 43 NY2d of Am., Inc., 305; Securities & Exch. Commn. v Better Club Life of Infinity Group Securities & Exch. Commn. v F 167; 995 Supp Co., Colello, Securities & Exch. Commn. v 324; 993 F Supp 674.) F3d Capute,
Allan A. bar, of the District of Columbia admitted pro Mark Cahn, D.C., Anne K. Small and Ja vice, hac Washington, Stillman, cob H. Commission, Securities and re Exchange I. spondent. Proceeds fraud are not marital within (Solomon v Solo Relations meaning Domestic Law 236. LaPaglia LaPaglia, mon, v 307 AD2d 546; NY3d McMerty Herzog, Wrightsman v v 1030; Misc 2d 127; 702 F2d Eigenbrodt v Revenue, Commissioner Internal 227; 111 F2d Eigenbrodt, Matter State New York v Gold AD2d 752; Capasso Capasso, stein, vKohl 789; 267; 170 AD2d 129 AD2d Capital Bureau, Kohl, Inc., SEC v Gains Research 219; AD3d Rogers Rogers, 582.) 180; 375 US II. Under Debtor *4 and 272, Creditor Law does not “fair consider- pay ation” —which must be a “fair value —when she equivalent” fraud, a claim to the of relinquishes regardless (Lippe Corp., v Bairnco F whether she does so faith. 249 United States v BFP v Reso Loftis, 357; 173; 2d 607 F3d Supp Corporation, lution Trust eagles United States v Glen- 531; 511 US Co., Inc., Inv. v Ct. United States Tabor 556; F 565 Supp Realty Corp., Deposit Malin, v Federal Ins. Co. 1288; 803 F2d v United Safie, 12; 502, 601; 802 F2d 24 AD2d 17 NY2d Safie Century Indus., Inc., v Da States v Barrier Ctr. 678; 991 F Supp Herzog, McMerty vis, 127.) v F2d 564; 100 AD2d 702 Nancy Scheinberg, Kellman, Elliott Island, Staten White Mayefsky, Allan Michael Stutman Plains, City, New York Weitz, Aaron I. three contentions Schaberg’s amici curiæ. Janet fail II. Janet individually internally contradictory. and are also stolen Schaberg’s desperate interpretation 166 part corrupts principles equity.
becomes of marital estate III. The stolen monies never entered the marital estate. IV. Spousal agreements, require as contracts, lawful consideration: Schaberg-Walsh agreement pos is void because neither was lawfully thereby voiding agree sessed of assets, obtained (Rainbow ment for want of consideration. v Swisher, 72 NY2d Village Upper 106; Boden, 210; Matter Bodеn v 42 NY2d Nyack Missionary Alliance, v Christian & 143 Misc 2d 155 Sayres 530; AD2d Co., v Decker 73; Auto. 239 NY Sweinhart v 256.) Bamberger, Schaberg part 166 Misc V. Janet asserts that right of her consideration was her waiver of the to seek ad equitable sought ditional distribution: she could never have dis (LaPaglia LaPaglia, tribution of illicit assets. v 134 Misc 2d 1030.) Spousal rights property acquisition VI. and distribu exclusively tion arise under the Domestic Relations Law and no statutory scheme, other such as the Debtor and Creditor Law. (Hoops Hoops, Pajak Pajak, v 428; 292 NY v 394; 56 NY2d Mat Drogheo, ter Seitz v 21 181; Price, NY2d Price v 69 8; NY2d Murphy Murphy, v 946; 56 Misc 2d v Hutchinson, Eccles App 412; Misc 2d Enthoven, Enthoven v 167 Misc Div 813; v Bowler, 821; Bowler 46 Misc Tuitt Tuitt, 2d v 36 Misc 2d 418.) Schaberg improperly protection VII. Janet seeks under purchaser,” the Debtor and Creditоr Law. VIII. “Bona fide only under Law, Debtor and Creditor focuses on the transferee’s intent. Janet was also a transferor possessory properties, because she held dual interests joint partner both as owner as in the marital estate, render (O’Brien ing ineligible her for transferee O’Brien, status. v 576.) NY2d IX. Under the Debtor Law, and Creditor Janet gave was a transferor who and received illicit jointly consideration and could therefore not transfer the held (In Stephen Sharp Corp., assets to herself and Walsh. re Intl. Corp., 43; 834; 403 F3d Morse v Howard Park 50 Misc 2d Bank 939.) Socy. Shakerdge, ers Sec. Ins. v X. The Life statutory require canons of construction that the first certified negative: be answered in the the Domestic Relations (Blick property. Law does not deem of fraud marital Hasegawa Hasegawa, AD Blickstein, 287; stein 2d 94.) 