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By: Jonathan H. Freiberger This BLOG has previously addressed formal and informal appearances. As explained, it is axiomatic that a “plaintiff appears [in an action] merely by bringing it.” Deutsche Bank Nat. Trust Co. v. Hall, 185 A.D.3d 1006, 1007 (2nd Dep’t 2020) (citation and internal quotation marks omitted). Once served with process, a defendant must appear in an action to avoid a default. CPLR 320(a), which sets forth, inter alia, the various ways a defendant can formally appear in an action, provides that “[t]he defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer.” See also Deutsche Bank, 185 A.D.3d at 1007-8 (describing the ways in which a defendant appears and the pitfalls of failing to do so). New York courts also recognize “informal appearances.” An informal appearance occurs “by actively litigating the action before the court.” Bank of New York Mellon v. Taylor, 230 A.D.3d 457, 458 (2nd Dep’t 2024) (citations and internal quotation marks omitted); see also Bharath v. Sitaram, 246 A.D.3d 859, 861 (2d Dept. 2026).[1] Service of a notice of motion pursuant to CPLR 3211(a) or (b), when made prior to the time that the responsive pleading was otherwise due to be served, extends the defendant’s time to serve an answer until ten days after service of notice of entry of the order deciding the motion. CPLR 3211(f); U.S. Bank National Assoc. v. Gilchrest, 172 A.D.3d 1424, 1426 2d Dept. 2019). As to notices of appearance, it has been noted that they are simple documents that notif[y] the plaintiff that a defendant is appearing in the action” and “[are] the response[s] generally reserved for the situation in which the plaintiff’s process consisted of a summons with notice as authorized by CPLR 305(b).” Deutsche Bank, 185 A.D.3d at 1008 (citation and internal quotation marks omitted; hyperlink added). Notwithstanding the filing of a notice of appearance, a defendant must still timely respond to the complaint by filing an answer or making a motion pursuant to CPLR 3211(a) or (b) in order to avoid default in answering. Deutsche Bank, 185 A.D.3d at 1008; 21st Mortgage Corp. v. Raghu, 197 A.D.3d 1212, 1215 (2d Dept. 2021). These issues were addressed by the Appellate Division, Second Department, on July 15, 2026, in 55-57 Hester Grocery, Inc. v. Queens Metro Stop, Inc., a breach of contract action. The plaintiff in 55-57 filed its action and the defendant subsequently filed a notice of appearance. However, the defendant never filed an answer to the complaint. Almost two years after the defendant filed its notice of appearance, the plaintiff moved for leave to enter a default judgment. Over the defendant’s opposition, the motion court granted the motion. Thereafter, the defendant moved pursuant to CPLR 5015 to vacate the default, which motion was denied by the motion court. The Defendant appealed. The Second Department affirmed. The Court stated that “[a]lthough a defendant ‘appears’ within the meaning of CPLR 320(a) by merely serving a notice of appearance, service of a notice of appearance does not absolve a defendant from complying with the time restrictions imposed by CPLR 320(a) which govern the service of an answer or the making of a motion pursuant to CPLR 3211.” (Citations and internal quotation marks omitted.) The Court rejected the defendant’s claim that its formal and informal appearance were sufficient to vacate the default and stated that the “filing of a notice of appearance and opposition to the plaintiff’s prior motions did not cure the defendants’ default.” (Citations omitted.) The Court also found that the defendant’s motion pursuant to CPLR 5015 was properly denied. The Court noted that to succeed on its motion, the defendant was required to “provide a reasonable excuse for the default and demonstrate a potentially meritorious defense to the action.” (Citations omitted.) The Court held that while “law office failure” can be a “reasonable excuse,” “conclusory, undetailed and uncorroborated claim of law office failure does not amount to a reasonable excuse.” (Citations and internal quotation marks omitted.) 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] This BLOG has discussed informal appearances on numerous occasions. See, e.g., “Informal Appearances,” “The Pitfalls of the Informal Appearances and the Benefit of the Corporate Veil,” “The Second Department Holds, as a matter of First Impression that a Party’s Attendance at a Mandatory Settlement Conference Pursuant to CPLR 3408 Does Not Constitutes an Appearance for the Purposes of CPLR 3215(g)” and “Execution of Two Stipulations Proves Fatal to Defendant’s Motion for Relief Under CPLR 317”.

