Irving H. Picard v. Sage Associates, et al.

Background

This action arose from Bernard L. Madoff’s Ponzi scheme. Irving H. Picard was appointed trustee for the liquidation of Bernard L. Madoff Investment Securities LLC and pursued recovery of transfers to customers who had withdrawn more than they deposited. The trustee determined that the defendants were “net winners” and sued them in bankruptcy court.

The trustee sought to hold Malcolm Sage and his siblings, Martin Sage and Ann Sage Presser, jointly and severally liable as general partners of Sage Associates and Sage Realty. The defendants argued that the net investment method should not apply because they had directed Madoff to purchase the securities in their accounts. They also argued that Sage Associates and Sage Realty were not partnerships or de facto partnerships.

After a bench trial, Judge John F. Keenan entered judgment for the trustee on April 15, 2022, finding the defendants jointly and severally liable for $16,880,000. Judge Keenan also determined that the net investment method applied and that Sage Associates and Sage Realty were de facto partnerships. The Second Circuit affirmed that decision.

Motion to Vacate

On July 1, 2025, Malcolm Sage and nonparty Lynne Florio, appearing without lawyers, moved under Federal Rule of Civil Procedure 60(d)(3) to vacate the judgment for “fraud on the court.” That rule allows a court to set aside a judgment for an extreme form of misconduct that corrupts the judicial process. The moving party must show, by clear and convincing evidence, that the opposing party interfered with the court’s ability to decide the case impartially and that the conduct prevented the moving party from fully and fairly presenting its case.

The court denied the motion. It found that Sage and Florio primarily repeated the defendants’ earlier arguments about joint and several liability and the net investment method. Those arguments had already been considered and rejected by the trial court and the Second Circuit. The court concluded that Sage and Florio had not shown that the judicial process failed to operate normally.

The court separately rejected accusations that the trustee’s lawyers committed perjury, cited precedent inaccurately, or engaged in other misconduct. Even if those accusations were proven, the court stated, they would not reach the extreme level required for fraud on the court. The court also rejected the claim that the defendants lacked a sufficient opportunity to present evidence, noting that the defendants had been represented by competent counsel and had not been prevented from fairly presenting their case.

Disposition

Judge Denise Cote denied Sage and Florio’s July 1, 2025 motion to vacate the judgment under Rule 60(d)(3). The court also stated that Rule 60(d)(3) did not authorize their requests for relief beyond vacating the judgment, including dismissal of other litigation.