488; Maharam, AD2d Maharam v 245 AD2d XI. A matri (Janke monial court could not have distributed the Walsh estate. *5 786.) Janke, v 47 AD2d 39 NY2d XII. The Second Circuit (69 [1986]). misapplied Price v Price NY2d 8 XIII. The canons of statutory extraordinary construction underscore caution to (1) any unjust parties, avoid construction which is to third such (3) (4) (2) unreasonable; absurd; is creates creditors; as is hardships. (People rel. United Aluminium Print. Plate ex States People Equitable Knight, 475; v Trust Co. New Co. v 174 NY 328.) People London, Conn., 387; Co., v Home Ins. 92 NY NY by only York, court, a trial and other states XIV. New albeit reject spouses of stolen assets to not distribution imposed illegality; trusts are on involved in the constructive (Sharp Kosmalski, 119; v 40 NY2d Bankers Sec. such assets. Socy. Shakerdge, Simonds, v 939; Ins. v 49 NY2d Simonds Life McMerty LaPaglia LaPaglia, 1030; v 233; 134 Misc 2d 127.) Herzog, an absurd v theory 702 F2d XV.Janet advances handily rejected by Department the First which was (Litvak Fehring Fehring, Litvak, 691; elsewhere. 63 AD3d v LeRoy, LeRoy Wiener, 1061; 241; AD3d Wiener v 57 AD3d 362.) AD2d
OPINION OF THE COURT J. Graffeo,
Stephen brought by Walsh is a defendant in related actions Commodity plaintiffs Trading Futures Commission and Securi- (the Exchange Agencies) alleging ties and Commission viola- provisions Commodity Exchange tions of the anti-fraud Exchange Agencies Act and the Securities The Act. claim that codefendant, between 1996 and Walsh his Paul misappropriated Greenwood, more than million from funds $550 they managed public private for various institutional inves- tors.1 Agencies pursued disgorgement against also efforts Janet
Schaberg, seeking any Walsh, the former to recover perpetuated by Although she held of the fraud Walsh. participated there is no indication that she was aware of or any wrongdoing scheme, related to her ex-husband’s fraudulent Agencies allege sizable amount of derived illegal Schaberg’s from Walsh’s securities activities went into possession parties’ separation agreement under the and divorce decree. Appeals
The United States Court of for the Second Circuit questions discerning asks us two to assist it whether prevent funds, claim to those which would has Agencies disgorgement ques- obtaining from her. These from interplay tions involve the of the Domеstic Relations Law and pleaded guilty charges fraud in 2010. Greenwood securities Walsh’s prosecution pending. criminal remains *6 implicate significant public the Debtor and Creditor Law and policy considerations.
Background Schaberg Walsh and in were married 1982 and have chil- two 25-year marriage, dren. Over the course of their Walsh was a management partner substantial shareholder in or a of a enterprises, Champion number of successful business such as Sportswear Tánger they couple, Outlets. As a Malls/Prime acquired including homes, a number of condominiums in Flor- City, Washington, ida and New York and a in house Port New Schaberg employment during York. did not have outside marriage, but she volunteered at a number of charitable organizations. Schaberg separated proceed-
In and Walsh and divorce ings early They “Stipula- were initiated in 2005. entered into a Agreement” pursuant tion of Settlement and in November 2006 (B) (3). to Domestic Relations Law 236 Under the terms of the agreement, Schaberg conveyed ownership her interest in the (with Washington alleged Port marital residence an value of million) ownership about to Walsh and she $7.5 received sole (with City in condominiums New York and Florida an al- million). leged approximately agreement value of also $6.7 provided Schaberg nearly would retain million held in $5 checking several accounts and Walsh waived all claims to such agreed pay Schaberg monies. Walsh furthеr a distributive payable pay- million, award of in biannual installment $12.5 through part Schaberg ments 2020.2 As settlement, of the fur- any parties’ ther waived claim for maintenance based on the lengthy marriage except provided agree- and, as otherwise in the relinquished right ment, her “to a distributive award or an equitable respect any property award of distribution with acquired by [Walsh] during marriage.” either before or April incorporated, 2007, the settlement was but not merged, parties’ judgment Schaberg into the final of divorce. year moved to Florida 2007 and remarried a later.