By: Jonathan H. Freiberger This Blog has previously discussed informal appearances in an article aptly titled: “Informal Appearances,” from which the introductory information related to informal appearances is taken. Informal Appearances It makes sense that a “plaintiff appears in an action merely by bringing it.” Deutsche Bank Nat. Trust Co. v. Hall, 185 N.Y.S.3d 1006, 1007 (2nd Dep’t 2020) (citation and internal quotation marks omitted). Once served with process, a defendant must appear in an action to avoid a default. Section 320(a) of New York’s Civil Practice Law and Rules (the “CPLR”), which sets forth, inter alia, the way a defendant can appear in an action, provides that “[t]he defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer.” An appearance pursuant to CPLR §320(a) is a formal appearance in the action. New York courts also recognize “informal appearances.” An appearance, whether formal or informal, can have a significant impact on litigation. Among other things, an appearance could: preclude the entry of a default judgment by plaintiff; operate to preclude a defendant from interposing a defense of lack personal jurisdiction; and, preclude a defendant from having a complaint dismissed pursuant to CPLR 3215(c) based on a plaintiff’s failure to seek a default judgment within a year of default. Depending on the circumstances, a plaintiff or a defendant may argue that a defendant has “informally appeared” in an action. To constitute an informal appearance, a defendant must have engaged in “meaningful participation in the merits of the case.” Kurlander v. Willie, 45 A.D.3d 1006, 1007 (3rd Dep’t 2007) (citation omitted). See also Deutsche Bank, 185 N.Y.S.3d at 1009. Corporate Veil One of the reasons why individuals form corporations and limited liability companies is to shield themselves from personal liability as a consequence of their business dealings. “The general rule, of course, is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability.” Town-Line Car Wash, Inc. v. Don’s Kleen Machine Kar Wash, Inc., 169 A.D.3d 1084, 1085 (2nd Dep’t 2019) (citations and internal quotation marks omitted); see also E. Hampton Union Free School Dist. v Sandpebble Builders, Inc., 66 A.D.3d 122 (2d Dep’t 2009), aff’d, 16 N.Y.3d 775 (2011). However, the corporate veil may be pierced in certain circumstances. The East Hampton Court recognized the “exception to [the] general rule, permitting, in certain circumstances, the imposition of personal liability on owners for the obligations of their corporation.” East Hampton, 66 A.D.3d at 126 (citations omitted). “A plaintiff seeking to pierce the corporate veil must demonstrate that a court in equity should intervene because the owners of the corporation exercised complete domination over it in the transaction at issue and, in doing so, abused the privilege of doing business in the corporate form, thereby perpetrating a wrong that resulted in injury to the plaintiff”. Id. Travelon, Inc. v. Maekitan Against this backdrop, we can discuss Travelon, Inc. v. Maekitan, a case decided on April 5, 2023, by the Appellate Division, Second Department, and in which the Court addresses informal appearances and corporate veil issues. [Eds. Note: the facts herein are edited for ease of discussion.] Plaintiff commenced a breach of contract action against, inter alia, Individual and Corporation. Thereafter, plaintiff moved for a default judgment (for failure to respond to the complaint) against Individual and Corporation and: [in] support of the motion, the plaintiff[] did not submit any affidavits of service of process upon [Individual] or [Corporation]. Instead, the plaintiff[] contended that an affidavit from [Individual] [(the “Affidavit”)]…, which was submitted by [Affiliated Corporation] in opposition to the plaintiff’s prior motion for a preliminary injunction, constituted an informal appearance on behalf of both [Individual] and [Corporation], that [Individual] and [Corporation] had submitted to personal jurisdiction of the Supreme Court despite not having been served with process, that their time to file an answer had passed, and therefore, the court could enter a default judgment against them. Affiliated Corporation’s counsel opposed the default judgment motion by submitting an affidavit in which he argued that he was only retained by, and appeared for, Affiliated Corporation and that “[Affiliated Corporation] opposes the motion for default judgments against [Corporation] and [Individual] because the motion, based entirely upon [Affiliated Corporation]’s filings in this proceeding, incorrectly charges that [Affiliated Corporation]’s participation constitutes an informal appearance on behalf of [Corporation] and/or [Individual].” Plaintiff appealed the denial of its motion for leave to enter a default judgment against [Corporation] and [Individual]. On appeal the Second Department modified supreme court’s order granting that portion of plaintiff’s motion seeking a default judgment against Corporation. The Court recognized that “[o]n a motion for leave to enter a default judgment against a defendant based on the failure to answer or appear, a plaintiff must submit proof of service of the summons and complaint, proof of the facts constituting the cause of action, and proof of the defendant’s default.” (Citations and internal quotation marks omitted; emphasis added.) Plaintiff, however, did not submit an affidavit of service of the summons and complaint on [Individual] and [Corporation], nor did [Individual] or [Corporation] make a formal appearance in the action pursuant to CPLR 320(a). The Court then discussed informal appearances; noting that “[w]hen a defendant participates in a lawsuit on the merits, he or she indicates an intention to submit to the court’s jurisdiction over the action, and by appearing informally in this manner, the defendant confers in personam jurisdiction on the court.” (Citations and internal quotation marks omitted.) Also, “[a]n appearance of the defendant is equivalent to personal service of the summons…, unless an objection to jurisdiction under CPLR 3211(a)(8) is