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Under Limited Liability Company Law §  609(a), a member or manager of a limited liability company is not personally liable for the LLC’s debts, obligations, or liabilities solely by reason of being a member or acting in that capacity. Applying this rule, the courts in 27-21 27th St. Sponsors, LLC v. Kanta , 2026 N.Y. Slip Op. 01273 (1st Dept. Mar. 05, 2026), held that a minority member of an LLC could not be sued individually for the LLC’s obligations, as the operating agreement likewise disclaimed member liability. The courts further found the promissory note at issue was criminally usurious on its face: its capped $306,000 return on an $850,000 principal reflected a 36% interest rate, exceeding New York’s civil and criminal usury limits. Because a criminally usurious instrument is void ab initio, both the note and the minority member’s guarantee were unenforceable. Equitable claims, including unjust enrichment, were also dismissed as precluded. 27-21 27th St.  arose out of plaintiff’s investment in the construction of a condominium building via a convertible promissory note (the “Note”) given by defendant KST2 Properties, LLC (“KST2”) and guaranteed by defendant Kenneth Tolley (“KT”) and defendant Janos Kanta (“JK”) (“Defendants”). The latter was the managing member, and the former the minority member, of KST2 at the time the Note was given.  The Note provided that it would accrue interest at “the highest rate permissible by law per annum, accruing monthly in a separate capital account created by [plaintiff], and payable during the term in a maximum capped payment of [$306,000.00].” The same cap applied to the guarantee. The Note further provided that it was subject “to the express condition that at no time shall [KST2] be required to pay interest at a rate which may be deemed usurious, and if any interest charged hereunder is deemed to be in excess of the maximum legal rate, then the interest rate hereunder shall immediately be reduced to the maximum legal rate.” Plaintiff commenced the action to recover under the Note and guarantee, as well as recover its share of the profits of the sale of the condominium building, and a declaratory judgment that it was a member of KST2.  The first and fourth causes of action asserted against Defendants arose out of the KST2 operating agreement. Generally, “a member of a limited liability company . . . is [not] liable for any debts, obligations or liabilities of the limited liability company or each other, whether arising in tort, contract or otherwise, solely by reason of being such member, manager or agent or acting (or omitting to act) in such capacities or participating (as an employee, consultant, contractor or otherwise) in the conduct of the business of the limited liability company.” [1]  Similar to the LLCL, the KST2 operating agreement provided that “no Member shall be personally liable for any debt, losses or obligations of the Company by virtue of being a Member.” In the fourth cause of action, plaintiff sought to enforce KST2’s obligation to distribute the profits of the condominium sale. The motion court held that with respect to the first cause of action for a declaratory judgment, it was properly brought against the company, rather than against the members directly, such as KT.  Thus, plaintiff’s claim against KT was improper.  Turning to the sixth cause of action for breach of the guarantee, the motion court addressed KT’s argument that the Note was usurious. KT argued that, as a guarantor of the Note, [2]  the Note’s maximum accrued interest of $306,000.00 on the principal amount of $850,000 over one year, which into an interest rate of 36%, well in excess of the civil and criminal usury rates of 16% and 25%, respectively. [3]   Under New York law, usury applies to a “loan or forbearance of any money, goods or things in action.” [4]   “[I]t must appear that the real purpose of the transaction was, on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon the usurious terms dictated by the lender.” [5]  Notably, “[t]he court will not assume that the parties entered into an unlawful agreement.” [6]  “[W]hen the terms of the agreement are in issue, and the evidence is conflicting, the lender is entitled to a presumption that he did not make a loan at a usurious rate” [7] However, “[i]f usury can be gleaned from the face of an instrument, intent will be implied and usury will be found as a matter of law.” [8]   The motion court held that the Note was criminally usurious on its face. The motion court explained that the Note provided that interest would accrue at “the highest rate permissible by law per annum . . . payable during the term in a maximum capped payment of [$306,000.00].” The highest rate permissible by law, noted the motion court, is 16%, as set by the General Obligations Law and the Banking Law. Interest of 16% on the $850,000 principal yields interest of $136,000, rather than the maximum capped payment of $306,000.  The motion court rejected plaintiff’s argument that because $306,000 was merely the maximum payment of interest possible, the reference to the maximum allowable legal rate acted as a savings clause, effectively preventing any usurious interest rate from actually applying. The motion court also rejected plaintiff’s argument that a provision of the Note, in effect, acted to reform the Note if KST2 was ever charged a usurious rate of interest. In rejecting the arguments, the motion court held that such language did not preserve an agreement that was usurious on its face. [9]   The motion court also rejected plaintiff’s argument that because KST2 drafted the language at issue, plaintiff should be relieved of the consequences of lending at usurious rates. [10]   Moreover, the motion court rejected plaintiff’s argument that KT owed plaintiff a fiduciary duty as a member of KST2. The motion court explained that plaintiff did not join KST2 until several months after the Note and guarantee were executed. Thus, the transaction was at arm’s length and did not give rise to equitable estoppel. [11] Further, the motion court dismissed the eleventh cause of action seeking relief for unjust enrichment. Plaintiff claimed that KT had been unjustly enriched at plaintiff’s expense by the failure to repay under the guarantee and to receive its share of the profits from the sale of the condominium. The motion court noted that those obligations were covered by the Note and the KST2 operating agreement, respectively. Given “[t]he existence of a valid and enforceable written contract governing a particular subject matter,” explained the motion court, plaintiff’s was precluded from “recovery in quasi contract for events arising out of the same subject matter.” [12]   Finally, noted the motion court, plaintiff could not recover in quasi contract because a lender that has charged criminally usurious interest may not recover on an equitable claim such as unjust enrichment. [13]   On appeal, the Appellate Division, First Department, unanimously affirmed. The Court held that “the motion court properly dismissed the first and fourth claims for declaratory relief and breach of the operating agreement against [KT] individually.” [14]  First, said the Court, KT “was not properly named in the cause of action for a declaration that plaintiff is a member of KST2 because ‘[a] member of a limited liability company is not a proper party to proceedings by or against a limited liability company, except where the object is to enforce a member's right against or liability to the limited liability company.’” [15]   The Court found “[p]laintiff’s attempt to hold [KT] personally liable for KST2’s acts unavailing because ‘[n]either a member of a limited liability company, a manager of a limited liability company managed by a manager or managers nor an agent of a limited liability company . . . is liable for any debts, obligations or liabilities of the limited liability company or each other.’” [16]   The Court further found that “nothing in the operating agreement suggest[ed] that [KT] intended to be personally liable for KST2’s acts.” [17] Pointing to the operating agreement, the Court noted that the agreement expressly disclaimed the liability of members “for any debt, losses or obligations” of KST2, consistent with LLCL § 609(a), except to the extent of members’ individual capital contribution. [18]  “This language, said the Court, “negate[d] any inference of liability arising from [KT’s] having signed the operating agreement in his individual capacity for anything other than a claim related to his capital contribution, warranting dismissal of the fourth cause of action as against him.” [19] The Court also held that the “motion court properly found that because the promissory note was civilly and criminally usurious on its face, it, and by extension [KT’s] guarantee, were void ab initio.” [20]  The Court noted that “[a]lthough corporations and their guarantors may not raise the defense of civil usury, that prohibition [did] not apply to criminal usury.” [21]   The Court held that the motion court “correctly determined that the $306,000 maximum return reflected an interest rate of 36%, well above the civil and criminal usury rates of 16% and 25%, respectively.” [22]  “Based on the language in the [N]ote,” said the Court, the motion “court properly rejected plaintiff’s contention that the [N]ote was enforceable because the $306,000 was intended to be a return on a preferred equity investment rather than interest, as the conversion to an equity interest would not preclude the application of the usury laws.” [23] The Court further held that the motion court “properly found that a usurious interest rate [could not] be salvaged by language providing that the intent is to collect the highest legal maximum interest rate.” [24]   “Because an instrument seeking a criminally usurious interest rate is void,” concluded the Court, “the guarantee [was], too.” [25]   Addressing plaintiff’s argument that it was KST2’s managing member and personnel who drafted the note, the Court held that “a note with a usurious interest rate is void, irrespective of which party drafted it.” [26]  Although the Court has recognized a limited exception to the foregoing rule where “[a] borrower, who, because of a fiduciary or other like relationship of trust with the lender, is under a duty to speak and . . . fails to disclose the illegality of the rate of interest he proposes,” [27]  the Court held that plaintiff failed “to plead facts sufficient for this exception to apply, as the usurious note was not signed by [KT], and there [were] no allegations that [KT] participated in its drafting or proposed the interest rate.” [28] Finally, the Court held that “the motion court properly dismissed the unjust enrichment claim as precluded by the parties’ written agreements.” [29] The Court explained that “an equitable claim is not available to resuscitate an agreement found to be void based on criminal usury.” [30] Takeaway 27-21 27th St.  reinforces the protection from liability afforded to LLC members under New York law. Section 609(a) of the LLCL establishes that members and managers are not personally liable for the debts or obligations of the LLC merely because of their status, and the courts in 27-21 27th St.  applied that rule strictly. The operating agreement for KST2 mirrored this statutory protection, and nothing in the agreement suggested that the minority member assumed personal liability for the Note. Consequently, both the motion court and the First Department held that defendant could not be sued individually for obligations arising from KST2’s contracts or its internal profit‑distribution duties. 27-21 27th St.  also reaffirms the law on usury. The Note’s capped $306,000 return on an $850,000 investment translated to an interest rate of 36%, making the note criminally usurious on its face. Under New York law, a criminally usurious instrument is void ab initio, and because the guarantee stands or falls with the note, the minority member’s guarantee was void as well. The motion court and the First Department rejected plaintiff’s arguments that savings‑clause language or the characterization of the investment as “preferred equity” could salvage the agreement. Finally, 27-21 27th St.  underscores that equitable claims cannot be used to revive rights under a void usurious contract. Because valid written agreements governed the parties’ relationship, and because usury bars equitable recovery, the unjust‑enrichment claim failed. ______________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm. _______________________________ [1] Limited Liability Company Law (“LLCL”) § 609(a). [2]  A guarantor of the note may raise the usury defense belonging to the principal debtor. Fred Schutzman Co. v. Park Slope Advanced Med., PLLC , 128 A.D.3d 1007, 1008 (2d Dept. 2015). [3] General Obligations Law (“GOL”) § 5-501; Banking Law § 14-a; Penal Law § 190.40). [4] GOL § 5-501; Donatelli v. Siskind , 170 A.D.2d 433, 434 (2d Dept. 1991). [5] Donatelli , 170 A.D.2d at 434. [6] Giventer v. Arnow , 37 N.Y.2d 305, 309 (1975). [7] Id. [8] Blue Wolf Capital Fund II, L.P. v. American Stevedoring Inc. , 105 A.D.3d 178, 183 (1st Dept. 2013). [9] Bakhash v. Winston , 134 A.D.3d 468, 469 (1st Dept. 2015); Simsbury Fund, Inc. v. New St. Louis Assocs. , 204 A.D.2d 182, 182 (1st Dept. 1994). [10] Bakhash , 134 A.D.3d at 469. [11] Kingsize Entertainment, LLC v. Martino , 155 A.D.3d 856, 857 (2d Dept. 2017). [12] Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co. , 70 N.Y.2d 382, 388 (1987). [13] Blue Wolf Capital , 105 A.D.3d at 184. [14] Slip Op. at *1. [15] Id.  (citing LLCL § 610). [16] Id.  (quoting LLCL § 609(a). [17] Id. [18] Id. [19] Id. [20] Id.  (citing Blue Wolf Capital , 105 A.D.3d at 183). [21] Id.  (citing GOL § 5-521(1), (3)). [22] Id.  (citing GOL § 5-501(2); Banking Law § 14-a(1); Penal Law § 190.40). [23] Id.  (citing Adar Bays, LLC v. GeneSYS ID, Inc. , 37 N.Y.3d 320337 (2021)). [24] Id.  (citing Bakhash v .Winston , 134 A.D.3d 468, 469 (1st Dept. 2015)). [25] Id.  (citing Blue Wolf Capital Fund , 105 A.D.3d at 184). [26] Id.  (citing Bakhash , 134 A.D.3d at 469). [27] Pemper v. Reifer , 264 A.D.2d 625, 626 (1st Dept. 1999). [28] Id. [29] Id. [30] Id.  (citing  Blue Wolf Capital , 105 A.D.3d at 184;  Sorenson v. Winston & Strawn, LLP , 162 A.D.3d 593, 593 (1st Dept. 2018)).