Nearly years entry judgment divorce, two after Agencies separate complaints filed in the United States District alleging large-scale Cоurt for the Southern District of New York payments had received million in installment when $3 Walsh making payments restraining imposed ceased in 2009 as a result of a order on his assets. by Walsh, fraud they Greenwood and various entities investment complaints sought monetary penalties
controlled. Both disgorgement ill-gotten gains from the named defendants and from the defendants and relief defendants alike. was along parties defendant, named as a relief other with believed possession to be from the fraudulent securities scheme. *7 granted Agencies’ requests prelim-
The District Court the for inary injunctions freezing Schaberg’s brokerage six of and bank containing approximately accounts million. The court also $7.6 prohibited Schaberg transferring any jewelry property, from real approval, thereby effectively freezing or artwork without court Schaberg appealed, arguing the bulk of her assets. that the issuing injunctions prop- District Court erred in the because the erty targeted by injunctions subject disgorge- was not to ment. recognized
The Second Circuit that federal district courts power disgorgement have the upon to order from relief defendant “(1) finding party possession ill-gotten that the inis (2) (618 funds and lacks a claim to those funds” F3d 2010]). [2d 218, 225 Cir case, this the Second Circuit has injunctions determined that as to whether the properly were rectly issued turns on whether the District Court cor- legiti-
found, as a law, matter of lacked a Acknowledging Schaberg’s mate claim to thе funds.3 assertion acquired that she has a valid claim to the funds because “she pursuant separation agreement her assets to the she executed proceedings, by executing with inWalsh their divorce and that agreement good purchaser this she became a faith for value of (id. 226), the assets” at the court held that resolution of Schaberg’s implicated open contention issues of York New law. following ques- The Second Circuit therefore certified two tions to us:
“(1) property’ meaning Does ‘marital within the § New York Domestic Relations Law 236 include the proceeds of fraud?
“(2) spouse pay Does a ‘fair consideration’ accord- ing to the terms of New York Debtor and Creditor whethеr, judgment 3. The Second Circuit reserved as to under the first test, prong purchased of the “some of her assets were with funds that are not fraud, alleged thereby subject to be the would not be to dis- (618 4). gorgement” F3d at 226 n good relinquishes in faith a Law 272 when she claim the (Id. 231-232.) to of fraud?” at The Second Circuit questions this also invited Court “reformulate these expand any fit, as it sees them to address other is- (id. 232). pertinent appeals” sues of New York law to these at Property Marital validly acquired pur- asserts that she certain assets agreement, entering suant to the settlement and that into purchaser this became a faith she value property. Agencies respond the distributed The that monies part from the derived securitiеs fraud were not marital consequently, and, estate in the first instance cannot be retained through equitable or transferred of marital distribution assets legal argu- parties’ under Domestic Relations Law 236. policy questions, requiring weigh ments raise difficult us competing original interests of the of funds stolen in a owners against fraudulent scheme the innocent former defrauder. *8 begin language purpose
We
with the
and
of Domestic Rela-
§
Equitable
236,
tions Law
which codifies New York’s
Distribu-
statute,
tion Law. Under the terms of the
section 236 “contem-
plates only
property:
property
marital
and
two classes of
(O’Brien
separate property”
O’Brien,
66 NY2d
[1985]).