asserted by motion or in the answer as provided in rule 3211 (CPLR 320[b])”. (Internal quotation marks and brackets omitted; hyperlink added.) Although it is an “infrequent thing,” informal appearances may occur “even when the defendant is not served with process, where an individual defendant affirmatively states that he or she is only acting in his or her capacity as an officer of a corporate defendant, and where a party opposes a motion for a preliminary injunction. (Citations omitted.) As to the Individual, the Court found that the Affidavit (submitted in opposition to the preliminary injunction motion) made clear that he was speaking in a representative capacity, on behalf of Corporation and Affiliated Corporation, and not in an individual one. Recognizing the corporate veil cloaked the Individual with immunity from personal liability, the Court determined that, on the record presented, the Individual did not “participat[] on the merits in his individual capacity” by submitting the Affidavit on behalf of Corporation and Affiliated Corporation. Accordingly, supreme court properly denied that portion of plaintiff’s motion seeking a default judgment against the Individual. Conversely, the Court determined that the Affidavit constituted an informal appearance on behalf of Corporation. In the Affidavit, Individual indicated he was the CEO of both Corporation and Affiliated Corporation. Further, in the Affidavit, Individual collectively defined the Corporation and Affiliated Corporation and made other averments and stated facts involving Corporation. “Thus, even though counsel for [Affiliated Corporation] repeatedly denied that he was ever retained to represent [Corporation] in this action, the Affidavit advanced contentions that might constitute either affirmative defenses or counterclaims on behalf of [Corporation]. Thus, as to the Corporation, the Court held: Since the [A]ffidavit constituted an informal appearance on behalf of [Corporation], and since [Corporation] failed to serve and file an answer within 20 days of its informal appearance (see CPLR 320[a], [b]) or move pursuant to CPLR 3211(a)(8) to dismiss the complaint insofar as asserted against it on the ground that the Supreme Court did not have personal jurisdiction over it (see id. § 320[b]), the court should have granted that branch of the plaintiffs’ motion which was for leave to enter a default judgment against [Corporation]. 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.

By: Jonathan Freiberger It makes sense that a “plaintiff appears merely by bringing it.” Deutsche Bank Nat. Trust Co. v. Hall, 185 A.D.3d 1006 (citation and internal quotation marks omitted). Once served with process, a defendant must appear in an action to avoid a default. Section 320(a) of New York’s Civil Practice Law and Rules (the “CPLR”), which sets forth, inter alia, the manner in which a defendant can appear in an action provides that “[t]he defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer.” An appearance pursuant to CPLR §320(a) is a formal appearance in the action. As will be discussed herein, New York courts also recognize “informal appearances.” An appearance, whether formal or informal, can have a significant impact on litigation. Among other things, an appearance could: preclude the entry of a default judgment by plaintiff; operate to preclude a defendant from interposing a defense of lack personal jurisdiction; and, preclude a defendant from having a complaint dismissed pursuant to CPLR 3215(c) based on a plaintiff’s failure to seek a default judgment within a year of default. [This BLOG has addressed CPLR 3215(c) [HERE].] Depending on the circumstances, a plaintiff or a defendant may argue that a defendant has “informally appeared” in an action. To constitute an informal appearance, a defendant must have engaged in “meaningful participation in the merits of the case.” Kurlander v. Willie, 45 A.D.3d 1006, 1007 (3rd Dep’t 2007) (citation omitted). The plaintiff in Kurlander commenced a mortgage foreclosure action and served defendant with process. In response, defendant visited the office of plaintiff’s counsel, paid the principal balance due on the loan and received a receipt marked “paid in full.” Thereafter, counsel wrote several letters to defendant advising that interest was still due and, if not paid, the foreclosure action would proceed. An answer was never filed and a judgment of foreclosure and sale was obtained on default. The denial of defendant’s motion to vacate the default was affirmed. The Third Department was “unpersuaded” by defendant’s argument that the “payment of the unpaid principal balance constituted an ‘informal appearance’ in the action such that he was entitled to notice of all subsequent proceedings.” Kurlander, 45 A.D.3d at 1007. In Wells Fargo Bank, N.A. v. Martinez, 181 A.D.3d 470 (1st Dep’t 2020), also a foreclosure action, defendant sought dismissal of the complaint as abandoned pursuant to CPLR 3215(c) because plaintiff failed to move for a default judgment within a year of defendant’s default. In opposition to defendant’s motion, plaintiff unsuccessfully argued that defendant waived his right to a CPLR 3215(c) dismissal to the extent that defendant’s participation in a foreclosure settlement conference constituted an informal appearance in the litigation. The Court held that “[a]lthough a party may waive it [sic] rights under CPLR 3215(c) by serving an answer or taking any other steps which may be viewed as a formal or informal appearance, defendant’s participation in settlement conferences did not constitute either a formal or an informal appearance since he did not actively litigate the action before the Supreme Court or participate in the action on the merits.” Martinez, 181 A.D.3d at 470 (citations, internal quotation marks and brackets omitted). See also, HSBC Bank USA, Nat. Assoc. v. Grella, 145 A.D.3d 669, 671 (2nd Dep’t 2016) (holding that a motion for leave to serve an untimely answer pursuant to CPLR 3012(d) does not constitute an informal appearance.) Similarly, the Second Department in Whiteside v. Manfredi, 132 