By: Jeffrey M. Haber Financial exploitation of seniors and vulnerable adults is a significant problem.¹ It is considered by many to be an insidious non-violent form of elder abuse in the United States. While a landmark MetLife study initially estimated that older Americans lose roughly $2.6 to $2.9 billion each year to financial exploitation, more recent research suggests that the cost may be materially higher, potentially exceeding $36 billion annually . These numbers, whether at the low end of the range or the high end, reflect not only a financial loss of assets but also an emotional harm inflicted on victims and their families. Financial exploitation occurs when an individual – often someone in a position of trust – misappropriates, misuses, or steals the assets of a senior or otherwise vulnerable person. This can happen without the victim’s knowledge, or under circumstances where they do not fully understand or consent to the transactions being conducted. According to a study by the New York State Office of Children and Family Services , an estimated five million older adults and vulnerable Americans experience some form of financial exploitation every year, highlighting how pervasive and underreported this issue truly is. In the investment context, the forms of exploitation are varied but often share a common theme: the pursuit of high commissions or personal gain by unethical financial professionals. Among the most prevalent abuses are churning (excessive trading to generate fees), unauthorized transactions, unsuitable investment recommendations, improper portfolio concentration in high-risk products, misappropriation of assets, and misrepresentations about an investment’s risk, characteristics, or likely returns. These tactics often deplete accounts, expose seniors and vulnerable adults to outsized risks, or leave them financially devastated at a stage of life when recovery is challenging at best. A major reason for this vulnerability lies in the trust that seniors place in the professionals on whom they rely. Many older adults are unfamiliar with the complexities of financial markets or investment products. They often place significant trust in stockbrokers, financial advisors, investment advisers, and insurance agents – individuals who are supposed to act in their best interests. This trust, coupled with a reluctance to question what they do not understand, creates opportunities for abuse by those who exploit their authority or clients’ good faith. Because many seniors may not recognize exploitation immediately – or may feel embarrassed or intimidated about reporting it – prevention often depends on attentive, proactive involvement from family members, friends, and other trusted individuals. Regular oversight, open communication, and periodic review of financial statements can serve as early-warning tools to spot problems before significant harm occurs. In addition to the oversight of friends and family, regulatory oversight plays an important role in the protection of seniors and vulnerable adults from financial elder abuse.² On January 30, 2026, the Securities and Exchange Commission announced that it filed a settled action against a Georgia resident (“Defendant”) for allegedly breaching his fiduciary duties to an elderly investment advisory client³ and misappropriating more than $9.8 million of the client’s assets. Defendant agreed to pay more than $13 million to settle the charges. According to the complaint filed by the SEC in the United States District Court for the Northern District of Georgia, in March 2022, Defendant began misappropriating the client’s assets as well as assets from the estate of the client’s recently deceased sister. The SEC alleged that in February 2023, Defendant, without the client’s knowledge or consent, opened a brokerage account for one of the client’s trusts and transferred more than $9 million in securities from the client’s other accounts.⁴ While establishing the new brokerage account, Defendant allegedly took several steps to conceal his continuing misappropriation of assets, including authorizing the use of check writing from the account, setting up the log-in credentials for the account so that he could access and control the account, and creating an e-mail account to electronically impersonate the client.  As alleged, Defendant then misappropriated the client’s funds for his own benefit, including building a multi-million-dollar residence, purchasing vehicles, and buying vacation homes. The SEC charged Defendant with violating Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a) and (c) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.⁵ Without denying the SEC’s allegations, Defendant agreed to the entry of a final judgment, subject to court approval, in which he agreed to be permanently enjoined from violating the charged provisions of the federal securities laws and from participating in the issuance, purchase, offer, or sale of any security, except for purchases or sales of securities listed on national exchanges in his own personal accounts, and to pay $9,025,424.89 in disgorgement with prejudgment interest of $1,029,626.64 and a civil penalty of $3,000,000. ____________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. ¹We have written about enforcement actions and litigations involving the exploitation of seniors and vulnerable adults on numerous occasions, including: SEC Receives Temporary Restraining to Halt the Financial Exploitation and Abuse Of Seniors ; Enforcement News: SEC Charges Broker with Scheme to Defraud Mostly Elderly Retail Brokerage Customers and Investment Advisory Clients ; Enforcement News: SEC Seeks Emergency Relief Against Investment Adviser Targeting Senior Investors “in a Classic Ponzi Scheme” ; First Department Sustains Undue Influence and Unjust Enrichment Claims in Financial Exploitation Case ; and Enforcement News: Ponzi-Like Scheme, Elder Financial Exploitation and Affinity Fraud. ²We wrote about regulatory efforts to protect seniors and vulnerable adults in the following articles: Bipartisan Legislation Introduced to Protect Seniors from Financial Abuse and Exploitation ; The SEC Approves FINRA’s New Rules to Address the Financial Exploitation and Abuse of Seniors ; and FINRA Submits New Rule for SEC Approval to Protect Seniors and Other Vulnerable Adults from Financial Exploitation and Fraud . ³According to the SEC, the client suffered from significant health issues and depended almost entirely on Defendant for both financial and personal needs, including paying bills, arranging a caretaker, purchasing groceries and household supplies, and managing his mail. ⁴The SEC claimed that Defendant allegedly obtained signatory authority over the client’s primary bank account and then misappropriated another $8.94 million. ⁵The Financial Industry Regulatory Authority barred Defendant in December 2025, for failing to produce documents and information requested in its investigation.

By: Jeffrey M. Haber As readers of this Blog know, affinity fraud and Ponzi schemes often intersect because each reinforces the weaknesses of the other, creating a powerful and deceptive form of financial exploitation.¹ Affinity fraud is a form of financial deception that exploits the trust and social cohesion within a close‑knit group. These groups may be defined by shared religious beliefs, cultural or ethnic identity, professional affiliations, or community networks. The fraud typically begins when an individual – often someone who appears to be a respected or long‑standing member of the community – presents an investment or financial opportunity that seems credible precisely because it comes from a familiar source. The perpetrator leverages the group’s internal bonds to build legitimacy, frequently encouraging early participants to recommend the opportunity to others. Because recommendations circulate through trusted personal relationships, skepticism is limited, and formal due diligence is often bypassed. The fraudster may reinforce the illusion of success by reporting fictious returns or by making small initial payments to early investors, thereby strengthening confidence in the scheme. As the fraud spreads within the group, participants invest not only their financial resources but also their interpersonal trust. Eventually, however, the scheme collapses – often when it becomes impossible to attract additional funds. The resulting losses extend beyond financial harm. Communities experience strained relationships, diminished trust, and, in some cases, long‑lasting reputational damage. In essence, affinity fraud is particularly pernicious because it preys not on financial naïveté alone, but on trust – that is, trust with those on whom people share an identity, values, or history. A Ponzi scheme typically begins with an investment enterprise that purports to offer unusually stable and inflated returns. The promoter, who often embodies a veneer of expertise and professional legitimacy, positions the investment as a “can’t lose” opportunity. The investment strategy is often framed in abstract or proprietary terms, discouraging scrutiny while appealing to individuals who fear missing out on access to high‑yield financial vehicles. In its early stages, the scheme functions as represented, primarily because its obligations remain limited. Initial investors receive the returns they were promised, not through legitimate asset appreciation, but through the redirection of funds supplied by newly recruited participants. These early “returns” and payments play a critical role: they serve as evidence of the promoter’s competence and create validation. Investors often respond by increasing their contributions or by introducing additional participants, amplifying the scheme’s growth through emergent network effects rather than through genuine investment performance. Over time, the fragility of the scheme becomes increasingly pronounced. Because it lacks a legitimate economic foundation, its survival depends entirely on the continuous and accelerating inflow of capital. Even minor disruptions, such as the slowdown in recruitment, an increase in withdrawal requests, or the emergence of external regulatory attention, can destabilize the scheme. Once incoming funds no longer exceed or at least match outgoing obligations, the scheme’s financial obligations become unsustainable. The collapse is typically abrupt: promised payments cease, liquidity evaporates, and the underlying deception comes to light. The aftermath of a Ponzi scheme extends beyond financial loss. Victims frequently report long‑term erosion of trust in financial intermediaries, regulatory institutions, and social networks associated with the promoter. For many, the most acute harm arises not merely from monetary depletion but from the psychological dissonance created by having relied on assurances that, in retrospect, appear implausible. In today’s article, we examine SEC v. Likhtenstein, Case No. 1:25-cv-05412 (E.D.N.Y.), an enforcement action that the SEC brought against Marat Likhtenstein (“Defendant”) for perpetrating a Ponzi-like scheme primarily targeting the Russian American Jewish community. According to the SEC, from at least April 2017 through June 2024, Defendant, while acting as an investment adviser, solicited, recommended, and sold self-issued investments in the form of promissory notes that raised more than $4.1 million from at least 15 advisory clients. The SEC alleged that Defendant falsely told his clients, many of whom were elderly², that if they purchased promissory notes from him through his “side business,” they would earn extraordinary interest rates through investments in highly lucrative business opportunities and deals. However, said the SEC, Defendant did not actually invest the investors’ funds. Instead, he allegedly misappropriated their funds by making $940,000 in Ponzi-like payments to other investors and by spending almost $3.2 million on his personal expenses. The SEC filed its complaint in the U.S. District Court for the Eastern District of New York. The SEC charged Defendant with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC sought a final judgment ordering Defendant to pay disgorgement, prejudgment interest, and civil penalties, as well as enjoining him from violating the charged provisions and imposing conduct-based injunctions. Defendant, without admitting or denying the allegations, consented to a bifurcated settlement, agreeing to the injunctive relief, with monetary relief to be determined at a later date. On February 4, 2026, the Court entered the consent judgment.³ _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. ¹Previously, we examined SEC enforcement actions involving affinity fraud and Ponzi schemes in numerous articles, including: Enforcement News: SEC Brings Emergency Action Against Alleged Perpetrators of an Affinity Fraud and a Ponzi Scheme ; Enforcement News: The Intersection of Affinity Fraud and a Ponzi Scheme ; Enforcement News: A Double Shot of Ponzi Schemes with a Dose of Affinity Fraud ; Enforcement News: SEC Files Complaint in Connection with a $300 Million Ponzi Scheme and Affinity Fraud ; and Enforcement News: Affinity Fraud and Ponzi Schemes in the News Again . ²This Blog has examined financial elder abuse on numerous occasions. See, e.g.,   SEC Receives Temporary Restraining to Halt the Financial Exploitation and Abuse of Seniors , and Enforcement News: Ponzi-Like Scheme, Elder Financial Exploitation and Affinity Fraud. To find the articles related to financial elder abuse or financial exploitation of seniors, visit the “Blog” tile on our website and enter “financial elder abuse” in the “search” box. ³ECF Dkt. No. 8.

By: Jonathan H. Freiberger This BLOG has written numerous articles addressing statutes of limitation.¹ Today’s article discusses Mark v. Trimarco , a case decided by the Appellate Division, Second Department, on February 4, 2026, in which the plaintiff unsuccessfully attempted to breathe new life into an otherwise expired limitations period to sue on a promissory note. The statute of limitations on a promissory note is six years. CPLR 213(2) ; see also Carpenito v. Linksman , 197 A.D.3d 553, 554 (2 nd Dep’t 2021). However, an expired statute of limitations can be revived in numerous ways. As noted in this BLOG’s article “Revive a Time-Barred Claim Using §17-101 of New York’s General Obligations Law,” “the primary purpose of Statutes of Limitation is to relieve defendants of the necessity of investigating and preparing a defense where the action is commenced against them after the expiration of the statutory period because the law presumes that by that time evidence has been lost, memories have faded and witnesses have disappeared.” Connell v. Hayden , 83 A.D.2d 30 (2 nd Dep’t 1981). This problem may be ameliorated by General Obligations Law §17-101, which provides that “n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules other than an action for the recovery of real property….” Invocation of GOL §17-101, requires “a signed writing which validly acknowledges the debt.” Mosab Const. Corp v. Prospect Park Yeshiva, Inc. , 124 A.D.3d 732, 733 (2 nd Dep’t 2015) (citations and internal quotation marks omitted). “To constitute an acknowledgement, a writing must be signed and recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it.” Karpa Realty Group, LLC v. Deutsche Bank Nat. Trust Co. , 164 A.D.3d 886, 888 (2 nd Dep’t 2018) (citations and internal quotation marks omitted). Signatures can be added to a writing manually or electronically. As to the latter, the New York State Technology Law addresses circumstances where one can be bound by “electronic signatures.” Thus, the conclusion that an email can be deemed a signed writing: is buttressed by reference to the New York State Technology Law, former article 1, “Electronic Signatures and Records Act,” which was enacted by the Legislature in 2002. In the accompanying statement of legislative intent, the Legislature stated in part: “ This act is intended to support and encourage electronic commerce and electronic government by allowing people to use electronic signatures and electronic records in lieu of handwritten signatures and paper documents” (L 2002, ch 314, § 1). Section 302(3) of this statute states that an “‘lectronic signature’ shall mean an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record.” Section 304(2) of the statute states that “an electronic signature may be used by a person in lieu of a signature affixed by hand he use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand.” Forcelli v. Gelco Corp. , 109 A.D.3d 244, 250-251 (2 nd Dep’t 2013).² Another way that a statute of limitations can be renewed is “by partial payment of principal or interest which has the effect of an acknowledgement or new promise to pay under the note.” Aldridge v. LNG Enterprises, Inc. , 220 A.D.3d 1178, 1179 (4th Dep’t 2023) (citations, internal quotation marks, brackets and ellipses omitted). The prior discussion leads back to Mark. In 2007, the defendant in Mark delivered a promissory note to the plaintiff promising to pay $75,000 the following year. In 2017, the plaintiff commenced an action to collect on the promissory note. As one would expect, the defendant raised a statute of limitations defense. At a non-jury trial: the plaintiff introduced into evidence an email sent by the defendant to the plaintiff in June 2013 and two checks that the plaintiff testified were partial payments made by the defendant to the plaintiff after the limitations period had ended. The email sent by the defendant included his full name, the name of his business, and the business’s web address. The defendant testified that he did not sign the email and that his name and other information were included in the email automatically. He further testified that he made the two payments to the plaintiff to cover dermatological services for which the defendant was never billed and because the plaintiff was experiencing financial difficulties. The two checks did not include a notation or cover letter stating that they were to be used to pay the debt owed on the note. At the close of evidence, the plaintiff argued that the email and the partial payments served to extend and revive the statute of limitations. The trial court dismissed the complaint because the plaintiff’s claims were time barred and the plaintiff appealed. In affirming the trial court, the Second Department found that while the emails in question “included the defendant’s full name, the name of his business, and the business’s web address, the defendant testified that he ‘didn’t sign’ the email and that the closing was an ‘automatic’ message that ‘comes up’ on his computer.” Based on the testimony, the Court concluded that “the defendant did not intend to sign the email, and thus, the email did not serve to revive the statute of limitations.” (Relying on Forcelli and the New York State Technology Law.) The Court, in finding that the plaintiff’s “partial payment” position was unavailing, stated: Here, the two checks did not contain a memo, notation, or cover letter indicating that the defendant intended for them to constitute partial payments under the note. Moreover, the defendant testified that he sent the plaintiff the checks to help the plaintiff financially and to reimburse the plaintiff for dermatology services rendered. Thus, the checks were not accompanied by circumstances amounting to an absolute and unqualified acknowledgment of the sum due under the note from which a promise to pay the remainder may be inferred. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. ¹ To find such articles, please see the BLOG tile on our website and type “statute of limitations” into the “search” box. ² This BLOG has written numerous articles addressing email signatures and discussing Forcelli. To find such articles, please see the BLOG tile on our website and type “Forcelli” into the “search” box.