property acquired
Marital
defined
is
as “all
spouses during
marriage
either or
the
and before the exe-
both
separation
cution of a
or the commencement of
regardless
action,
in
title is held”
matrimonial
of the form which
(Domestic
[c]),
§
[B] [1]
Relations
and
broad defi-
Law
this
range
tangible
intangible
nition
“includes
wide
(Fields
rearg
Fields,
[2010],
interests”
denied
Domestic Relations Law 236 tably parties upon marital between the the distribute marriage, separate property dissolution of the while remains Specifically, separate property means: “(1) marriage property acquired by property acquired before or devise, descent, gift party bequest, or or from a other than the spouse; “(2) compensation personal injuries; (see original spousal the with owner Domestic Relations Law [5]). § making [B] In determination, its distributive the variety statutory including court is to factors, consider a the marriage, age parties, duration of the the and health of the the party, any income of each award, the extent of maintenance the probable party, future financial circumstances of each and the spouse’s nontitled riage, including direct or indirect contributions to the mar spouse, parent, wage “services as a earner and (Domеstic [d]). [B] [5] homemaker” Relations Law 236 New Equitable permits parties York’s Distribution Law also the —as happened statutory here —to contract out of the elaborate agree prop scheme and instead to a division or distribution of erty, provided statutory require financial disclosure and the (see separation agreement ments for a valid are satisfied Do [3]). [B] mestic Relations Law 236 Legislature adopted Equitable
The Distribution Law replace existing system 1980 to of distribution, which had depended, large measure, on the traditional title common-law theory property. recognition marriage represents “an partnership parties economic to which both contribute as spouse, parent, wage Equitable earner homemaker,” Dis designed entirely theory tribution Law was on “an new which respec considered all the circumstances of the case 585). parties (O’Brien, marriage” tive to the 66 NY2d at comprehensive regime
“reflects an awareness that the economic success of partnership depends only upon respec not partners, tive financial contributions of the but also range on a wide of nonremunerated to the services joint enterprise, homemaking, raising such as chil *9 providing sup dren and the emotional and moral port necessary coping to sustain the other (Price with the vicissitudes of life outside the home” Price, [1986] [internal quotation omitted]). marks and citations purpose, implicit statutory
Consistent with this in the concept “upon whole, framework as a is the that dissolution of “(3) property acquired exchange for or the increase in value of separate property, except appreciation to the extent that such is part due in spouse; to the contributions or efforts of the other “(4) property separate property by agree- described as written parties pursuant part” ment of the to subdivision three of this (Domestic [d]). § Relations [B] [1] Law 236 winding marriage up parties’ the nomic affairs and a severance of their economic ties there should be a eco-
by
equi-
an
(O’Brien,
table distribution оf the marital assets”
Nevertheless, that, aside the language focusing pub of Domestic Relations Law 236 and on policy favoring property lic the return of stolen considerations rightful exception owner, to its should carve out an to the we marital for the of fraud. broad definition of alleged They suggest where, here, that as it is that proceeding from transferred in a divorce was itself derived fair funds, a court should not reach the issue of stolen (the topic certified consideration question) of the Second Circuit’s second simply because it is irrelevant whether fair consider original given. In victim of view, ation was their owner—a an absolute embezzlement and not a mere creditor —should have right prop disgorgement previously distributed to seek Althоugh erty transferee-spouse. these contentions from the agree. appeal, have we are unable “money long obtained It has been the law of this State *10 felony by into the cannot followed the true owner fraud or be
173 hands of one who has it received bona and for valuable fide (Stephens consideration in due course of business” v Board of [1879]). Brooklyn, principle 183, Educ. 79 NY This is premised recognition that, chattels, on the in contrast to “mon (Hatch ey has no earmark” and “cannot be identified” v Fourth [1895]).5 City Natl. 184, core, Bank 147 NY At of N.Y., its favoring our rule innocent transferees of stolen funds over finality defrauded owners is rooted New York’s “concern for (Banque in business transactions” Intl., Worms v BankAmerica [1991]). explained 362, 77 NY2d We have permit every payment “to case of the of a an debt inquiry as to the source from which the debtor money, recovery derived and a if shown to have dishonestly acquired, disorganize been would all operations business and entail an amount of risk uncertainty enterprise which no could bear” (id. [internal quotation marks and citation omit ted]).
Similar concerns are relevant in the matrimonial realm. Ex- spouses expectation marriage have a reasonable that, once their they has been dissolved and their divided, will be free to move on with their lives. To hold that the of fraud acquired by spouse one unbeknownst to the other cannot be subject equitable сonveyed through distribution or a settle ment as marital would undermine one of policies underlying equitable the fundamental distribution process, namely finality. exception proposed by Agen effectively agree cies would undo court orders and settlement “winding up ments for an indeterminate time after the parties’ (O’Brien, 585), economic affairs” 66 NY2d at policy upholding “subvert the settled domestic relations . . . (Rainbow in divorce cases” v Swisher, 106, 72 NY2d 111 [1988]; [1988]). see also Boronow v Boronow, 71 NY2d 290-291 practical spouse Moreover, as a matter, where innocent and matrimonial court are unaware of the tainted nature of particular assets, distribution of marital assets under Domestic (or pursuant opt-out Relations Law 236 an settlement agreement) particularly unworkable, would become where the illegal activity of one is not revealed for number of By comparison, may recovery an prop owner seek of identifiable stolen erty, artwork, piece such as a purchaser from an innocent faith (see Lubell, [1991]). Guggenheim Solomon R. value Found. *11 years subsequent divorce, as occurred in this case.6 to Analogizing Stephens in and Hatch in the to the rule articulated by setting, fraud we conclude that monies obtained business original an cannot be owner into the hands of followed (or spouse them assets innocent former who now holds derived them) proceeding that from as a result оf a divorce where knowledge gave good in of the fraud fair faith and without being property. said, the transferred That consideration for Schaberg good paid acted in faith and fair consideration whether possession pursuant property her for the tainted that came into is another matter and is at the to the settlement question, now heart of the Second Circuit’s second to which we turn.