A.D.3d 851 (2015), rebuffed plaintiff’s attempt to argue that defendant’s motion to dismiss pursuant to CPLR 3215(c) should be denied due to defendant’s “informal appearance” in the action. The plaintiff in Whiteside commenced a wrongful death action in 2006. Defendant hospital’s counsel wrote to plaintiff’s counsel shortly thereafter forwarding a “Notice of Bankruptcy” and advising that the hospital was in bankruptcy and that an automatic stay was in effect. The hospital emerged from bankruptcy in 2007 and two years later moved to dismiss the action as against it pursuant to CPLR 3215(c). The motion court denied the motion. In reversing the motion court, the Second Department held that “[c]ontrary to the Supreme Court’s determination, the letter [from counsel] and the accompanying notice of bankruptcy did not constitute an informal appearance by the hospital.” Whiteside, 132 A.D.3d at 852. The motion court in HSBC Bank USA, Nat. Assoc. v. Assouline, 177 A.D.3d 603 (2nd Dep’t 2019), denied defendant’s motion to vacate a judgment of foreclosure and sale based on lack of personal jurisdiction due to improper service of process. The Second Department reversed. In Assouline, the defendant was able to rebut the presumption of proper service raised by the process server’s affidavit. The Court rejected plaintiff’s attempt to argue that the defendant waived the personal jurisdiction defense by making an informal appearance to the extent that: defendant communicated with plaintiff’s attorney to discuss a loan modification; and, defendant’s attorney contacted plaintiff’s servicer to discuss a settlement “prior to litigation” – suggesting that defendant’s counsel was unaware of the pending litigation. The matter was remitted to supreme court to determine, inter alia, whether defendant was properly served. The Second Department in City of Newburgh v. 96 Broadway LLC, 72 A.D.3d 632 (2010), reversed the trial court’s grant of plaintiff’s motion for a default judgment because subsequent to the commencement of the action “the defendants twice appeared in court, filed a petition to remove the action to federal district court, entered into a stipulation with the plaintiff, and opposed the plaintiff’s motion to hold them in contempt [by which] acts, the defendants appeared in the action and, thus, should not have been deemed in default.” Newburgh, 72 A.D.3d at 632 (citations omitted). Hall was a mortgage foreclosure action in which the motion court granted plaintiff’s motion for a default judgment and denied defendant’s cross-motion to dismiss the complaint on numerous grounds. The Second Department affirmed and found that in its motion for a default judgment against defendant, plaintiff demonstrated that defendant was properly served with process, failed to appear or answer and it was entitled to foreclose on the subject mortgage. Hall at 2. The Court concluded that defendant informally appeared in the action but found unavailing, his argument that his “informal appearance” precluded a default finding and that “even if an ‘informal appearance’ is made after the expiration of the time to answer or move specified in CPLR 320(a) judgment by default is precluded.” Hall at 2 (some internal quotation marks, brackets and ellipses omitted). Addressing the issue of “informal appearances,” the Hall Court stated: It is true that “[i]n addition to the formal appearances listed in CPLR 320(a), the law continues to recognize the so-called ‘informal’ appearance” (Siegel & Connors, N.Y. Prac § 112). “It comes about when the defendant, although not having taken any of the steps that would officially constitute an appearance under CPLR 320(a), nevertheless participates in the case in some way relating to the merits” (id.). Although “an informal’ appearance can prevent a finding that the defendant is in default, thereby precluding entry of a default judgment” (Vincent C. Alexander, Practice Commentaries, McKinney’s Cons Laws of NY, CPLR C320:4), this is only true when the participation constituting the informal’ appearance occurred within the time limitations imposed for making a formal appearance. Indeed, even service of a formal “notice of appearance will not protect the defendant from entry of a default judgment if, after service of the complaint, the defendant does not timely make a CPLR 3211 motion or serve an answer” (Vincent C. Alexander, Practice Commentaries, McKinney’s Cons Laws of NY, CPLR C320:1). Accordingly, an informal’ appearance, without more, does not somehow absolve a defendant from complying with the time restrictions imposed by CPLR 320(a) which govern the service of an answer or the making of a motion pursuant to CPLR 3211. Contrary to Hall’s contention, this Court has never held otherwise; to do so would effectively eliminate any need for compliance with the time limitations imposed by CPLR 320(a), and render those statutory provisions meaningless for all practical purposes. Hall at *2-3 (some citations omitted). Because the Hall defendant’s informal appearance was made after the expiration of his time to appear or answer, he was found to be in default. Accordingly, defendant’s substantive defenses were deemed waived. As to the waiver of the defense of lack of personal jurisdiction, the Hall Court stated that: Hall himself argues … he engaged in significant activity after his statutory time to answer had expired, which amounted to an informal appearance. This activity was sufficient to warrant a finding that Hall had acknowledged the jurisdiction of the court without preserving his objection based on improper service. Hall at 3 (citations omitted). Similarly, the Court found defendant to have waived the defenses of lack of standing, lack of compliance with RPAPL §1304 and res judicata because “where the plaintiff has demonstrated, prima facie, that a defendant is in default because he or she “failed to appear” within the meaning of CPLR 3215(a), that defendant is generally precluded from raising any nonjurisdictional defense without first rebutting the prima facie showing of default.” Hall at 3 (citations omitted, emphasis in original).