By:  Jeffrey M. Haber The doctrine of frustration of purpose is narrowly applied.¹ “In order to invoke the doctrine of frustration of purpose, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.”² In other words, the doctrine will not apply “unless the frustration is substantial.”³ However, “frustration of purpose … is not available where the event which prevented performance was foreseeable and provision could have been made for its occurrence”.⁴ The doctrine of impossibility “excuses a party’s performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible.”⁵ The “impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.”⁶ The doctrines of frustration and impossibility of performance were recently examined by the Appellate Division, First Department in Gad v. CCC NFP, Inc. , 2026 N.Y. Slip Op. 00470 (1st Dept. Feb. 03, 2026). Gad involved an agreement to provide a venue for plaintiff’s son’s bar mitzvah celebration. Plaintiff entered into an agreement with defendant, CCC NFP, Inc. d/b/a Classic Car Club (“defendant”), to reserve an event space to host his son’s bar mitzvah celebration at the Classic Car Club at 1 Pier 76 in New York City (the “venue”). Defendant operates the venue. Plaintiff claimed that defendant breached the agreement by failing to provide plaintiff with the venue, and that he was damaged in the amount of $52,218.75. In its answer, defendant denied the allegations and asserted numerous affirmative defenses. Plaintiff moved, pursuant to CPLR 3212, for an order granting partial summary judgment on its breach of contract claim or, in the alternative, on its unjust enrichment claim, and an order granting plaintiff damages in the amount of $52,218.75, together with statutory interest at the rate of 9% from May 17, 2020. Plaintiff contended that he performed under the contract to secure the venue by tendering to defendant a check in the amount of $27,218.75 (“Deposit 1”) accompanied by a $25,000.00 cash payment (“Deposit 2”). According to plaintiff, defendant did not dispute that plaintiff performed under the contract and that defendant breached the agreement by failing to provide the venue or return the deposits. Plaintiff alleged that in light of the COVID-19 restrictions on in-person gatherings, defendant attempted to reschedule the bar mitzvah celebration, but plaintiff refused, and, therefore, did not sign an addendum to the contract. Plaintiff argued that, despite a provision in the contract that Deposit 1 was non-refundable, defendant was not entitled to retain Deposit 1 because it did not perform under the contract. Plaintiff further argued that defendant could only retain Deposit 1 if it provided plaintiff with the venue on the event date and plaintiff chose not to use the venue, or if plaintiff terminated the contract prior to the event date despite defendant’s ability to perform. In addition, plaintiff argued that the essential purpose of the contract — to hold a large party to celebrate his son’s bar mitzvah at the venue with 160 guests — was frustrated by the COVID-19 pandemic and the ensuing Executive Orders limiting in-person gatherings. According to plaintiff, given the uncertainties and limitations on in-person gatherings imposed by the COVID-19 Executive Orders and that the bar mitzvah celebration required extensive studying of the specific holy scripture that corresponded to the bar mitzvah date, rescheduling the event to a later date was not possible. Since defendant could not perform under the contract, argued plaintiff, defendant could neither retain Deposit 1 nor claim that it had incurred any expenses with respect to the bar mitzvah celebration. Plaintiff also contended that the contract did not provide that Deposit 2 was non-refundable and, as such, defendant was required to return Deposit 2, regardless of its obligations with respect to Deposit 1. In opposition, defendant argued that the motion must be denied because Deposit 1 was, pursuant to the contract, non-refundable. In that regard, the contract provided, in pertinent part, that “ deposit in the amount of $27,218.75 shall be paid by Licensee to Licensor at the time of the signing of this Agreement and before Friday, December 20, 2019. This payment is not refundable.” Defendant disputed plaintiff’s allegations that the two deposits were made at the same time on December 19, 2019. Defendant maintained that the contract only required a single deposit to be made on December 20, 2019, in the amount of $27,218.75, and that plaintiff failed to provide any proof of payment of Deposit 2. According to defendant, plaintiff’s documentary evidence was not confirmation of receipt of a $25,000.00 cash deposit. Hence, defendant maintained that there was a material issue of fact with respect to the $25,000.00 deposit allegedly paid in cash. Addressing plaintiff’s argument that Deposit 1 could not be retained for lack of consideration, defendant argued that consideration was provided because, in exchange for Deposit 1, defendant agreed, to the exclusion of other clientele, to reserve and hold exclusive for plaintiff the May 17, 2020, event date, maintained in-house staff to serve clientele, and incurred expenses in drafting the contract, the proposed addendum sent to plaintiff, and its efforts to reschedule the event. In addition, it contended that whether the contract was frustrated created a material issue of fact because plaintiff contemplated rescheduling the event to a new date. Defendant argued that the deposits were non-refundable for the additional reason that the contract lacked a force majeure provision. In reply, plaintiff maintained that while defendant did not dispute that he paid Deposit 1 as required under the contract, defendant failed to state with certainty that Deposit 2 was not paid. According to plaintiff, defendant’s argument that Deposit 2 was not documented in its books and records did not create an issue of fact because defendant acknowledged that its representative emailed other employees in defendant’s business about the cash payment. As such, plaintiff claimed that defendant’s contention that the email concerning Deposit 2 pertained to commissions was meritless because defendant did not point to any portion of the contract that required plaintiff to pay defendant such amount, but rather, the contract specifically provided that plaintiff was to pay a deposit of $25,000.00 for the venue. Plaintiff contended that he received no benefit from defendant reserving and holding the event date to the exclusion of other potential customers, nor did defendant suffer any detriment in doing so. Plaintiff further noted that maintaining in-house staff to serve customers was not consideration in exchange for Deposit 1 as defendant did not maintain its in-house staff solely for the bar mitzvah celebration he intended to hold at the venue. In addition, plaintiff contended that both the costs that defendant allegedly incurred with respect to drafting the contract is an ordinary cost of doing business and by no means consideration in exchange for Deposit 1, and that the expenses associated with the proposed addendum to the contract cannot be considered consideration since the efforts to reschedule the event did not arise at the time of contract. The motion court granted plaintiff’s motion. The motion court held that plaintiff established its prima facie entitlement to summary judgment on its breach of contract claim. The motion court observed that there was no dispute that defendant failed to provide the venue as required under the agreement. With respect to defendant’s reliance on the frustration of purpose doctrine, the motion court accepted plaintiff’s position that the COVID‑19 restrictions on in‑person gatherings frustrated the purpose of the contract. The motion court reasoned that, without access to the venue in which the celebration was to be held, the contract would have been devoid of meaning to the parties. Although acknowledging that the First Department has generally rejected the invocation of the COVID‑19 pandemic as a basis for applying the frustration of purpose doctrine⁷, the motion court found that the unique facts of the case warranted a different outcome. In particular, the motion court noted that, given the nature of a bar mitzvah celebration, plaintiff could not reasonably be expected to wait until the end of the pandemic to hold the event.⁸ The motion court found defendant’s arguments in opposition – e.g., that it was entitled to keep Deposit 1 because the contract included a non-refundable clause; that the contract did not include a force majeure provision; and that consideration was provided in exchange for plaintiff’s deposit when it agreed to the exclusion of other clientele to reserve and hold exclusive for plaintiff the May 17, 2020, event date, in addition to maintaining in-house staff to serve event clientele – to be unavailing. In the context of a bargained-for-exchange, said the motion court, the word non-refundable could not be construed as a license to not perform under a contract and to still retain an advance payment. The motion court noted that defendant did not provide the venue for the bar mitzvah celebration for which it entered into a contract with plaintiff, plaintiff neither agreed to a new date nor signed the addendum amending the event date, and plaintiff demanded a refund of the deposits. Therefore, the non-refundable clause did not bar plaintiff’s breach of contract claim. The motion court also found defendant’s contention that it was entitled to retain Deposit 1 as the contract lacked a force majeure provision to be unpersuasive. The motion court explained that a party’s performance under a contract may be excused even in the absence of an express provision addressing the specific event that rendered performance impossible. The motion court determined that, although the contract did not contain a force majeure clause, the government shutdown orders prevented defendant from providing the venue on May 17, 2020, as required by the agreement. The court further found unavailing defendant’s argument that it had furnished consideration for Deposit 1 by reserving the venue and maintaining in‑house staff for event services. Given the government shutdown orders restricting in‑person gatherings, the motion court concluded that defendant failed to demonstrate that it maintained staff specifically for plaintiff’s bar mitzvah celebration, particularly when defendant knew it could not make the venue available on the scheduled event date. Accordingly, the motion court held that the absence of a force majeure provision did not entitle defendant to retain Deposit 1. The motion court also rejected defendant’s assertion that the parties had agreed to reschedule the event. Relying on the contract’s modification clause, providing that “his Agreement shall not be modified except by written instrument subscribed by both parties,” the motion court held that, because defendant did not produce a written modification executed by both sides, its claim of a rescheduled event was without merit. On the foregoing basis, the motion court granted plaintiff’s motion with regard to his first cause of action for breach of contract. On appeal, the Appellate Division, First Department, unanimously affirmed. The Court held that “plaintiff established prima facie that the purpose of the contract was frustrated by the COVID-19 pandemic and the executive orders issued in response to the pandemic, which prohibited non-essential gatherings of individuals of any size for any reason’ and was eventually extended through May 28, 2020.”⁹ The Court explained that “ because the bargained-for exchange between the parties was intended to secure the timing of the event, the purpose of the contract was entirely frustrated by the COVID-19 pandemic and subsequent executive orders, and plaintiff was completely deprived of the benefit of his bargain.”¹⁰ Moreover, said the Court, “although the doctrine of frustration of purpose is not available when the event that prevented performance was foreseeable, the COVID-19 pandemic and eventual prohibition on social gatherings were unforeseeable at the time the parties entered into the contract on December 18, 2019.”¹¹ The Court noted that “n opposition, defendant failed to raise an issue of fact concerning its performance under the contract or plaintiff’s payment.”¹² In holding that the doctrine of impossibility of performance applied, the Court made a point of distinguishing Gad from its prior jurisprudence in which it “rejected the COVID-19 pandemic as grounds for a finding of frustration of purpose or impossibility.”¹³ In those actions, explained the Court, “the agreement’s purpose was not totally defeated, but was only partially defeated.”¹⁴ Takeaway The doctrines of frustration of purpose and impossibility apply only in narrow circumstances – namely, when an unforeseeable event completely defeats the contract’s essential purpose or renders performance objectively impossible. In Gad , both the motion court and the First Department held that the COVID‑19 pandemic and the Executive Orders prohibiting all non‑essential gatherings completely undermined the parties’ agreement to hold a bar mitzvah celebration on a specific date at a specific venue. Because the timing and location of the celebration were central to the bargain, plaintiff was entirely deprived of the benefit of the contract when the venue could not host the event. Importantly, Gad is distinguishable from the First Department’s prior pandemic‑related decisions, where the Court rejected frustration‑of‑purpose and impossibility claims on the ground that the agreements’ purposes were only partially, not totally, impeded. In those prior cases, performance remained possible in modified form, or the underlying contractual objective could still be achieved. By contrast, in Gad , the Executive Orders barred the very event the contract contemplated, and the contract’s purpose – securing the specific date for the bar mitzvah celebration – was entirely defeated. Thus, unlike the earlier cases, Gad presented the rare circumstance where frustration of purpose and impossibility applied. ________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. ¹ Jack Kelly Partners LLC v. Zegelstein , 140 A.D.3d 79, 85 (1st Dept. 2016), lv. dismissed , 28 N.Y.3d 1103 (2016). ² Warner v. Kaplan , 71 A.D.3d 1, 6 (1st Dept. 2009) (internal quotation marks omitted), lv. denied , 14 N.Y.3d 706 (2010). ³ Rockland Dev. Assoc. v. Richlou Auto Body, Inc. , 173 A.D.2d 690, 691 (1991). ⁴ Warner , 71 A.D.3d at 6 (internal quotation marks omitted). ⁵ Id. at 5. ⁶ Id. ⁷ See Pentagon Fed. Credit Union v. Popovic , 217A.D.3d 480, 481 (1st Dept. 2023). ⁸ See Kay v. Events , 2021 N.Y. Misc. LEXIS 36371, **4-5 (Sup. Ct., Kings County 2021). ⁹Slip Op. at *1, citing Executive Order (A. Cuomo) Nos. 202.10, 202.31 (9 N.Y.C.R.R. 8.202.10, 8.202.31). ¹⁰ Id. , citing Kay v. Heavenly Events & Catering Corp. , 241 A.D.3d 1305, 1306 (2d Dept. 2025). ¹¹ Id. , citing id. at 1308. ¹² Id. ¹³ Id. ¹⁴ Id. , citing Pentagon Fed. Credit Union v. Popovic , 217 A.D.3d 480, 481 (1st Dept. 2023).

