By: Jeffrey M. Haber “Legal cannabis is an emerging industry, which makes it prime hunting ground for financial predators who will use every trick in the book to lure investors into their schemes,” said Cari Fais, acting director of the New Jersey Division of Consumer Affairs ( here ). The Securities and Exchange Commission (“SEC” or the “Commission”) recognized this problem in 2014, when it issued an investor alert about investing in cannabis companies ( here ), and in 2018,

By: Jeffrey M. Haber To establish a cause of action for fraud, a plaintiff must plead a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance and damages. 1 In Pope Investments II LLC v. Belmont Partners, LLC , Case No. 2022-02632 (1st Dept. Mar. 14, 2023) ( here ), and RCM/CMG Portfolio Holding, LLC v. Giordano , Case No. 2021-03254 (1st Dept. Mar. 14, 2020) ( here ), the Appellate Division, First Department addre

By: Jeffrey M. Haber It is not often that we examine a case involving a cause of action for champerty. The last time we did so was on April 23, 2021 ( here ). We also examined the champerty doctrine in 2020 ( here ) and 2016 ( here ). But what is champerty? Simply, champerty is the prohibited practice of purchasing claims for the purpose of commencing litigation. New York’s prohibition against champertous transactions is codified in Section 489 of the Judiciary Law, which pr

By: Jeffrey M. Haber Celebrities often use their fame and likeness to promote goods and services. After all, it is a way to make extra money. Sometimes, when securities are involved, the celebrity will promote an investment opportunity without making any disclosure about whether they are paid for their endorsement. Even worse, the celebrity makes materially false and misleading statements about the investment opportunity. When the investment opportunity involves a virtual to

By Jonathan H. Freiberger Regular readers of this Blog know that we spend a good deal of time writing about mortgage foreclosure. The anticipated conclusion of a mortgage foreclosure action is a foreclosure sale. The judicial sale is also the hoped-for conclusion of other types of proceedings – such as mechanic’s lien foreclosures and condominium lien foreclosures. Once conducted, there are mechanisms to set aside judicial sales when warranted. “ ven after a judicial sale

By: Jeffrey M. Haber Typically, when a plaintiff claims to have been defrauded, he/she typically argues that the defendant made an affirmative misrepresentation of fact. Fraud does not, however, always concern an affirmative statement. Sometimes a person can perpetrate a fraud through the omission of a material fact. Where fraud by omission is claimed, the plaintiff must allege that the defendant had a duty to disclose the omitted fact. A duty to disclose arises when (1) the

By: Jeffrey M. Haber In prior articles we have examined Ponzi Schemes and affinity fraud. E.g. , here . We do so again today. Affinity fraud occurs when the promoter of the fraud preys upon members of an identifiable group, such as a religious or ethnic community, the elderly, or a professional group. The promoter frequently is – or pretends to be – a member or a good friend of the group. The promoter often enlists respected members of the community or religious leaders from

By: Jeffrey M. Haber We start the new year off examining Dragons 516 Ltd. v. Knights Genesis Inv. Ltd. , 2023 N.Y. Slip Op. 50020(U) (Sup. Ct., N.Y. County Jan. 6, 2023) ( here ), a case involving many of the themes we often consider in our discussion of fraud and fraudulent inducement claims. Dragons involved a dispute between a lender and a borrower. Plaintiff, Dragons 516 Limited (“Dragons”), alleged that defendants fraudulently conspired to misrepresent the ownership str

By: Jeffrey M. Haber In promoting a scam, fraud operators expect investors will jump at the opportunity to obtain a life-changing financial reward from their investment, especially if the investment opportunity does not require a large outlay of money. For this reason, many investment frauds involve false promises of extraordinary payouts with minimal risk. Unfortunately, too many investors are lulled into believing these promises and give their hard-earned money to these fra

By: Jeffrey M. Haber On December 23, 2022, the Appellate Division, Fourth Department issued two decisions involving New York’s former Debtor and Creditor Law (“DCL”): Inner Harbor Phase I L.P. v. Cor Inner Harbor Co. LLC , 2022 N.Y. Slip Op. 07319 (4th Dept. Dec. 23, 2022) ( here ); and Hospitality Concepts, LLC v. Bernhardt , 2022 N.Y. Slip Op. 07349 (4th Dept. Dec. 23, 2022) ( here ). We examine both decisions below. The former DCL was replaced on April 4, 2020 by the New Y

As readers of this Blog know, we have often written about the justifiable reliance element of a fraud claim. Considered by the courts to be nettlesome, justifiable reliance is often the most difficult element for plaintiffs to satisfy.