By: Jeffrey M. Haber In closely held family businesses, trust often substitutes for formalities. This phenomenon was on display in Homapour v. 3M Props., LLC, 2026 N.Y. Slip Op. 04371 (1st Dept. July 9, 2026), where the formality of “read-before-you-sign” was tested. The dispute centered on allegations that a managing member repeatedly presented family members with signature pages detached from amended LLC operating agreements while assuring them that “nothing had changed.” Although signatories generally are bound by documents they sign, the Appellate Division, First Department recognized that a different analysis should apply when the signer places trust in a fiduciary. Because the managing member allegedly owed duties of loyalty and candor to the minority members, the Court concluded that questions of justifiable reliance, one of the elements of a fraudulent inducement claim, could not be resolved as a matter of law and instead warranted further consideration by the finder of fact. Background Homapour arose from a long-running and contentious family dispute involving a vast portfolio of New York City real estate holdings worth hundreds of millions of dollars. The dispute centered on a network of family-owned limited liability companies that own residential and commercial properties throughout Manhattan. After years of litigation, many of the parties sought summary judgment on several claims alleging self-dealing, fiduciary misconduct, fraud, and professional wrongdoing. Plaintiff, along with her sister and father, held minority ownership interests in numerous family real estate entities. Her brother served as the managing member of many of those companies and exercised significant control over their operations and finances. According to plaintiff, the brother treated company funds as a personal bank account, using LLC assets to pay for a wide range of personal expenses, and expenses associated with personal relationships. According to plaintiff, during a family meeting in November 2014 family, the brother acknowledged using company funds for personal expenditures. One year later, she filed suit, asserting both individual and derivative claims on behalf of the family entities. Relevant to today’s article, plaintiff sued her brother for fraud. Plaintiff alleged that her brother induced her to sign amended operating agreements by falsely assuring her that the revisions were insignificant, when in fact they materially expanded his authority. According to plaintiff, the amendments permitted the brother to compensate himself, reduced managerial liability, and restricted the remedies available to minority members. Plaintiff claimed that defendant presented only signature pages and discouraged substantive review of the documents, leading her to believe that the amendments were merely administrative or estate-planning related. The Lower Court Ruling Addressing the motions for summary judgment, the motion court found the evidentiary record insufficient to sustain plaintiff’s fraud claim. While New York law recognizes that a party may sometimes rely on representations made by a person occupying a position of trust or confidence, the motion court concluded that plaintiff failed to provide evidence that defendant misrepresented the contents of the agreements plaintiff signed. The motion court noted that plaintiff admitted she generally did not read the operating agreements before signing them. Although she testified that family practice often involved presenting only signature pages, she was unable to recall specific misstatements concerning most of the challenged agreements. With respect to the December 2012 signing ceremony at which several important amendments were executed, for example, plaintiff testified that there was essentially no discussion regarding the documents and that nothing about them was explained to her. As a result, the motion court held that plaintiff could not establish the element of justifiable reliance necessary to prove fraud. The motion court, therefore, concluded that plaintiff failed to create a triable issue of fact sufficient to defeat summary judgment. The First Department Decision On appeal, the First Department modified the order. The Court held that the fraud cause of action should not have been dismissed.[1] The Court explained that plaintiff “attested that [defendant] fraudulently induced her to sign the unilaterally amended Family LLC operating agreements by, among other things, presenting ‘just a signature page’ with no accompanying document.”[2] The Court noted that plaintiff “averred that ‘[w]henever I inquired about what I was asked to sign, [defendant’]s response was always that “nothing is changed” and that he just needed my signature and that I was never given the full document to review.’”[3] Additional testimony from the father, said the Court, showed that “the operating agreements were ‘created or amended to incorporate significantly favorable terms for [defendant],’ that [the father] never agreed to these changes and that [the father] was never provided with the entire document.”[4] Although “a person is bound by the terms of an instrument he or she signs, and may not claim to have justifiably relied on false representations concerning the contents of a document that he or she failed to read without valid excuse,” explained the Court,[5] “[g]iven the fiduciary relationship between [plaintiff] and [defendant], there [was] a question of fact as to whether [plaintiff] justifiably relied on [defendant’]s misrepresentations as to the agreements she signed.”