By:  Jeffrey M. Haber Liability for aiding and abetting a fraud is distinct from liability for committing the underlying fraud itself. This theory of liability recognizes that a defendant may substantially contribute to fraudulent misconduct without personally making any misrepresentation/omission or directly deceiving the plaintiff. Thus, instead of requiring proof that the defendant was the maker of a false statement or omission, an aiding‑and‑abetting theory turns on whether the defendant had actual knowledge of the primary wrongdoing and provided substantial assistance that helped bring about the fraudulent result.¹ Actual knowledge is a demanding standard: it requires awareness of the underlying fraud itself, not merely suspicion, negligence, or a failure to inquire. While such knowledge may be inferred from circumstantial evidence², it cannot rest on generalized allegations of wrongdoing or the mere fact that a defendant was involved in the events surrounding the fraud. Similarly, “substantial assistance” requires more than peripheral involvement or routine professional services. It encompasses conduct that affirmatively furthers or enables the fraud to succeed³, such as facilitating transactions integral to the scheme, helping to conceal or disguise the misconduct, or failing to act when a duty to do so exists and the omission effectively allows the fraud to proceed. The doctrine also incorporates a proximate‑cause component: the assistance must be sufficiently connected to the plaintiff’s harm to render the defendant’s participation meaningful rather than incidental. Taken together, these elements ensure that aiding‑and‑abetting liability attaches only when a defendant knowingly participates in and plays a substantial role in the accomplishment of the underlying fraud. A defendant may therefore be held liable even if they were not the originator of the fraudulent statements or omissions and did not interact directly with the plaintiff, so long as their informed actions, or deliberate inaction, helped the primary wrongdoer carry out the fraudulent scheme. The foregoing principles were considered by the Appellate Division, Second Department, in Chin v. Pacific 10, LLC , 2026 N.Y. Slip Op. 00343 (2d Dept. Jan. 28, 2026), in which the Court addressed whether allegations concerning a defendant’s role in concealing structural defects and submitting incomplete or misleading filings to municipal authorities were sufficient to state a claim for aiding and abetting fraud. Chin arose from plaintiffs’ 2018 purchase of a Brooklyn townhouse from defendant Pacific 10, LLC (“Pacific 10”). Pacific 10 is allegedly owned by defendant Frank Tehrani (“Frank”). Prior to the closing of the purchase transaction, the townhouse underwent substantial renovation. In connection with the renovations, Frank’s brother, defendant Bahram Tehrani (“Bahram”), doing business as BTE Design Services, through his business, made certain filings with the New York City Department of Buildings (“DOB”). Plaintiffs alleged that in 2019, during an extensive renovation of an adjacent property, they discovered structural deficiencies in the subject property concealed within the walls, including the removal of a load-bearing wall without sufficient reinforcement on the affected lot line walls. Plaintiffs commenced the action against Pacific 10, Frank, and Bahram, inter alia, to recover damages for fraud. Relevant to the appeal, plaintiffs alleged that Bahram conducted a gut renovation of the property. It further alleged that, acting in conjunction with the other defendants, Bahram omitted certain information, including all structural work, from his submissions to the DOB, and Bahram submitted false, misleading, or purposefully incomplete certifications to the DOB in order to obtain a final certificate of occupancy without a proper inspection and to intentionally conceal the true condition of the property from plaintiffs. Plaintiffs alleged that Bahram aided and abetted the other defendants in defrauding them. Bahram moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7) or, in the alternative, for summary judgment dismissing the complaint as against him. The motion court denied the motion. Bahram appealed. The Second Department affirmed. The Court held that, as to the first element of the claim, plaintiffs “sufficiently alleged an underlying fraud to actively conceal structural deficiencies and damage in the renovations from the plaintiffs, which were not readily discoverable by the plaintiffs in fulfilling their responsibilities imposed by the doctrine of caveat emptor.”⁴ The Court further held that plaintiffs “sufficiently alleged Bahram’s knowledge of and substantial assistance in achievement of the fraud.”⁵ The Court explained that, according to plaintiffs, Bahram, among other things, “submit misleading, purposefully incomplete, or false documents with the DOB, as one of the steps to conceal the structurally defective work from the plaintiffs.”⁶ Such allegations were sufficient to withstand the motion to dismiss and, alternatively, the motion for summary judgment.⁷ Takeaway In Chin, the Court concluded that the complaint sufficiently alleged each element of an aiding and abetting fraud cause of action. Although the Court did not dissect the claim in detail, the Court’s factual recitation makes clear why the cause of action survived dismissal. As noted, the complaint alleged an underlying fraud – the deliberate concealment of serious structural defects in the townhouse sold to plaintiffs. It further alleged that the defendant responsible for the DOB submissions knowingly omitted all structural work from the filings associated with the renovation, conduct from which actual knowledge could reasonably be inferred given his role and proximity to the construction activity. And it described how his submission of allegedly false, misleading, or intentionally incomplete certifications to the DOB facilitated the issuance of a certificate of occupancy and concealed the property’s true condition, thereby substantially assisting the fraudulent scheme by enabling the sale to proceed without disclosure. Taken together, these allegations plausibly portrayed defendant as providing affirmative and substantial assistance that allowed the fraud to succeed while masking the defects from both the DOB and plaintiffs. The Court’s decision, therefore, reinforces several important principles. First, a defendant may substantially assist a fraud even without interacting with the plaintiffs, negotiating the transaction, or making direct misrepresentations. By allegedly submitting misleading regulatory filings that represented the property as structurally sound, defendant supplied the mechanism through which the fraud was carried out. Second, material omissions and concealment can constitute substantial assistance. As noted, plaintiffs alleged that the DOB filings excluded all structural work, thereby obscuring the defects. The Court implicitly recognized that such concealment could advance the alleged fraud by preventing detection and securing the regulatory approvals necessary for the transaction. Third, although not expressly discussed, the allegations logically linked defendant’s alleged conduct to plaintiffs’ harm: by helping secure a certificate of occupancy and concealing structural defects, defendant’s participation was a substantial factor in leading plaintiffs to purchase the townhouse. More broadly, Chin underscores the practical reach of aiding‑and‑abetting liability under New York law. The doctrine is sufficiently flexible to capture the role of participants whose conduct materially contributes to the execution of a fraud. It confirms that a defendant need not have made direct misrepresentations to the plaintiff; that actual knowledge may be inferred from circumstantial evidence, including the nature and proximity of the defendant’s role; and that incomplete or misleading filings with regulatory authorities can constitute substantial assistance when they conceal wrongdoing or enable a fraudulent transaction to proceed. _____________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. ¹ “To plead a cause of action to recover damages for aiding and abetting fraud, the complaint must allege the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud.” Winkler v. Battery Trading, Inc., 89 AD3d 1016, 1017 (2d Dept. 2011); seeSchiano v. Harsanyi, 230 A.D.3d 820, 821 (2d Dept. 2024). ²See Houbigant, Inc. v. Deloitte & Touche, 303 A.D.2d 92, 98- 99 (1st Dept. 2003); DaPuzzo v. Reznick Fedder & Silverman, 14 A.D.3d 302, 303 (1st Dept. 2005). ³ To plead substantial assistance, plaintiffs must allege that the defendant (1) affirmatively assisted, helped conceal, or by virtue of failing to act when required to do so enabled the fraud to proceed, and (2) the defendant’s actions as an aider/abettor proximately caused the harm on which the primary liability is predicated. Stanfield Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (1st Dept. 2009). ⁴Slip Op. at *2, citing Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996-997 (2d Dept. 2018); Schooley v. Mannion, 241 A.D.2d 677, 678 (3d Dept. 1997). This Blog wrote about the caveat emptor doctrine on many occasions, including: Fraudulent Concealment and the Caveat Emptor Doctrine ; Publicly Available Information, Justifiable Reliance and The Caveat Emptor Doctrine ; and Caveat Emptor, Disclaimer Clauses and Buying Property “As Is” . ⁵ Id. ⁶ Id. ⁷Id.

By: Jonathan H. Freiberger On January 28, 2026, the Appellate Division, Second Department, decided Deutsche Bank National Trust Company v. Starr , a mortgage foreclosure action that addresses many of the issues raised in our prior BLOG articles. The borrower in Starr allegedly defaulted in her repayment obligations under a promissory note secured by a mortgage on real property. In 2009, the lender commenced a mortgage foreclosure action (the “First Action”). In 2010, the First Action was discontinued by order of the Court on the lender’s motion. The Lender commenced a new foreclosure action in 2012, in which the borrower asserted numerous affirmative defenses. In 2016, the motion court granted the lender’s motion for summary judgment and denied the borrower’s cross motion to dismiss the complaint due to the lender’s failure to comply with RPAPL 1304 and 1306 . In 2019, the Second Department modified the motion court’s order by denying the lender’s motion for summary judgment and affirming the denial of the borrower’s motion for summary judgment. Here is where things get interesting. The lender, realizing that it could not prove compliance with RPAPL 1306, brought an order to show cause by which it sought an order “dismissing the instant action, without prejudice, due to inability to show compliance with RPAPL 1306 and/or on equitable grounds.” Compliance with RPAPL 1306 is a condition precedent to the commencement of a foreclosure action. Tri-State III, LLC v. Litkowski , 239 A.D.3d 911, 914 (2 nd Dep’t 2025); see also our BLOG article “ Second Department Dismisses Two Mortgage Foreclosure Actions for Failure to Comply with RPAPL 1306 .” Typically, a motion to discontinue an action would be brought under CPLR 3217(b) , which provides: Except as provided in subdivision (a), an action shall not be discontinued by a party asserting a claim except upon order of the court and upon terms and conditions, as the court deems proper. After the cause has been submitted to the court or jury to determine the facts the court may not order an action discontinued except upon the stipulation of all parties appearing in the action. Unfortunately, however, a dismissal under CPLR 3217(b) would have been the death knell of the lender’s claim because the lender would have been time-barred from commencing a new action. In some cases, CPLR 205-a(a) provides a six-month grace period to commence a new action if the old action is dismissed after the statute of limitations expires. However, the six-month grace period expressly excepts from its scope, inter alia , “voluntary dismissals”. Accordingly, the borrower cross-moved under CPLR 3217(b) to discontinue the action, with prejudice, because any new action would be time-barred. The motion court denied the lender’s motion, granted the borrower’s cross-motion and dismissed the action with prejudice. The motion court found that the dismissal was warranted due to the lender’s laches, an argument not raised by any party. On the lender’s appeal, the Court affirmed on alternative (statute of limitations) grounds (because laches was not raised by any of the parties). The Court explained: Contrary to the ’s contention, its motion, denominated as one to dismiss the complaint without prejudice based upon its inability to comply with RPAPL 1306 and/or on equitable grounds, was, in actuality, one pursuant to CPLR 3217(b) to discontinue the action without prejudice… hen an action is terminated by a voluntary discontinuance, a plaintiff is not entitled to the benefit of the six-month grace period afforded by CPLR 205-a(a)…. Here, the attempted to avoid the undesired consequences of a voluntary discontinuance by denominating its motion as one seeking dismissal of the complaint, but, as the was moving to dismiss its own action, its motion was, in actuality, one to voluntarily discontinue the action pursuant to CPLR 3217(b)….” *   *   * …CPLR 3217(b) permits a voluntary discontinuance of an action by court order “upon terms and conditions, as the court deems proper.” In general, absent a showing of special circumstances, including prejudice to a substantial right of the defendant or other improper consequences, a motion for a voluntary discontinuance should be granted without prejudice. The determination of whether, and upon what terms and conditions, to grant a motion to discontinue an action pursuant to CPLR 3217(b) lies within the sound discretion of the court. Here, in opposition to the ’s motion and in support of her cross-motion, the borrower made the requisite showing that she would be prejudiced by a discontinuance of the action without prejudice. The demonstrated, prima facie, that a future action would be time-barred . Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you. This BLOG has written numerous articles addressing RPAPL 1304 and 1306. To find such articles, please see the BLOG tile on our website and type “RPAPL 1304” and/or “RPAPL 1306” into the “search” box. Briefly, RPAPL 1304 requires a lender, ninety days before the commencement of a foreclosure action, specific notices. RPAPL 1306, among other things, requires lenders to file with the Superintendent of Financial Services, certain information about borrowers within three business days of sending RPAPL 1304 notices. Some of the facts stated herein were obtained from the appellate records available on the Court’s NYSCEF system. The quoted language is from the Lender’s order to show cause. CPLR 3217(a), in general, permits an action to be discontinued by serving a notice of discontinuance on all parties prior to the time a responsive pleading is served or by stipulation signed by all parties of record before the case “has been submitted to the court or jury”. CPLR 205-a is recently enacted pursuant to FAPA and applies to foreclosure actions. CPLR 205 is a similar statute and applies to other cases. This BLOG has written numerous articles on CPLR 205, CPLR 205-a and FAPA. To find such articles, please see the BLOG tile on our website and type “CPLR 205”, “CPLR 205-a” or “FAPA” into the “search” box.