By: Jeffrey M. Haber In commercial and business litigation, it is common for plaintiffs to assert claims against a business entity for wrongs committed by the entity. Often, plaintiffs will try to “pierce the corporate veil,” or get behind the corporate form, to hold the entity’s officers or members liable for the alleged wrongdoing. Since a plaintiff must show that an officer or member used his/her control over the entity to commit a fraud or other wrong against the plaintif

By: Jeffrey M. Haber “The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by plaintiff and damages. A claim rooted in fraud must be pleaded with the requisite particularity under CPLR 3016(b).” 1 The failure to satisfy each element will result in dismissal of the claim. When a claim for fraud is predicated on a concealment or omission, “there must first be pr

By: Jeffrey M. Haber One of the elements of a fraud claim that plaintiffs have difficulty satisfying is justifiable reliance. For this reason, the justifiable reliance element is most often cited by defendants to secure dismissal of the claim against them. Justifiable reliance is considered by the courts to be one of the more “nettlesome” elements of a fraud claim. 1 Whether a plaintiff justifiably relied on a misrepresentation or omission is a fact-intensive inquiry. 2 As

By: Jeffrey M. Haber Since the early 20th century, a plaintiff alleging fraud in New York can recover only the actual pecuniary loss sustained as a result of a misrepresentation or omission, i.e. , the plaintiff’s out-of-pocket damages. 1 The damages recoverable under the out-of-pocket rule are intended to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained. 2 The out-of-pocket rule was at issue in Danco Enters., LLC v. Livexliv

By: Jeffrey M. Haber In past articles, we have noted the importance of identifying the statements claimed to be false and misleading. In this regard, we talked about the need to plead the who, what, where, when and how of the alleged fraud. In other words, the plaintiff must allege the first paragraph of any newspaper story. The reason for such pleading is to satisfy the particularity requirement of CPLR § 3016(b). Under CPLR § 3016(b), a plaintiff alleging fraud must provid

The question above was recently answered by Justice Francois A. Rivera in Reid v. Service , 2022 N.Y. Slip Op. 32017(U) (Sup. Ct., Kings County June 9, 2022) ( here ). As discussed below, the alleged fact – a claimed misrepresentation – was only an allegation, refuted by the undisputed facts of the case. Reid involved the administration by defendant over the Estate of Edgar Reid, Sr. (the “Estate”). Defendant had been granted limited letters of administration by the Kings Cou

By: Jeffrey M. Haber The Duplication Doctrine is well-known to readers of this Blog. In a nutshell, the doctrine holds that “ cause of action for fraud does not arise when the only fraud charged relates to a breach of contract.” 1 “To plead a viable cause of action for fraud arising out of a contractual relationship, the plaintiff must allege a breach of duty which is collateral or extraneous to the contract between the parties.” 2 A plaintiff must also allege that the reco

By: Jeffrey M. Haber In today’s Fraud Notes, we examine three decisions issued by the Appellate Division, First Department in which themes familiar to readers of this Blog are at issue: pleading fraud with particularity ( e.g. , here and here ), making a material misstatement of present fact ( e.g. , here and here ) duplication of a breach of contract claim ( e.g. , here , here and here ), pleading justifiable reliance ( e.g. , here , here and here ), and no reliance and

By Jonathan H. Freiberger In this Blog’s August 23, 2021, article, entitled “ Second Department Finds Release Binding Despite Plaintiff’s Claim About Not Understanding the English Language ”(the “Prior Article”), we discussed, inter alia , the import of general releases and the difficulty that one may have invalidating same once executed. One of the leading cases on the law of releases, and as relied upon in the Prior Article, is Centro Emprésarial Cempresa S.A. v. America