[6] In other words, whether the “read-before-you-sign” rule “applie[d] to bar plaintiff’s fraud claim against [defendant] [could not] be determined as a matter of law because [defendant] had fiduciary obligations to [plaintiffs] as the managing member of several limited liability companies of which they were nonmanaging members.”[7] Takeaway The First Department’s treatment of plaintiff’s fraud claim highlights an exception to the “read-before-you-sign” rule. While courts generally presume that a person who signs a document without reading it is bound by its terms, that principle is not absolute. Where the person seeking the signature owes fiduciary duties to the signer, the question of whether reliance on oral representations was justified may become one for the factfinder rather than a matter that can be resolved on summary judgment. The decision also highlights the risks that arise in family-owned businesses. Family members often rely on personal trust and informal practices rather than the safeguards commonly employed in arm’s-length commercial transactions. When family relationships overlap with fiduciary responsibilities, courts may recognize that reliance on a relative’s representations can be fundamentally different from reliance in an ordinary business deal. __________________________________ 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 or litigation releases and not on matters handled by the firm. ___________________________________ [1] Slip Op. at *1. [2] Id. [3] Id. (internal quotations modified). [4] Id. [5] Id. at *2, quoting Tsai Chung Chao v. Chao, 161 A.D.3d 564, 565 (1st Dept. 2018). [6] Id. [7] Id.

By: Jonathan H. Freiberger As discussed previously in this BLOG, and most recently in “You Can’t Always Waive Bye-Bye to Statutes of Limitations,” statutes of limitation govern the time in which a cause of action must be interposed after accrual. Article 2 of the CPLR addresses statute of limitations issues in New York. Section 201 of the CPLR provides that “[a]n action … must be commenced within the time specified in this article unless a different time is prescribed by law or a shorter time is prescribed by written agreement. No court shall extend the time limited by law for the commencement of an action.” Prior to the enactment of the statutes of limitation “there was no fixed time for the bringing of an action [and p]ersonal actions were merely confined to the joint lifetimes of the parties.” Flanagan v. Mount Eden General Hospital, 24 N.Y.2d 427, 429) (1969). “The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.” Flanagan, 24 N.Y.2d at 429 (citation omitted). Generally, statutes of limitation “begin[] to accrue when a cause of action accrues or, in other words, when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.” QK Healthcare, Inc. v. InSource, Inc., 108 A.D.3d 56, 66 (2d Dept. 2013) (citations and internal quotation marks omitted); see also North Shore Cent. School Dist. v. Glen Cove School District, 236 A.D.3d 806, 811 (2d Dept. 2025). As relevant to today’s article, both breach of contract and breach of the implied covenant of good faith and fair dealing causes of action are governed by a six-year statute of limitations and each accrues at the time of the respective breaches. See, e.g., New York Bus Operators Compensation Trust v. American Home Assurance Co., 241 A.D.3d 563, 566-67 (2d Dept. 2025) (as to breach of contract); Frydman v. Endurance American Ins. Co., 253 A.D.3d 848, 850 (2d Dept. 2025) (as to good faith and fair dealing). While there are several ways in which a limitations period can be tolled, today’s article relates solely to the continuing wrong doctrine (the “Doctrine”), an exception to the general rule that limitations periods begin to run from the date of accrual of a cause of action. This BLOG has previously addressed the continuing wrong doctrine. See, e.g., “Continuing Wrong Doctrine Found Not Applicable to Toll the Limitations Period for Fraud and Other Causes of Action.” The Doctrine “is an exception to the general rule that the statute of limitations runs from the time of the breach though no damage occurs until later” and “may only be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct.” Henry v. Bank of America, 147 A.D.3d 599, 601 (1st Dept. 2017) (citations and internal quotation marks omitted). The Doctrine is applied in contract actions “when the contract imposes a continuing duty on the breaching party.” Id. (Citations omitted.) These issues were addressed in Coyle v. JPMorgan Chase Bank, N.A., a case decided on July 8, 2026, by the Appellate Division, Second Department. The plaintiff in Coyle borrowed money from the lender and secured the repayment obligations with a mortgage on real property. The lender declared a default in 2014, which the borrower claims was in error. In 2015 and 2018, the borrower received notices from the lender that the loan was in default, that it was advancing funds for taxes, that escrows were going to increase and/or warning that it intended to commence foreclosure proceedings. The lender refused to accept installment payments from the borrower. In 2018, the lender commenced a mortgage foreclosure action (the “First Foreclosure Action”). Subsequently, the lender recognized its error in declaring the default and undertook corrective measures. The Court, in 2020, ultimately discontinued the First Foreclosure Action. Later in 2020, the lender commenced a new foreclosure action based on new alleged defaults that occurred earlier that year (the “Second Foreclosure Action”). During the pendency of the Second Foreclosure Action, the borrower commenced an action against the lender for breach