By:  Jeffrey M. Haber To pierce the corporate veil under New York law, a plaintiff must satisfy a two‑part test and plead specific, non‑conclusory facts supporting each element. First, the plaintiff must show that the individual exercised complete domination and control over the corporation with respect to the specific transaction at issue. Second, even if domination exists, the plaintiff must show that the domination was used to commit a fraud, injustice, or other wrongful act that caused the plaintiff’s injury. In Borini v. Inform Studios, Inc. , 2026 N.Y. Slip Op. 00309 (1st Dept. Jan 27, 2026), which we examine in today’s article, plaintiffs did not satisfy either prong of the test. Borini concerned a written contract between Inform Studio, Inc. (“Inform”) and plaintiffs for the renovation of plaintiffs’ cooperative apartment unit (the “Project”). The contract was executed on November 15, 2017, and required Inform to achieve substantial completion within one year of the January 12, 2018 commencement date of the Project. After work began, a burst pipe elsewhere in the building caused damage to plaintiffs’ apartment, resulting in Project delays. On August 6, 2018, the cooperative board (the “Board”) directed that the Project be stopped and denied Inform further access to the premises. The Board asserted that plaintiffs had exceeded the time period permitted under an alteration agreement between plaintiffs and the Board. Inform was not a party to that agreement. Access to the unit remained restricted for more than one year while plaintiffs and the Board litigated the issue in New York County Supreme Court. On August 22, 2019, the court issued a mandatory injunction requiring the Board to allow the Project to proceed. Following the injunction, Inform and plaintiffs discussed resuming work. Inform requested payment of its outstanding contract balance and reimbursement of certain delay-related costs, including storage fees, extended labor expenses, and subcontractor remobilization costs. The parties submitted these issues to mediation, and on November 19, 2019, executed a post‑mediation agreement (“PMA”) resolving them, including plaintiffs’ agreement to pay the identified amounts. The PMA contemplated a March 1, 2020 restart date. Before that date, New York City suspended nonessential construction due to the Covid‑19 pandemic. Inform regained access to the apartment on July 28, 2020, and continued work until achieving substantial completion on January 28, 2021. Inform thereafter performed punch-list work and closed out the Project. On October 19, 2021, plaintiffs obtained a Department of Buildings “Letter of Completion,” based on certifications submitted by their design professionals. Nearly two years later, plaintiffs commenced the action against Inform alleging breach of contract. Plaintiffs also named Patrick Eck, a licensed contractor and principal of Inform, and two additional entities in which Eck is a principle, Inform Studios Installer, Inc. (“Installer”) and Block-Studio, Inc. (“Block”). Neither Eck, Installer nor Block were signatories to the contract. Defendants Eck, Installer, and Block moved to dismiss plaintiffs’ complaint. The motion court denied the motion. The Appellate Division, First Department, unanimously reversed. The Governing Law It is well settled that a corporation only acts through its officers, directors and owners. Thus, these individuals are generally not liable for the debts incurred by the corporation. However, when an officer, director or owner abuses the corporate form to perpetrate a wrong or injustice against a third party, courts will intervene on behalf of the third party to hold the corporate actor personally liable. “Generally, a plaintiff seeking to pierce the corporate veil must show that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.” Importantly, it is not enough for the plaintiff to demonstrate that the officer, director, or owner dominated and controlled the corporate entity. The plaintiff must show that the officer, director or member used the corporation for his/her personal benefit and the corporation was nothing more than an “alter ego” or instrumentality of the officer or member. Conclusory allegations of domination and control are insufficient. So too are allegations asserted on information and belief which amount to nothing more than a restatement of legal elements. The plaintiff must demonstrate that there was a unity of interest and control between the defendant and the entity such that they are indistinguishable. While application of the doctrine depends on the facts and circumstances of each case, several factors have emerged in determining whether the plaintiff has made the requisite showing. These factors include, among others: (1) the failure to adhere to corporate formalities; (2) inadequate capitalization (that is, the corporation or LLC does not have sufficient funds to operate); (3) a commingling of assets; (4) one person or a small group of closely related people were in complete control of the corporation or LLC; and (5) use of corporate funds for personal benefit. No one factor controls the consideration. Courts recognize, however, “that with respect to small, privately-held corporations, ‘the trappings of sophisticated corporate life are rarely present,’” and, therefore, they “must avoid an over-rigid ‘preoccupation with questions of structure, financial and accounting sophistication or dividend policy or history.’” In addition to the foregoing factors, a plaintiff must establish a causal connection between the domination and control of the corporate entity and the injury complained of. The injury complained of must lead to inequity, fraud or malfeasance. It does not include a simple breach of contract claim. The First Department’s Decision The Court held that plaintiffs failed “to allege that Eck ‘exercised complete domination’ defendant corporations with respect to the transactions at issue and that ‘such domination was used to commit a fraud or wrong against which resulted in injury.’” The Court found that the “complaint contain only conclusory allegations, reciting several factors supporting veil piercing, made solely upon plaintiffs’ ‘information and belief.’” In so holding, the Court noted that “ lthough the record show that the corporate defendants connected” because “they share a common address and a common principal,” plaintiffs nevertheless “failed to show complete domination and control.” “Plaintiffs’ proffered evidence,” said the Court, “demonstrated that Eck was a licensed contractor who acted on behalf of the corporate defendants” and “‘by definition, a corporation acts through its officers and directors.’” “Thus,” concluded the Court, “allegations and proof that Eck, a principal for all the corporate defendants, dealt with plaintiffs and represented the corporations are insufficient to pierce Inform’s corporate veil.” “Moreover,” the Court held that “the complaint lack any allegations that Eck perpetrated ‘a wrong or injustice’ against plaintiffs.” “Therefore,” concluded the Court, “plaintiffs’ breach of contract claim, without more, not warrant piercing the corporate veil.” To underscore its holding, the Court explained that plaintiffs did “not raise[ ] claims for fraud or similar wrongdoing, nor plaintiffs allege[ ] that Installer and Block were not legitimate subcontractor businesses, that they were created for the improper purpose of preventing plaintiffs from enforcing the contract, or that corporate funds were diverted to those entities to render Inform judgment proof.” “Under these circumstances,” concluded the Court, “plaintiffs failed to state a claim for breach of contract as against Installer, Block, and Eck,” and “‘the hope that something will turn up in discovery an insufficient basis to deny the motion to dismiss.’” Takeaway In Borini , plaintiffs sued Inform for delays and alleged defects in a renovation project. Plaintiffs also tried to sue Inform’s owner and two related companies, even though none of them signed the renovation contract. To do that, plaintiffs attempted to pierce the corporate veil. As discussed, Borini shows how difficult it is under New York law to hold a business owner personally liable for their company’s obligations. The First Department rejected plaintiffs’ claims and dismissed the case against all non‑contracting defendants. The Court held that plaintiffs failed to allege any facts showing that the owner misused the corporation or engaged in wrongdoing that would justify personal liability. Simply alleging that the owner managed the companies, shared an address among them, or communicated directly with plaintiffs was not enough. Corporations act through their officers and directors; however, that alone does not create personal exposure. Most importantly, plaintiffs alleged only a simple breach of contract, nothing more. The Court made clear that a contract dispute, without more, is not grounds for piercing the corporate veil. There must be evidence of fraud, misuse of corporate assets, or other inequitable conduct. None was present in Borini . The Court also rejected the notion that plaintiffs could proceed to discovery “just to see what turns up,” reiterating that specific allegations of wrongdoing must be made at the outset. _______________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. The background facts come from the briefing on appeal. TNS Holdings v. MKI Sec. Corp. , 92 N.Y.2d 335, 340 (1998) (the corporate veil may be pierced to impose liability for corporate wrongs upon persons who have “misused the corporate form for personal ends.”);  Matter of Morris v. New York State Dept. of Taxation & Fin. , 82 N.Y.2d 135, 142 (1993) (the corporate veil may be pierced where the owners have “abused the privilege of doing business in the corporate form” by “perpetrat a wrong or injustice . . . such that a court in equity will intervene.”);  Tap Holdings, LLC v. Orix Fin. Corp. , 109 A.D.3d 167, 174 (1st Dept. 2013) (citation omitted). Conason v. Megan Holding, LLC , 25 N.Y.3d 1, 18 (2015) (internal quotation marks omitted);  TNS Holdings , 92 N.Y.2d at 339. Matter of Morris , 82 N.Y.2d at 141-142;  TNS Holdings , 92 N.Y.2d at 339. TNS Holdings , 92 N.Y.2d at 339. East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc. , 16 N.Y.3d 775, 776 (2011) (noting that at the pleading stage, “a plaintiff must do more than merely allege that engaged in improper acts or acted in ‘bad faith’ while representing the corporation”). See 501 Fifth Ave. Co. LLC v. Alvona LLC. , 110 A.D.3d 494 (1st Dept. 2013); see also Cortlandt St. Recovery Corp. v. Bonderman , 226 A.D.3d 103, 104 [(1st Dept. 2024), aff’d ,  — N.Y.3d —, 2025 N.Y. Slip Op. 07078 (2025); Albstein v. Elany Contracting Corp. , 30 A.D.3d 210, 210 (1st Dept. 2006). Ledy v. Wilson , 38 A.D.3d 214, 214 (1st Dept. 2007). Shisgal v. Brown , 21 A.D.3d 845, 848 (1st Dept. 2005) (internal citation omitted). Tap Holdings , 109 A.D.3d at 174 (citation omitted). Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc. , 98 F.3d 13, 18 (2d Cir. 1996) (quoting  Wm. Wrigley Jr. Co. v. Waters , 890 F.2d 594, 601 (2d Cir. 1989) (applying New York law)).  Accord ,  Leslie, Semple & Garrison, Inc. v. Gavit & Co., Inc. , 81 A.D.2d 950, 951 (3d Dept. 1981) (recognizing that it is often difficult and impractical for small closely-held corporations to comport with the typical corporate formalities).  See also Bahar v. Schwartzreich , 204 A.D.2d 441, 443 (2d Dept. 1994);  Bullard v. Bullard , 185 A.D.2d 411, 413 (3d Dept. 1992). Matter of Morris , 82 N.Y.2d at 141;  Guptill Holding Corp. v. State of N.Y. , 33 A.D.2d 362, 365 (3d Dept. 1970) (noting that an element of veil piercing is “an injury proximately caused by said wrong”) (citation omitted);  East Hampton Union Free School Dist. , 66 A.D.3d at 132 (noting that the plaintiff must articulate conduct by the individual that creates a nexus between it and the “transactions or occurrences” alleged in the complaint). TNS Holdings , 92 N.Y.2d 339. Brandsway Hosp., LLC. v. Delshah Cap. LLC , 216 A.D.3d 486, 487 (1st Dept. 2023 ); Kahan Jewelry Corp. v. Coin Dealer of 47th St. Inc. , 173 A.D.3d 568, 569 (1st Dept. 2019); Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC , 146 A.D.3d 1, 12 (1st Dept. 2016), aff'd , 31 N.Y.3d 1002 (2018). Slip Op. at *1 (quoting Matter of Morris , 82 N.Y.2d at 141). Id. (citations omitted). Id. (citing Sass v. TMT Restoration Consultants Ltd. , 100 A.D.3d 443, 443 (1st Dept. 2012); Fantazia Intl. Corp. v. CPL Furs N.Y., Inc. , 67 A.D.3d 511, 512 (1st Dept. 2009)). Id. (citing East Hampton Union Free School Dist. , 16 N.Y.3d at 776). Id. (citing J. Carey Smith 2019 Irrevocable Trust v. 11 W. 12 Realty LLC , 240 A.D.3d 432, 433 (1st Dept. 2025); Springut Law PC v. Rates Tech. Inc. , 157 A.D.3d 645, 646 (1st Dept. 2018)). Id. (citing Matter of Morris , 82 N.Y.2d at 142). Id. (citing Skanska , 146 A.D.3d at 12). Id. (citing World Wide Packaging, LLC v. Cargo Cosmetics, LLC , 193 A.D.3d 442, 442-443 (1st Dept. 2021)). Id. (citations omitted).