Fair Consideration holding, in as contends that the District Court erred law, a claim to the frozen a matter of that she lacked argues provided in funds. that she fair consideration She thereby allegedly exchange fraudulent and for the good purchaser through a faith for value her execution became agreement. length separation also claims that of an arm’s She knowledge that had of her ex-husband’s there is no evidence illegal she history being particularly he conduct, since had a engage entrepreneur trader, nor did she successful and securities deprive proceeding the defrauded in in the divorce to collusion Agencies recovery parties counter of their investments. The given fair law, could not have that, as a matter exchange acquiring because, in for assets that consideration only gave fraud, she later determined to be derived from were up larger portion also estate, of the marital which a claim a such, her and, of fraud as consisted of Walsh’s compelling illusory. Again, parties raise both consideration was arguments. § provides creditor whose that a
Debtor and Creditor Law conveyance may set aside matured have a fraudulent claim has good purchaser “against any person” for than a faith other purchaser for fair consideration without value, defined as “a course, entirely presented is if it is known Of an different situation illegal conduct. In spouses participated in or aware of the fraud both were contrary public policy to cases, it would be courts have held that such of the fruits of “illegal activity by making equitable distribution encourage an Ct, [Sup (LaPaglia LaPaglia, 134 Misc 2d enterprise” a criminal 1987]). County Kings (Debtor [1]). knowledge § of the fraud” and Creditor Law 278 given property exchange “[w]hen Fair consideration is for for property, equivalent therefor, fair such ... as a conveyed faith, is or an debt is antecedent satisfied” (Debtor [a]). Law 272 It well Creditor is settled that an given evaluation of fair whether consideration is under Debtor and upon Law must “be Creditor determined (Hal particular the facts and circumstances of each case” [1932]).7 sey Winant, 258 NY assessing spouse pays within whether fair consideration *12 meaning the of Debtor and Creditor 272 in Law connection separation property pursuant awith distribution made to a agreement incorporated judgment divorce, into a of a court а of must examine number factors. Since consideration cannot predicated spouse’s relinquishment be on a of a claim to greater proceeds step share of the the fraud, of first is to spouse relinquished rights determine whether the to other Clearly, untainted assets in the marital estate. this would con- fair stitute consideration. beyond tangible
Second, a court
needs
look
the
marital
property
recognizes
at issue because New York
other forms of
including nonmonetary
consideration,
consideration.
example,
For
New York courts have found fair consideration
(see
where a
releases
claim for maintenance
Federal
Deposit
[2d
Malin,
Ins. Co. v
802 F2d
Cir
12,
1986];
20
re
In
[ED
Darling Darling,
Fair,
Of the ultimate pursuant gave Law Debtor and Creditor fair consideration § is a matter of this case the facts and circumstances 272 under note, on this limited But we courts to resolve. for the federal more than that she surrendered record, contends that greater por- through equitable right a distribution to claim her constituting fraudulently the marital funds obtained tion оf alleges maintenance a claim for that she waived estate. She (B) (6), of the calculation Law 236 Domestic Relations under including variety the considerations, a of is based on which right marriage; length to inherit from her she released of the dispensed in the multi- her interest with estate; and she Walsh’s Washington, in Port residence located million-dollar marital acquired moneys which she was claims not with derived from Furthermore, Walsh’s fraudulent activities.8 even where spouse relinquish equivalent” aggregate does not a “fair the possible may exchanged assets, of it is fair that consideration be (cf.Corporation Lloyd’s for at least some of the Funk, assets of [2d Dept AD2d 1998], lv dismissed NY2d [1998]). unsympathetic parties sum,
In we not аre to the interests of fraudulently deprived who were understandably, who, of their investments and portion
seek return the of a of their stolen definitely, monies. Most victims fraud are entitled to pursue disgorgement where it is demonstrated transferee-spouse participated was aware in the or fraud good example act otherwise failed to in faith. One of bad faith parties would be where the entered into a ar- collusive divorce rangement designed money rightful to conceal stolen its from recipient owner. And even where the executed settlement good knowledge in faith and without of the source ill-gotten gains, parties may the defrauded still if recover spouse give did fair not consideration for the under Debtor and Creditor Law 272. But we believe that an innocent possession who received tainted faith gave prevail fair for it consideration should over the claims original owner or owners consistent this with State’s strong public policy ensuring finality proceedings.9 in divorce