of contract and breach of the implied covenant of good faith and fair dealing predicated on the erroneous default declaration from 2014 (the “Contract Action”). The lender moved to dismiss the Contract Action on, inter alia, statute of limitation grounds as the asserted causes of action accrued in 2014 -- more than six years prior to the commencement of the Contract Action. In opposition to the lender’s prima facie case that the applicable limitations period expired, the borrower argued that the limitations period was tolled by virtue of the application of the continuing wrong doctrine. The motion court granted the lender’s motion and the borrower appealed. In affirming the motion court’s rejection of the borrower’s continuing wrong doctrine argument, the Court stated: Contrary to the [borrower]'s contention, the untimeliness of the breach of contract and breach of the implied covenant of good faith and fair dealing causes of action is not cured by tolling under the continuing wrong doctrine. The continuing wrong doctrine is usually employed where there is a series of continuing wrongs and serves to toll the running of a period of limitations to the date of the commission of the last wrongful act. The doctrine allows only tolling predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs. Here, the [borrower]'s allegations amount to a single wrong that has continuing effects. Citations and internal quotation marks omitted. 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.

By Jonathan H. Freiberger The tedious task of compiling hard copies of exhibits to annex to motion papers in supreme court litigation practice was ameliorated in 2014 when the CPLR was amended to permit litigants, in e-filed cases, to simply refer in their briefs and affirmations to docket numbers on the e-filing system. Thus, CPLR 2214(c) provides: Each party shall furnish to the court all papers served by that party. The moving party shall furnish all other papers not already in the possession of the court necessary to the consideration of the questions involved. Except when the rules of the court provide otherwise, in an e-filed action, a party that files papers in connection with a motion need not include copies of papers that were filed previously electronically with the court, but may make reference to them, giving the docket numbers on the e-filing system. … Only papers served in accordance with the provisions of this rule shall be read in support of, or in opposition to, the motion, unless the court for good cause shall otherwise direct. However, litigants should not be so quick to rely on CPLR 2214(c) in appellate practice. Among other things, CPLR 5526 requires that the “record on appeal from an interlocutory judgment or any order shall consist of the notice of appeal, the judgment or order appealed from, the transcript, if any, the papers and other exhibits upon which the judgment or order was founded and any opinions in the case.” See also CPLR 5528. “‘Pursuant to CPLR 5526 it is the obligation of the appellant to assemble a proper record on appeal, and the record must contain all of the relevant papers that were before the Supreme Court.’” Fitzpatrick v. CSS Industries, Inc., 236 A.D.3d 863 (2nd Dep’t 2025) (quoting Fitzpatrick v. Affairs & Banquets Floral Servs., Inc., 227 A.D.3d 954 (2nd Dep’t 2024). When necessary papers are omitted from an appellate record, an appeal will be dismissed because such omissions will “render[] meaningful review of the [lower] court’s order virtually impossible.” Fitzpatrick, 236 A.D.3d at 863. That appellate records must be reproduced in hard copy form is also made plain by the New York Codes, Rules and Regulations (“NYCRR”). See 22 NYCRR §§ 1250.5, 1250.6, 1250.7. On April 30, 2025, the Appellate Division, Second Department, in Sterling Trust Limited v. Stern, dismissed an appeal because the appellant, relying on references to e-filed documents, neglected to include in the record on appeal copies of all documents necessary for the Appellate Division to consider the appeal. The Court, in rejecting the incomplete record, stated: Here, the plaintiff properly placed the pleadings and the underlying summary judgment motion papers before the Supreme Court in this electronically filed action by referencing them in the plaintiff's attorney affirmation in support of the motion, in effect, for leave to renew and giving the docket numbers on the e-filing system (see CPLR 2214[c]; Nationstar Mtge., LLC v Bailey, 175 AD3d 697, 698). However, the plaintiff failed to reproduce the pleadings and underlying motion papers in the record on appeal (see 22 NYCRR 1250.5[b]; 1250.6[b]; 1250.7[a]). Without those papers, this Court cannot meaningfully review the Supreme Court's order denying the plaintiff's motion, in effect, for leave to renew its opposition to the defendant's motion for summary judgment dismissing the complaint insofar as asserted against her (see Fitzpatrick v Affairs & Banquets Floral Servs., Inc., 227 AD3d at 955; Eleven Stars, LLC v Central Baptist Church, 206 AD3d at 885). Accordingly, the appeal must be dismissed. [Hyperlinks added.] A review of the briefing, which was available on the NYSCEF system, reveals that this issue was not argued by the parties. Accordingly, it appears that the dismissal was made sua sponte by the Court. TAKEAWAY The current rules generally require that appellate records be reproduced on paper and submitted to the Court in required form and reliance on references to efiled documents is misplaced and could result in the dismissal of an appeal. 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.