By:  Jeffrey M. Haber In BH 336 Partners LLC v. Sentinel Real Estate Corp. , 2026 N.Y. Slip Op. 00305 (1st Dept. Jan. 22, 2026), the Appellate Division, First Department, modified an order denying in part a motion to dismiss a complaint containing fraud and fraudulent‑inducement claims arising from Plaintiffs’ purchases of five Manhattan buildings. Plaintiffs alleged that Defendants orchestrated an illegal deregulation scheme that inflated property values through fraudulent individual apartment improvements and misrepresentations about rent‑regulation status. The motion court denied dismissal, finding the claims were not time-barred, standing, justifiable reliance, scienter, and particularity adequately pleaded, and holding the disclaimer in the purchase agreement was too general. On appeal, the First Department modified the order, dismissing the claims by most Plaintiffs as time-barred because a 2019 complaint filed by the New York Attorney General placed them on inquiry notice of the alleged fraud. However, the Court upheld standing for the remaining Plaintiffs, finding broad assignment language and surrounding circumstances permitted a factfinder to infer that the fraud claims were transferred. The Court also rejected the disclaimer argument. Plaintiffs alleged that Defendants defrauded them in connection with their purchase of five Manhattan apartment buildings (the “Properties”) between April 2016 and August 2017. The Complaint alleged that Sentinel and its affiliates fraudulently induced Plaintiffs to purchase the Properties by concealing an unlawful deregulation scheme. According to Plaintiffs, Sentinel directed Newcastle to supervise the illegal deregulation of rent‑regulated units. Newcastle allegedly engaged favored contractors to perform apartment renovations and intentionally inflated the costs of these improvements to justify removing units from rent regulation. Plaintiffs contended that this scheme produced artificially inflated valuations for the Properties at the time of sale. Plaintiffs further asserted that Defendants misrepresented the legal status of the apartment units, DHCR registrations, Individual Apartment Improvements (“IAIs”), rent rolls, and lease documentation. They alleged that Sentinel representatives relied on DHCR rent roll reports and provided leases and riders that were fraudulent because they falsely characterized illegally deregulated units as free‑market apartments. Plaintiffs maintained that they justifiably relied on these representations and would not have purchased the Properties had the true regulatory status been disclosed. Plaintiffs alleged that Defendants knowingly made these misstatements, intending that Plaintiffs would rely on them. Between 2015 and 2017, Heritage entered into purchase contracts with the Seller Defendants, later assigning the contracts to Plaintiffs at closing. Assignments were executed by Aryeh and, for one property, by Charles M. Yasskey. After the closings, all Seller Defendants were voluntarily dissolved. Plaintiffs claimed they first learned of Sentinel’s deregulation scheme in March 2023, when the New York Attorney General (“AG”) and DHCR notified them that various units must be re‑regulated. The AG’s earlier investigation resulted in a July 11, 2022 Assurance of Discontinuance, which made detailed findings regarding the deregulation practices; Plaintiffs incorporated those findings into their Complaint. They also referenced a separate AG civil enforcement action against former Newcastle Head of Operations, David Drumheller, who allegedly received contractor kickbacks to support inflated renovation costs. Plaintiffs commenced the action on August 9, 2023, asserting claims for fraud and fraudulent inducement, including rescission. Defendants moved to dismiss, arguing lack of standing, statute of limitations, contractual reliance disclaimers, and failure to state a claim. The Moving Defendants argued that all Plaintiffs except 113 West lacked standing because only 113 West directly purchased a Property; the remaining Plaintiffs received assignments of Heritage’s purchase contracts. These Defendants contended that the assignee Plaintiffs could not assert fraud or fraudulent‑inducement claims because they were not the original purchasers and the assignments did not expressly transfer tort claims. Plaintiffs countered that privity was unnecessary for a fraudulent‑misrepresentation claim and that they effectively purchased the Properties directly, as the purchase contracts included express riders acknowledging that the Seller Defendants permitted assignment to related entities. A defendant moving for dismissal for lack of standing bears the burden of making a prima facie showing that the plaintiff lacks standing. A plaintiff needs “only to raise a triable issue of fact as to its standing” to defeat such a motion, without needing to affirmatively establish its standing. In New York, fraud claims are freely assignable, although the right to assert such claims does not automatically transfer with the conveyed contract. To effectuate the assignment of fraud claims, there must be “some explicit language evidencing the parties’ intent to transfer broad and unlimited rights and claims.” The “ ack of privity is not a viable defense to a fraud claim.” The motion court held that Defendants failed to satisfy their burden of showing that the assignee Plaintiffs lacked standing. The motion court explained that the parties to the purchase contracts specifically contemplated assignment in each agreement’s respective Seller’s Rider. In fact, noted the motion court, the assignments were broadly worded to convey “all . . . right, title and interest” of the purchasers in the respective purchase contracts. Moreover, noted the motion court, the assignments were made between closely related entities, with the same person signing on behalf of the purchaser-assignors and the assignees. The Moving Defendants next argued that Plaintiffs’ claims were time-barred with respect to three of the five Properties: 845 West 180 Street, 220 Wadsworth Avenue, and 643 West 171st Street. These Defendants maintained that under either the six-year accrual part of the statute or the discovery rule, Plaintiffs’ fraud claims were time-barred. In New York, the statute of limitations for fraud is “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.” “ On a motion to dismiss a fraud claim based on the two-year discovery rule, a defendant must make a prima facie case that a plaintiff was on inquiry notice of its fraud claims more than two years before it commenced the action. Should the movant make its prima facie case, “ he burden then shifts to the plaintiff to establish that even if it had exercised reasonable diligence, it could not have discovered the basis for its claims before that date.” This is a “mixed question of law and fact, and, where it does not conclusively appear that a plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred, the cause of action should not be disposed of summarily on statute of limitations grounds.” The inquiry as to whether a plaintiff could have discovered the alleged fraud with reasonable diligence “turns on whether the plaintiff was possessed of knowledge of facts from which could be reasonably inferred.” A duty of inquiry arises “where the circumstances are such as to suggest to a person of ordinary intelligence the probability” that they have been defrauded. Should the party “ that inquiry when it would have developed the truth, and shuts eyes to the facts which call for investigation, knowledge of the fraud will be imputed to” the party. “ ublic reports and lawsuits of alleged fraud are sufficient to put a plaintiff on inquiry notice of fraud.” The motion court held that under the six-year portion of the statute of limitations, the fraud claims as to the three Properties in questions were barred: “As the sale of the three Properties closed between April and September 2016, the motion court held that the fraud claims related to those sales accrued outside of the six-year statute of limitations.” Regarding the discovery rule, the motion court held that there were issues of fact as to whether the Drumheller complaint placed Plaintiffs on inquiry notice as to fraud claims arising out of their purchase of 845 West 180th Street, 220 Wadsworth Avenue, and 643 West 171st Street. The Moving Defendants argued that Plaintiffs were on notice of any alleged fraud at the Properties in June 2019, when the AG’s office emailed their counsel a copy of the Drumheller complaint. According to the Moving Defendants, the Drumheller complaint “specifically discusse including 336 Fort Washington Avenue” and outlined the fraudulent deregulation scheme that formed the basis of Plaintiffs’ allegations in the action. In holding that there were issues of fact, the motion court distinguished the allegations in the Drumheller complaint with those in the action. In that regard, the motion court found that the  allegations in the Drumheller complaint focused solely on the misconduct of Drumheller and certain Newcastle employees, specifically that they accepted kickbacks from favored contractors in exchange for inflating renovation costs. Nothing in that complaint, noted the motion court, alleged or suggested that Drumheller acted at the direction of senior personnel at Newcastle, Sentinel, or any affiliated entity, nor that Sentinel or its affiliates orchestrated or participated in the scheme. The single reference to Sentinel, said the motion court, merely noted that many buildings managed by Newcastle were “or been owned by single purpose entities controlled by others, including Sentinel,” a statement that did not imply Sentinel’s involvement or knowledge. The motion court went on to say that the Drumheller complaint repeatedly emphasized that the misconduct benefitted Drumheller personally, not Newcastle, Sentinel, or the Sentinel‑controlled entities that owned the buildings, including the Seller Defendants. Accordingly, concluded the motion court, the thrust of the Drumheller complaint was fundamentally different from the fraud claims asserted in the action. The Moving Defendants also maintained that the Complaint failed to state a cause of action for fraud because Plaintiffs disclaimed reliance on extracontractual representations, or, in the alternative failed adequately to plead justifiable reliance.  The motion court denied the motion  on the basis of disclaimer. The motion court found that the disclaimer in the purchase contracts was general, not specific. The motion court, therefore, rejected the Moving Defendants’ claim that the disclaimer disclaimed any alleged misrepresentations about the rent regulation status of units. Even if the disclaimer was sufficiently specific, said the motion court, the misrepresentations alleged by Plaintiff “concern facts peculiarly within” Defendants’ knowledge, namely the scheme whereby Sentinel-affiliated entities deregulated certain units at the Properties and their concealment thereof. Finally, the motion court held that the Complaint adequately pleaded justifiable reliance and due diligence, crediting allegations that Plaintiffs conducted lease audits and had no reason to suspect fraudulent IAI adjustments. The Moving Defendants contended that Plaintiffs failed to plead reliance, scienter, material misstatements, or particularity, arguing that they neither performed diligence nor alleged Defendants’ knowledge or involvement in any misconduct. The motion court, however, found scienter sufficiently alleged: the pleaded facts – Sentinel’s value‑enhancement strategy, Newcastle’s renovation oversight, inflated IAI costs, deregulation of units, and subsequent sales – supported an inference of the Moving Defendants’ actual knowledge. The motion court also rejected the arguments that only omissions were alleged or that the Complaint lacked particularity, noting its identification of specific Sentinel representatives, the documents provided (DHCR rent rolls, leases, riders), and the timing of events (during due diligence), among other things. On appeal, the Appellate Division, First Department, modified the order, on the law, to dismiss all claims against Defendant as time-barred, except for those asserted by EZ Wadsworth Partners LLC and BH 336 Partners LLC, and otherwise affirmed. The Court held that the motion court erred in finding issues of fact with regard to the Moving Defendants’ motion dismiss on statute of limitations grounds. The Court explained that the “time-barred plaintiffs” could not “rely on their lack of awareness of the fraud to take advantage of the two-year discovery period under CPLR 213(8), as they were placed on inquiry notice no later than June 20, 2019, when the Office of the New York Attorney General forwarded their attorneys a copy of a complaint in People v David Drumheller.” The Court noted that the “complaint alleged that David Drumheller, an employee of Newcastle, along with contractors and other Newcastle employees, artificially inflated the renovation costs of various units in apartment buildings throughout New York City owned by Sentinel affiliates.” “ hat complaint,” said the Court, alleged that “Drumheller did so to fraudulently deregulate the units.” Thus, held the Court, “ lthough the complaint mentioned only one of the buildings plaintiffs purchased in passing, the complaint otherwise stated that Newcastle managed 2,500 apartments; that Drumheller was critical to Newcastle’s practice of deregulating rent-stabilized units; and that Drumheller caused hundreds of such units to be fraudulently deregulated.” Accordingly, concluded the Court, “plaintiffs’ awareness of the possibility of the fraudulent scheme involving buildings they purchased from Sentinel-controlled entities placed on plaintiffs a duty to investigate the fraud, even if plaintiffs had no reason at the time to believe that Sentinel or Newcastle was involved.” “Plaintiffs did not engage in such an investigation,” said the Court. Regarding the assignment, the Court held that the motion court “was correct in holding that defendants did not meet their burden on a motion to dismiss to establish that the remaining plaintiffs lacked standing.” “As the Supreme Court found, the parties to the original purchase contracts specifically contemplated that the assignment would be a part of the transaction, and the assignments were broadly worded to convey ‘all . . . right, title and interest’ of the purchasers in the respective purchase contracts.” As such, said the Court, “ factfinder could find the requisite intent to transfer fraud claims under these circumstances.” The Court noted that “ n the presence of sufficiently broad assignment language, courts are permitted to assess the circumstances of the surrounding assignment to discern if the parties intended to transfer fraud claims.” This holistic approach, said the Court, was consistent with the approach of other courts. The Court cited to Banque Arabe Et Internationale v. Md. Nat. Bank , 57 F.3d 146, 151-153 (2d Cir. 1995), as an example. In Banque Arabe , the Second Circuit held that a recitation in an assignment agreement transferring “all of rights, title and interest” in a “transaction” was sufficient to transfer a fraud claim upon analyzing the underlying circumstances. The Court also distinguished the case from other actions with similarly broad assignment language in which the Court found that the fraud claims had not been assigned. The Court explained that those “cases did not involve a situation like here, where it alleged that the original purchasers were, in effect, the same as the assignee plaintiffs, with the same person signing on behalf of the purchaser-assignors and the assignees.” “Instead,” said the Court, the other cases dealt “with the post-facto assignment of rights under a contract entered into between the assignee and a third party, where the intention of the assignor would be more difficult to discern.” Finally, the Court held that Plaintiffs “did not disclaim reliance based on the general disclaimer included in the contract, which made no mention ‘to the particular type of fact misrepresented or undisclosed,’ which were ‘peculiarly within the seller’s knowledge.’” Takeaways BH 336 Partners offers several important lessons for parties litigating fraud claims. First, it reaffirms that standing to assert fraud may pass through assignment when the assignment language is broad, and the surrounding circumstances indicate an intent to transfer all rights. Thus, where related entities orchestrate a transaction, and the same individuals sign on both sides, a factfinder may reasonably infer an intent to assign fraud claims. Second, BH 336 Partners underscores the difficulties overcoming the application of the statute of limitations in the face of publicly available information in fraud cases. While fraud claims may be brought within six years of accrual or two years from discovery, the two‑year discovery rule is triggered once a plaintiff is placed on inquiry notice. The AG’s 2019 complaint, sent to Plaintiffs’ counsel in 2019, was deemed sufficient to alert Plaintiffs to the possibility of fraud, even though the complaint did not directly implicate the exact Properties at issue in BH 336 Partners . Finally, BH 336 Partners illustrates that general contractual disclaimers do not bar fraud claims where the alleged misrepresentations concern facts peculiarly within the seller’s knowledge. In BH 336 Partners , because Defendants allegedly orchestrated a concealed deregulation scheme, Plaintiffs could not have discovered the truth through ordinary diligence, and the generic disclaimer found in the purchase contracts lacked the specificity required to defeat reliance as a matter of law. ______________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Plaintiffs, BH 336 Partners LLC, EZ Wadsworth Associates LLC, 220 MMM Partners LLC, LIV Hudson Heights LLC, 643 Bar Partners LLC, 113 West LLC (“113 West”), 2576 Flatbush Ave Realty LLC, and Roe Gem II LLC, are entities owned and controlled by non‑party Michael Aryeh and his company, Heritage Realty LLC (“Heritage”). Defendant Sentinel Real Estate Corporation (“Sentinel”) is a real estate investment company affiliated with the other defendants, including the single‑purpose entities that owned the Properties prior to the sales (the “Seller Defendants”) and defendant Newcastle Realty Services, LLC (“Newcastle”), the Properties’ managing agent during that period. Defendant GRF, a Delaware corporation affiliated with Sentinel, served as manager for 854 West 180 Limited Partnership. DLJ Mtge. Capital v. Mahadeo , 166 A.D.3d 512, 513 (1st Dept. 2018). Id. , citing Deutsche Bank Trust Co. Ams. v. Vitellas , 131 A.D.3d 52, 59-60 (2d Dept. 2015). SureFire Dividend Capture, LP v. Industrial & Commercial Bank of China Fin. Servs. LLC , 216 A.D.3d 584 (1st Dept. 2023), quoting Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. V. Morgan Stanley & Co., Inc. , 25 N.Y.3d 543, 545 (2014). Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. , 25 N.Y.3d at 545. Shafran v. Kule , 159 A.D. 2d 263, 264 (1st Dept. 1990); see also Ramsarup v. Rutgers Casualty Ins. Co. , 98 A.D.3d 494, 495 (2d Dept. 2012). CPLR 213(8). Epiphany Community Nursery Sch. v. Levey , 171 A.D.3d 1, 7 (1st Dept. 2019). Id. Berman v. Holland & Knight, LLP , 156 A.D.3d 429, 430 (1st Dept. 2017) (internal quotation and citation omitted). Norddeutsche Landesbank Girozentrale v. Tilton , 149 A.D.3d 152, 164 (1st Dept. 2017) (quotations omitted). Id. , quoting Gutkin v. Siegal , 85 A.D. 3d 687, 688 (1st Dept. 2011). Id. Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc. , 137 A.D.3d 685, 689 (1st Dept. 2016), citing CIGFG Assur. N. Am., Inc. v. Credit Suisse Sec. (USA) LLC , 128 A.D.3d 607, 608 (1st Dept. 2015). Loreley Fin. (Jersey) No. 3 Ltd. v. Citigroup Global Mkts. Inc. , 119 A.D.3d 136, 143 (1st Dept. 2014). Id. ; see also Steinhardt Group, Inc. v. Citicorp , 272 A.D.2d 255, 257 (1st Dept. 2000). Slip Op. at *1. Id. Id. Id. Id. Id. (citations omitted). Id. Id. Id. Id. (citation omitted) Id. Id. Id. (citing cases). Id. Id. Id. , quoting Basis Yield Alpha Fund v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014).