Accordingly, question the first and, certified reformulated, as the second certified should be answered accordance opinion. with this particular, Washington property asserts that the Port was
purchased in 1999 previous with funds derived from sale of their marital residence, bought which early in turn had been with funds in the 1980s, long allegedly before place. Notably, Walsh’s fraudulent conduct took apparently pеrmitted Walsh Washington was to sell the Port home and use a *14 portion proceeds pay of the untainted legal from that sale to fees in incurred (see connection with prosecution Commodity Trading his criminal Futures Walsh, 882875, *3, Commn. [SD 2010 WL 2010 US Dist LEXIS *9 2010]). NY Agencies suggest because, 9. The disgorgement that should be allowed upon turning them, Schaberg the funds over to could to the move vacate settlement in grounds state court on fraud and seek a redistribu- any tion may of untainted assets such Walsh have received. But an exercise likely fruitless, that, particularly years would be appears where the it after division, property liquidated only the purportedly Walsh “clean” asset he Washington owned —the Port house. majority’s (dissenting part). agree I in with J. the Pigott, question. analysis first I and conclusion relative the certified says agree majority in discussion much of the its also of the second with what ques- question, find its that but reformulation of unnecessary. posed narrowly The Circuit a tailored tion Second relatively simple namely, question answer, “Does is a that pay according § ‘fair to the terms of New consideration’ relinquishes she in York Debtor and Creditor Law when proceeds (Commodity good faith claim to fraud?” a the of [2d Trading Walsh, F3d 231-232 Futures Commn. v 2010].) question negative. I that in the Cir would answer § 278 that a with a Debtor and Creditor Law states creditor may conveyance anyone against aside matured have a set claim knowledge “except purchasеr for fair consideration without of (Debtor purchase” Creditor fraud the time the and the at of Law 278 obligation, [1] [a]). “Fair consideration is given property, or exchange property, obliga- [w]hen . for such or . . equivalent property therefor, tion, conveyed faith, as a and in is fair (Debtor Credi- debt is or an antecedent satisfied” [a]). tor Law 272 posed by
The the Circuit as- second certified Second proceeds all in the marital estate sumes that almost of the proceeds position fraud, consisted of taken of Trading Commodity Futures Commission and the Securities (see [noting Exchange that “in Commission 618 F3d at relinquished separation Walsh, from future claims her equitable is al- of marital that —it to an distribution fraud”]). entirely leged proceeds of almost of the —consisted ques- is no reason to The Circuit also notes “there Second Schaberg’s good relinquishing her to what claim tion faith fortune” interest in a substantial she believed was (id. 230). Taking question is, account, into as- at these facts entirely suming almost that the marital estate consists Schaberg, by spouse” fraud, does an “innocent like proceeds, pay relinquishing fair future claims to those virtue majority “no,” is, course, as the consideration? answer essentially acknowledges: predicated “consideration cannot be greater spouse’s relinquishment claim of a to a share aon 175). (majority op at of fraud” “ ‘seek[ing] through Schaberg’s court forbearance from proceedings award an award or otherwise a distributive any respect equitable other to’ distribution with (Walsh, marriage” acquired by [Walsh] course of their over the *15 229) at where, F3d does not constitute “fair consideration” as the Second Circuit has us here, asked to assume the Walsh as were obtained the result fraud. One cannot rea sonably argue spouse an innocent one with no —even knowledge given of her husband’s fraud —could be said to have equivalent” by giving up equi “fair value future claims table distribution of in which she has no given In case, interest. such a the innocent “has not misappropriated property, gained value for the but rather has property simply by being an in interest virtue of married (see person misappropriated” generally who it re Mar cases]). riage [Colo 1986] [citing Allen, 724 P2d Ac cordingly, I would answer the certified second in the negative. Judge Judges Ciparick, Lippman
Chief Read and Jones Judge Judge part Pigott concur with dissents in a Graffeo; separate opinion Judge in which Smith concurs. Following by questions certification of the United States Court Appeals acceptance ques- for the Second Circuit and pursuant tions this Court to section 500.27 of the Rules (22 Appeals 500.27), hearing the Court of NYCRR and after argument by parties counsel for the consideration of questions briefs and the submitted, record certified answered opinion accordance with the herein.