Observing that the case before him was one “to restore faith in the old-fashioned notion that divorce lasts forever,” a federal judge rebuffed a bid by billionaire hedge fund manager Steven Cohen to dismiss fraud claims brought by his former wife related to their 1990 divorce.

While Southern District Judge William H. Pauley III (See Profile) let Patricia Cohen’s common law fraud and breach of fiduciary duty claims proceed, he knocked out RICO claims against Cohen, his brother and an ex–business partner.

But Pauley delivered some barbs along the way.

“As the caption of this case suggests, this is a family dispute,” he wrote at the beginning of his 21-page decision in Cohen v. Cohen, 09 Civ. 10230. “The only thing that distinguishes it from countless others is the seemingly inexhaustible legal resources that each side has brought to bear.”

In summarizing his ruling, he concluded, “though treble damages are a tempting way to spice things up, civil RICO and marriage do not go together like a horse and carriage.”

Patricia Cohen filed suit in 2009 against her ex-husband, the founder of prominent hedge fund SAC Capital Advisors. SAC has been at the center of a major insider trading probe and it pleaded guilty to securities fraud in November, agreeing to pay $1.2 billion in penalties. That came on top of $616 million the hedge fund paid to settle civil charges brought by the Securities and Exchange Commission. The SEC also filed a civil case against Steven Cohen last July, accusing him of failure to supervise SAC employees. Cohen has yet to be charged criminally, though others at SAC have faced charges.

The case before Pauley centers on a $5.5 million real estate settlement that Steven Cohen reached in 1987. Patricia alleged that her ex-husband failed to include the settlement in financial statements related to the couple’s separation agreement and conspired to hide it from her.

Former Southern District Judge Richard Holwell originally tossed the case in March 2011, finding the claims time-barred and unsupported. But the U.S. Court of Appeals for the Second Circuit gave Patricia’s case new life last year (NYLJ, April 4).

Patricia Cohen’s lawyers, Kevin Roddy at Wilentz, Goldman & Spitzer and solo practitioner Joshua Dratel, filed an amended complaint in September, renewing her claims that Steven conspired with his brother and an ex–business partner to hide the value of the real estate settlement from Patricia while the Cohens’ divorce was pending.

On the fraud claim that survived Pauley’s ruling, Patricia Cohen alleged Steven Cohen had always led her to believe that the money invested in the real estate deal, a purportedly failed Queens condo conversion venture called the “Lurie investment,” could never be recovered.

Steven Cohen’s defense was that the investment, and the settlement he eventually received, was covered by a disclaimer in their agreement.

But Pauley said, “This disclaimer does not fully eclipse the representation on which Patricia allegedly relied. Patricia’s allegation is not just that Steven misrepresented the value of the real estate, but that he led Patricia to believe the investment was lost.”

The RICO claim, however, was different. Patricia Cohen alleged a racketeering scheme, with SAC as the alleged RICO enterprise, to commit insider trading, defraud her of money, and illegally obtain profits from the Lurie investment as well as a second securities fraud scheme.

But Pauley said “domestic relations disputes are rarely the nebulae from which viable civil RICO claims coalesce.”

While Patricia Cohen had standing to bring a RICO claim, the judge held that the claim failed.

The judge that “the so-called ‘Scheme against Patricia’ was to conceal the $5.5 million settlement award,” he said. “Therefore, Patricia must allege that concealment of the settlement was either (1) possible solely by virtue of Steven’s position in the enterprise or (2) related to the activities of SAC. She pleads neither.”

Pauley also said the complaint failed to allege any “horizontal relationship among the different schemes.”

“Patricia Cohen cannot take the mantle of a private attorney general just because her husband is a public figure and SAC is in prosecutors’ cross-hairs,” Pauley said.

Roddy said in an interview, “We are grateful for the judge’s decision, and we look forward to the case going forward.”

He and Dratel are at least the fourth set of lawyers Patricia Cohen has hired to handle the case. Howard Foster of Foster PC argued the appeal at the Second Circuit. Patricia Cohen had previously hired prominent RICO lawyer Paul Batista and whistle-blower attorney Gaytri Kachroo. According to the docket, they have since withdrawn.

Martin Klotz of Willkie, Farr & Gallagher represents Steven Cohen. He referred comments to a spokesman, who said Cohen was pleased that the judge dismissed his ex-wife’s racketeering claims and that he would fight her “specious” remaining allegations.