By:  Jeffrey M. Haber Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b‑5 promulgated thereunder prohibit trading securities on the basis of material nonpublic information through any deceptive device, scheme, or act. Insider trading liability arises under either the classical theory, where corporate insiders owe duties to shareholders, or the misappropriation theory, where those entrusted with confidential information owe duties to the information’s source. In today’s article, we examine an SEC enforcement action against a biostatistician and his company for insider trading involving C4 Therapeutics, Inc., a clinical-stage biopharmaceutical company, under the misappropriation theory of liability. A Primer on Insider Trading Section 10(b) of the Exchange Act makes it “unlawful for any person ... o use or employ, in connection with the purchase or sale of any security<,> ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” Rule 10b-5, which implements Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud” or “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person ... in connection with the purchase or sale of any security.” “Insider trading—unlawful trading in securities based on material non-public information—is well established as a violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.” “There are two theories of insider trading<.> ”  First, “ nder the classical theory of insider trading, a corporate insider is prohibited from trading shares of that corporation based on material non-public information in violation of the duty of trust and confidence insiders owe to shareholders.”  “A second theory, grounded in misappropriation, targets persons who are not corporate insiders but to whom material non-public information has been entrusted in confidence and who breach a fiduciary duty to the source of the information to gain personal profit in the securities market.”  “The core difference between the two theories is the source of the duty. Under the classical theory, the duty is owed to the corporation; under the misappropriation theory, the duty is owed to the source of the information.” “Under both theories, the fiduciary duty of trust and confidence requires the person who knows material nonpublic information either to abstain from trading on the information or to make a disclosure before trading.”   With respect to the classical theory, “ n insider can avoid liability by disclosing the relevant information publicly so that she is not at a trading advantage over the corporation's shareholders.” As for the misappropriation theory, “  misappropriator can avoid liability by disclosing” to her source “the fact that she will be trading on confidential information ...; by doing so, the misappropriator is no longer deceiving her source, and thus she is not violating § 10(b).” “Both theories extend liability to ‘tippees’: a person who did not themselves owe a duty to anyone but traded based on an insider tip from someone else.”   “A tippee is liable only if (1) the tipper themselves breached a duty by tipping, and (2) the tippee knew or should have known of that breach.” The test for whether the tipper breached a duty by tipping “is whether the personally will benefit, directly or indirectly, from his disclosure” of confidential information to the tippee.   The United States Supreme Court has “defined personal benefit broadly.” In Dirks , the Court identified numerous examples of personal benefits that prove the tipper’s breach. These include: a “pecuniary gain,” a “reputational benefit that will translate into future earning,” a “relationship between the insider and the recipient that suggests a  quid pro quo  from the latter,” the tipper’s “intention to benefit the particular recipient,” and a “gift of confidential information to a trading relative or friend” where “ he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”   As the foregoing examples show, the tipper’s personal benefit need not be pecuniary in nature. While the insider who personally benefits from disclosing confidential information breaches their duty, “the insider who discloses for a legitimate corporate purpose does not.” Under both theories of liability, scienter is required.   Scienter is “a mental state embracing intent to deceive, manipulate, or defraud.”  “In every insider trading case, at the moment of tipping or trading, just as in securities fraud cases across the board, the unlawful actor must know or be reckless in not knowing that conduct deceptive.” Pursuant to the misappropriation theory, to prove liability, a plaintiff must “establish (1) that the defendant possessed material, nonpublic information; (2) which he had a duty to keep confidential; and (3) that the defendant breached his duty by acting on or revealing the information in question.” Insider trading claims are subject to Rule 9(b) of the Federal Rules of Civil Procedure, which requires that circumstances constituting fraud be stated “with particularity.”  “But because insider tips are typically passed on in secret, Rule 9(b) is somewhat relaxed, allowing plaintiff to plead certain facts on information and belief.”   Specifically, plaintiffs may plead facts that imply the content and circumstances of an insider tip if those facts are peculiarly within the knowledge of defendant or the tipper.  Nevertheless, “ hile the rule is relaxed as to matters peculiarly within the adverse parties’ knowledge, [] allegations must then be accompanied by a statement of the facts upon which the belief is founded.” With the foregoing legal principles in mind, we examine Securities and Exchange Commission v. Hong (John) Wang and Precision Clinical Consulting, LLC , No. 26-civ-10140 (D. Mass. filed Jan. 14, 2026). Securities and Exchange Commission v. Hong (John) Wang and Precision Clinical Consulting, LLC The SEC announced the enforcement action on January 14, 2026. In the press release, the SEC stated that it charged New Jersey resident Hong (John) Wang (“Defendant”) and his company, Precision Clinical Consulting LLC (“Precision” and, collectively with Wang, the “Defendants”), with insider trading in the stock of C4 Therapeutics, Inc. (“C4”), a clinical stage biopharmaceutical company headquartered in Watertown, Massachusetts. According to the SEC’s complaint , filed in the U.S. District Court of Massachusetts, Defendant allegedly became aware of positive clinical trial results for C4’s flagship multiple myeloma and non-Hodgkin lymphoma drug while he was performing biostatistical consulting work for the company and had access to the drug’s clinical trial data. The complaint alleged that Defendant’s consulting contract required him, among other things, to conduct biostatistical analysis on the clinical trial data related to this drug. The SEC alleged that Defendant purchased C4 shares between November 20, 2023 and December 12, 2023, while aware of material nonpublic information relating to the clinical trial. The SEC further alleged that after C4 announced positive results concerning one of its cancer-treating drugs on December 12, 2023, Defendant made $489,739 in realized and unrealized profits from his position. The SEC maintained that Defendant purchased the C4 shares through four separate brokerage accounts, one of which was held in Precision’s name. The SEC charged Defendants with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks disgorgement plus prejudgment interest thereon against Defendants, and permanent injunctive relief and civil penalties against Defendant. In a parallel action, on January 14, 2026, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Defendant. In that regard, Defendant was charged in an indictment with three counts of securities fraud. Takeaway The misappropriation theory of insider trading targets individuals who are not corporate insiders but who obtain confidential, material information through a relationship of trust. Under this theory, liability arises when a person entrusted with such information—like Defendant, who allegedly accessed confidential clinical‑trial data through his biostatistics consulting work—breaches a duty owed to the source by secretly trading on that information for personal gain. As discussed, defendant’s consulting role required him to maintain the confidentiality of C4’s drug‑trial results, yet he allegedly exploited this access by purchasing shares before the positive data became public. Defendant’s actions, if proven, demonstrate the core basis of the misappropriation theory: using material, non-public information while concealing the intent to trade from the information’s source. The SEC’s enforcement action, along with the parallel criminal charges, highlights how alleged violations of the misappropriation theory can lead to material consequences, reinforcing the duty of professionals and consultants to safeguard confidential information and abstain from trading on it. ___________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. 15 U.S.C. § 78j. 17 C.F.R. § 240.10b-5. S.E.C. v. Obus , 693 F.3d 276, 284 (2d Cir. 2012);  In re Nat’l Instruments Corp. Sec. Litig.,  No. 23 Civ. 10488 (DLC), 2024 WL 4108011, at *5 (S.D.N.Y. Sept. 6, 2024) (quoting  United States v. Chow , 993 F.3d 125, 136 (2d Cir. 2021));  United States v. Cusimano , 123 F.3d 83, 87 (2d Cir. 1997) (citing  United States v. O’Hagan , 521 U.S. 642, 650-52 (1997)). United States v. Rajaratnam , 719 F.3d 139, 158 (2d Cir. 2013);  see also  S.E.C. v. Watson , 659 F. Supp. 3d 409, 415 (S.D.N.Y. 2023). Obus , 693 F.3d at 284. Id. Watson , 659 F. Supp. 3d at 415. S.E.C. v. One or More Unknown Traders in Sec. of Onyx Pharms., Inc. , No. 13 Civ. 4645 (JPO), 2014 WL 5026153, at *5 (S.D.N.Y. Sept. 29, 2014) (citing  Dirks v. SEC , 463 U.S. 646, 654 (1983) (classical theory), and  O’Hagan , 521 U.S. at 655 (misappropriation theory));  see also  Chow , 993 F.3d at 137. Onyx,  2014 WL 5026153, at *5 (citing  Dirks,  463 U.S. at 654). Id. Watson , 659 F. Supp. 3d at 415 (citing Dirks,  463 U.S. at 660). Id. (citing id. at 660 & n.19). Id. (citing id. at 662);  see also  United States v. Martoma , 894 F.3d 64, 73-74 (2d Cir. 2017). Martoma , 894 F.3d at 73. Dirks , 463 U.S. at 663-64. Watson , 659 F. Supp. 3d at 415 (citing Salman v. United States , 580 U.S. 39 (2016)). Martoma , 894 F.3d at 416;  United States v. Pinto-Thomaz , 352 F. Supp. 3d 287, 298 (S.D.N.Y. 2018) (a personal benefit is “grounded in using company information for personal advantage, as opposed to a corporate or otherwise permissible purpose (such as whistleblowing)”). See  Obus , 693 F.3d at 286;  see also United States v. Newman,  No. 12 Cr. 121 (RJS), 2013 WL 1943342, at *2 (S.D.N.Y. May 7, 2013). Id. at 286 (quoting  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 & n.12 (1976)). Id. Veleron Holding, B.V. v. Morgan Stanley , 117 F. Supp. 3d 404, 430 (S.D.N.Y. 2015) (quoting  S.E.C. v. Lyon , 605 F. Supp. 2d 531, 541 (S.D.N.Y. 2009). S.E.C. v. One or More Unknown Traders in Sec. of Onyx Pharm., Inc. , 296 F.R.D. 241, 248 (S.D.N.Y. 2013). Sec. & Exch. Comm’n v. Yin,  No. 17-CV-972 (JPO), 2018 WL 1582649, at *2 (S.D.N.Y. Mar. 27, 2018). Onyx,  26 F.R.D. at 248. Yin,  2018 WL 1582649, at *2 (quoting  Segal v. Gordon , 467 F.2d 602, 608 (2d Cir. 1972)). It must be remembered that the details contained in the charging document are allegations only. Defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

By:  Jeffrey M. Haber In Alphasense, Inc. v. Financial Tech. Partners LP , 2026 N.Y. Slip Op. 00185 (1st Dept. Jan. 15, 2026), the Appellate Division, First Department, considered whether Plaintiffs validly terminated an advisory agreement with Defendants under a “Key Man” provision. Plaintiffs alleged that Defendants’ managing partner, critical to the engagement, gradually stopped participating in essential advisory work, including investor meetings, introductions, and fundraising support, leading to termination in 2022. Defendants moved to dismiss, arguing the managing partner never ceased leading the team, that sporadic absences were insufficient to trigger the “Key Man” provision, and that Plaintiffs waived termination rights through continued performance and a 2015 amendment. Both the motion court and the First Department rejected these arguments, finding the provision ambiguous and fact-dependent, requiring further development. Applicable Legal Principles Declaratory Judgment CPLR 3001 provides that the “court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed.” The “primary purpose of declaratory judgments is to adjudicate the parties’ rights before a wrong actually occurs in the hope that later litigation will be unnecessary.”  A “declaratory judgment does not entail coercive relief, but only provides a declaration of rights between parties … n other words, the declaration in the judgment itself cannot be executed upon so as to compel a party to perform an act.” Moreover, “where a full and adequate remedy is already provided by another well-known form of action,” declaratory relief is improper. Waiver “A party to an agreement who believes it has been breached may elect to continue to perform the agreement and give notice to the other side rather than terminate it.” When “performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach.”  “However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party surrenders his or her right to terminate later based on that breach.” In National Westminster Bank, U.S.A. v. Ross , the court explained the waiver of contractual breaches as follows: It is well-established that where a party to an agreement has actual knowledge of another party's breach and continues to perform under and accepts the benefits of the contract, such continuing performance constitutes a waiver of the breach. It is equally well-settled that a party to an agreement who believes it has been breached may elect to continue to perform the agreement rather than terminate it, and later sue for breach; this is true, however, only where notice of the breach has been given to the other side. Alphasense, Inc. v. Financial Tech. Partners LP Alphasense arose from a dispute between Plaintiffs, AlphaSense, Inc., AlphaSense OY, and AlphaSense, LLC (collectively “AlphaSense” or “Plaintiffs”), and Defendants, Financial Technology Partners LP and FTP Securities LLC (collectively “FTP” or “Defendants”), regarding an engagement for financial advisory services.   Plaintiffs engaged Defendants as their financial and strategic advisors pursuant to an Engagement Letter dated January 23, 2015, as later amended on October 9, 2015 (the “Agreement”). Plaintiffs alleged that, at the time they negotiated the Engagement Letter, they received express assurances from the managing partner at FTP that he would be personally and directly involved in the business relationship for the entirety of its duration. Accordingly, Plaintiffs negotiated for a “Key Man Termination” provision in the Engagement Letter (“Key Man Provision”) that allowed for the termination of the Agreement if the managing partner ceased his active involvement.  Plaintiffs alleged that the managing partner’s promised level of involvement receded shortly after the Agreement was signed, with minimal participation in the Company’s capital-raising efforts.  Plaintiffs further alleged that from 2015 onwards, the managing partner did not attend any investor meetings in connection with the capital raising, and that Plaintiffs relied on their own resources for investor introductions and capital raising. Despite the managing partner’s alleged lack of involvement, Plaintiffs allegedly paid FTP approximately $22.4 million in fees since 2015. On October 13, 2022, Plaintiffs terminated the Agreement by sending a letter to Defendants pursuant to the Key Man Provision. Plaintiffs alleged that the termination became effective on November 12, 2022, with Defendants’ entitlement to any additional fees for the eighteen months ending on May 12, 2024 (the “Tail Period”). Defendants had not provided services to Plaintiffs since receiving the termination letter. Defendants did not formally respond to the termination notice until sixteen (16) months after receipt, on February 12, 2024, at which time they insisted that “the Engagement Letter remain in full force and effect.” Defendants also asserted that Plaintiffs owed fees on post-termination transactions plus accrued interest of $1,620,968.78. Plaintiffs claimed that they timely paid the post-transaction fees and no interest was owed. Plaintiffs commenced the action on April 9, 2024. Pursuant to CPLR 3001, Plaintiffs sought a declaratory judgment that (1) the Key Man Termination was valid and enforceable, (2) FTP’s entitlement to fees expired at the end of the eighteen-month Tail Period as provided for in the Engagement Letter, (3) the Tail Period began to run thirty (30) days after Plaintiffs provided FTP with written notice of termination, and (4) no interest was owed to FTP.   On May 31, 2024, Defendants filed a motion to dismiss the complaint for failure to state a cause of action pursuant to CPLR 3211(a)(7). Defendants argued that the complaint failed to allege facts showing that the Key Man Provision was triggered. They contended that Plaintiffs did not plausibly allege that the managing partner stopped leading or co‑leading the FTP team, as required under the Agreement. Instead, Plaintiffs identified only isolated instances in which the managing partner did not attend certain investor meetings or did not personally make introductions. According to Defendants, occasional absences could not reasonably be equated with a cessation of leadership. Defendants maintained that “leading” or “co‑leading” referred to providing strategic guidance, oversight, and high‑level direction, not personally performing every task. Delegation, they argued, was consistent with active leadership. Defendants further emphasized that the engagement was co‑led by another senior colleague, TW. They asserted that Plaintiffs’ failure to address TW’s leadership role undermined their theory that the managing partner’s participation fell below the contractual threshold. Plaintiffs’ argument, in Defendants’ view, ignored the collaborative leadership structure contemplated by the parties. Defendants also asserted that Plaintiffs improperly relied on pre-contract statements concerning the managing partner’s promised level of personal involvement. Because the Engagement Letter contained a merger clause, Defendants argued that such extracontractual statements could not impose obligations not found in the Agreement. If Plaintiffs believed that attendance at investor meetings or ongoing direct involvement was essential, they should have bargained for those terms expressly rather than seeking to retroactively add requirements through litigation, said Defendants. Defendants further argued that Plaintiffs’ own timeline showed that any alleged termination right arose in 2015, when the managing partner supposedly ceased active participation. Plaintiffs nevertheless continued to perform under the Agreement for seven years, paid substantial fees, and accepted services without significant objection. Defendants claimed that this prolonged performance constituted a waiver of any termination rights and triggered the doctrine of election of remedies. They also contended that the Agreement’s no‑waiver clause did not preclude waiver arising from a course of conduct, noting that Plaintiffs continued to interact with the managing partner as late as 2021. Defendants also maintained that Plaintiffs ratified the Engagement Letter by executing an October 2015 amendment that reaffirmed the Agreement in full, including the Key Man Provision. Combined with continued performance for years, Defendants argued that the amendment confirmed Plaintiffs’ intent to relinquish termination rights based on earlier alleged breaches. Plaintiffs countered that the complaint adequately alleged that the Key Man Provision was triggered by the managing partner’s sustained lack of involvement. They identified multiple deficiencies: he provided no meaningful guidance, made no investor introductions, attended no investor meetings, offered no feedback on their pitch, and contributed minimal input to their fundraising efforts. In Plaintiffs’ view, these allegations showed a significant and ongoing decline in his role, not isolated absences. Plaintiffs rejected Defendants’ suggestion that the managing partner may have been “leading behind the scenes,” arguing that this theory was speculative and contradicted their detailed factual allegations. They also clarified that they were not alleging a discrete triggering event in 2015 but rather a gradual decline from 2015 to 2022. Defendants’ Termination Response Letter, they argued, did not conclusively refute these allegations. On waiver, Plaintiffs pointed to the Agreement’s no‑waiver clause requiring any waiver to be in a signed writing, which did not exist. They also noted that the Agreement permitted termination “at any time” upon cessation of active leadership, making their 2022 termination timely in light of the alleged gradual decline. Plaintiffs rejected Defendants’ election‑of‑remedies theory, asserting they were simply exercising an express contractual right, not rescinding the Agreement. Finally, Plaintiffs argued that the 2015 amendment could not ratify future misconduct, particularly where the alleged decline occurred largely after that amendment. The motion court denied the motion. The motion court held that Plaintiffs sufficiently presented justiciable controversies sufficient to invoke the motion court’s power to render a declaratory judgment.  The motion court found that Plaintiffs adequately alleged facts supporting their claim that the Key Man Provision in the Engagement Letter was triggered by the managing partner’s gradual cessation of involvement with the FTP team responsible for providing financial advisory services to Plaintiffs. The motion court emphasized that the provision’s language was inherently subjective, and Defendants’ competing interpretation, as well as their dispute over whether and when the provision may have been triggered, underscored the existence of a justiciable controversy appropriate for declaratory judgment. The motion court further determined that, irrespective of any pre‑contractual statements or negotiations, it could not adjudicate the parties’ respective rights or the validity of Plaintiffs’ alleged termination of the Agreement at the pre-answer stage of the action. Such issues required a factual record inappropriate for resolution on a motion to dismiss. The motion court also rejected Defendants’ arguments based on waiver, election of remedies, and ratification. Although Defendants asserted that Plaintiffs forfeited any right to invoke the Key Man Provision by continuing to perform under the Agreement for roughly seven years after the managing partner allegedly ceased his active involvement, the motion court concluded that these arguments raised factual questions unsuited for dismissal under CPLR 3211(a)(7). Waiver, the motion court noted, “should not be lightly presumed” and generally requires a clear, intentional relinquishment of a known contractual right—an inquiry typically reserved for the trier of fact. Defendants’ waiver theory relied on the premise that the Key Man Provision could be triggered only by a discrete event in 2015, after which Plaintiffs were obligated to terminate immediately or forever lose the right. The motion court rejected this construction, observing that Defendants identified no contractual language imposing a singular triggering moment. In contrast, said the motion court, the complaint alleged a steady decline in the managing partner’s involvement from 2015 through 2022, providing a plausible basis for concluding that the provision was triggered at some point during that multi‑year period. Finally, the motion court found no clear evidence of Plaintiffs’ intent to waive their rights, particularly given the Agreement’s express no‑waiver clause requiring any waiver to be in writing. This same clause, noted the motion court, undermined Defendants’ ratification argument, as the alleged conduct triggering the Key Man Provision occurred after the parties’ 2015 amendment and could independently give rise to termination rights. The Appellate Division, First Department, affirmed. The Court held that the motion “court properly determined that the provision was open to interpretation and it was not appropriate to dismiss the complaint based only on the pleadings.” Regarding the declaratory judgment cause of action, the Court held that Plaintiffs adequately stated a claim “based on allegations that defendants’ managing partner ‘ceas his role of actively leading or co-leading the team providing the advisory services’ to plaintiffs.” The Court explained that the complaint alleged “that the managing partner … failed to provide guidance or meaningful support, was absent from investor meetings, and offered no more than minimal input on fundraising efforts.” These allegations, “made in the context of the other specific allegations,” said the Court, were “not conclusory and relevant to the overall claim that the managing partner failed to lead or co-lead the team triggering the ‘key man’ provision.” The Court rejected Defendants’ argument that under the plain language of the Agreement Plaintiffs were required to specifically allege the precise moment that the managing partner ceased to actively lead or co-lead the team. “As the motion court correctly determined,” concluded the Court, “the ‘key man’ provision, on its face, fail to resolve plaintiff’s declaratory judgment claim.” _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Klostermann v. Cuomo , 61 N.Y.2d 525, 538 (1984) (internal quotation marks omitted; emphasis added) (citations omitted). See also Gaul v. New York State Dep’t of Env’t Conservation , 25 Misc. 3d 679, 688 (Sup. Ct., Suffolk County), judgment entered sub nom. , Gaul v. The New York State Dep’t of Env’t Conservation (Sup. Ct., Suffolk County 2009). Morgenthau v. Erlbaum , 59 N.Y.2d 143, 148 (1983). Automated Ticket Systems, Ltd. v. Quinn , 90 A.D.2d 738, 739 (1st Dept. 1982) (internal quotation marks and citation omitted), aff’d , 58 N.Y.2d 949 (1983). Albany Medical College v. Lobel , 296 A.D.2d 701, 702 (3d Dept. 2002) (citations, internal quotation marks and ellipses omitted, emphasis added). Id . at 702-03 (citations omitted). Id . (Citations, internal quotation marks and brackets omitted.) 130 B.R. 656 (S.D.N.Y. 1991), affd. sub nom. , Yaeger v. National Westminster , 962 F.2d 1 (2d Cir. 1992). Id. at 675 (applying New York law) (citations omitted). The Agreement defined the “Tail Period” as “eighteen (18) months from the end of the Notice Period in the case of a Key Man Termination.” Slip Op. at *1 (citations omitted). Id. Id. Id. Id. Id.

By: Jonathan H. Freiberger Artificial Intelligence (“AI”) and Generative Artificial Intelligence (“GenAI”) are all the rage these days. While AI and GenAI can be useful tools, caution is necessary when using such tools. Today we will discuss Deutsche Bank National Trust Co. v. Letennier , a case decided by the Appellate Division, Third Department, on January 8, 2026. The Court described the decision as the “first appellate-level case in New York addressing sanctions for the misuse of GenAI.” Deutsche Bank is a mortgage foreclosure action commenced in 2018. The borrower, in his answer, asserted numerous affirmative defenses, including lack of standing. The lender and borrower moved for summary judgment and the motion court granted the lender’s motion and denied the borrower’s cross motion. The order was affirmed on the borrower’s appeal. Thereafter, the borrower filed numerous motions, both before and after a judgment of foreclosure and sale was issued. One of the motions was deemed to be frivolous and the motion court warned the borrower about the issuance of monetary sanctions if frivolous conduct continued. Subsequent motion practice by the borrower resulted in a finding by the motion court that the borrower was “a vexatious litigant that must bring future motions by order to show cause, and awarding costs and legal fees to for 's frivolous conduct.” Additional motions for previously sought relief were filed by the borrower and appeals from the denial of those motions are the subject of Deutsche Bank. While the Court noted that “ nitially, the merits of this appeal are unremarkable in nature” it went on to state that the appeal becomes “unconventional” because the borrower’s “opening brief cites six cases which do not exist” and which the lender’s counsel identified as “possibly being the product of artificial intelligence.” The lender moved for sanctions against the borrower and its counsel. In response, claimed the nonexistent cases were citation or formatting errors that he would correct in his reply brief and then opposed the motion for sanctions with more fake cases and interpretations for existing cases that are at best strenuously attenuated, and at worst entirely inapposite.” The borrower subsequently included more fake cases and “false legal propositions” in letters to the Court. The Court added: In examining the propriety of defendant's previously filed papers, more nonexistent cases were discovered in a motion that granted affirmative relief to defendant. Defense counsel reluctantly conceded during oral argument that he used AI in the preparation of his papers and, although he told the Court that he checked his papers, the filings themselves demonstrate otherwise. In total, defendant's five filings during this appeal include no less than 23 fabricated cases, as well as many other blatant misrepresentations of fact or law from actual cases. The Court explained that “generative artificial intelligence … represents a new paradigm for the legal profession, one which is not inherently improper, but rather has the potential to offer benefits to attorneys and the public – particularly in promoting access to justice, saving costs for clients and assisting courts with efficient and accurate administration of justice.” (Citations and footnote omitted.) The Court then cautioned that “attorneys and litigants must be aware of the dangers that GenAI presents to the legal profession AI “hallucinations,” which occur when an AI database generates incorrect or misleading sources of information due to a “variety of factors, including insufficient training data, incorrect assumptions made by the model, or biases in the data used to train the model.” (Citations and internal quotation marks omitted.) The Court then noted that other courts “throughout the country which have been confronted with AI-generated authorities have concluded that filing papers containing hallucinated cases and fabricated legal authorities may be sanctionable….” (Citations omitted.) The Court recognized that sanctions can be awarded against a party or attorney for engaging in frivolous conduct under 22 NYCRR 130-1.1 and “that rule 3.3 of the Rules of Professional Conduct provides that ‘ lawyer shall not knowingly ... make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer’”. (Hyperlinks added.) In determining that sanctions were appropriate against counsel for GenAI related conduct, the Court found, inter alia : Here, defendant submitted at least 23 fabricated legal authorities across five filings during the pendency of this appeal. He has also misrepresented the holdings of several real cases as being dispositive in his favor – when they were not. It is axiomatic that submission of fabricated legal authorities is completely without merit in law and therefore constitutes frivolous conduct. It cannot be said that fabricated legal authorities constitute “existing law” so as to provide a nonfrivolous ground for extending, modifying or reversing existing law…. Where we are most troubled is that more than half of the fake cases offered by defendant came after he was on notice of such issue, whereby his reliance on fabricated legal authorities grew more prolific as this appeal proceeded – despite it being apparent to him that such conduct lacked a legal basis. Rather than taking remedial measures or expressing remorse, defense counsel essentially doubled down during oral argument on his reliance of fake legal authorities as not germane to the appeal. After analyzing other AI sanction cases the Court assessed a sanction in the amount of $5,000.00 against the borrower’s counsel for the “misuse of GenAI”. The Court added that “attorneys and litigants are not prohibited from using GenAI to assist with the preparation of court submissions. The issue arises when attorneys and staff are not sufficiently trained on the dangers of such technology, and instead erroneously rely on it without human oversight.” The Court also found that the appeal was frivolous and assessed a $2,500.00 sanction against the borrower and an additional $2,500.00 sanction against the borrower’s attorney. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. The Court, relying on United States v. Google LLC , 2025 WL 2523010, at *9, 2025 U.S. Dist LEXIS 170459 at *52-53, explained that “‘GenAI is a subfield of AI “that uses machine-learning techniques to generate new data, including text, images, sound, code, and other media.’” Deutsche Bank at n. 5. This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, topics that may be of interest you.