By: Jeffrey M. Haber In today’s article, we examine three principles of law that can spell the end of a litigation: disclaimer clauses, merger or integration clauses, and derivative standing. The Merger Clause As a general matter, when parties negotiate an agreement in a clear and unambiguous document, their writing will be enforced according to its terms. Evidence outside the four corners of the document as to what the parties really intended (i.e., parole evidence) is generally inadmissible.[1] Among the reasons for this rule is to give “stability to commercial transactions,” and other types of commercial interactions.[2] As the New York Court of Appeals observed, such a rule can safeguard “against fraudulent claims, perjury, death of witnesses … [and] infirmity of memory.…”[3] Notwithstanding, questions arise about the enforceability of commitments made alongside a commercial transaction. These questions tend to play out in disagreements over the meaning and effect of a contract, where one party attempts to rely on the extra-contractual statements of the other (e.g., in emails, telephone calls, or meetings) to support an argument, claim or defense. One way to address such disputes before they happen is to include a “merger clause” or “integration clause,” in the contract or agreement. A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. Merger clauses typically are found at the end of a contract or agreement, among the other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. Boilerplate merger clauses are given little weight by the courts. However, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent. In New York, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement.[4] Without such specificity, the courts have allowed parole evidence to be used to explain the parties’ intent, especially in cases involving claims of fraudulent inducement.[5] The Disclaimer Clause For a party to disclaim reliance on extra-contractual representations, an agreement must contain language that makes it clear that the parties are not relying on such representations. A party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party.[6] “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.”[7] There is, however, an exception to the enforceability of an anti-reliance provision – where the defendant has unique or peculiar knowledge of an allegedly misrepresented fact. Under such circumstances, even a specific contractual disclaimer will not defeat a plaintiff’s contention that it reasonably relied on the misrepresentation.[8] Derivative Standing: Direct vs. Derivative A shareholder’s derivative action is a lawsuit “brought in the right of a … corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates of the corporation or of a beneficial interest in such shares or certificates.”[9] Derivative claims against corporate officers and directors belong to the corporation itself.[10] In considering whether a claim is direct or derivative, courts look to the nature of the wrong and the person or entity to whom the relief should go.[11] Thus, for a shareholder’s injury to be direct it must be independent of any alleged injury to the corporation. The shareholder must demonstrate that the duty breached was owed to the stockholder and that he/she can prevail without showing an injury to the corporation.[12] Derivative claims that are improperly alleged as direct claims will be dismissed for lack of standing.[13] A derivative plaintiff must be a shareholder of the company “at the time of bringing the action,” and at the time of the alleged wrongdoing.[14] “[A] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing” to sue derivatively.[15] Accordingly, courts have focused on the plaintiff’s stock ownership during both points in time, and in particular at the time of the alleged misconduct. In New York, the contemporaneous ownership rule is “strictly enforced.”[16] To satisfy the requirement, the plaintiff must have “acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired” and continued to own the stock “throughout the course of the activities that constitute the primary basis of the complaint.”[17] “[F]ailure to satisfy the . . . contemporaneous ownership requirement of § 626(b) is such a fundamental lack of capacity that it results in failure to state a cause of action.”[18] For this reason, courts require the plaintiff to plead contemporaneous ownership with particularity rather than through boilerplate assertions.[19] Goldman v. Nerds Broadway Ltd. Liability Co. In Goldman v. Nerds Broadway Ltd. Liability Co., 2022 N.Y. Slip Op. 00721 (1st Dept. Feb. 3, 2022) (here), the foregoing principles were examined by the Appellate Division, First Department. Goldman was brought by investors in a failed Broadway musical production provisionally entitled “Nerds” that was to be based upon “the rivalry between the late Steve Jobs of Apple and Bill Gates of Microsoft.” The musical was cancelled before production or previews began. Plaintiffs alleged that because of defendants’ mismanagement and intentional misrepresentations they lost their investment in the musical production. In or about December 2015, only about $200,000 had been raised towards the costs of staging the production even though at that time production costs were thought to be approximately $7.5 million. Plaintiffs alleged that in early January 2016, defendants decided to enter into a contract with a theatrical organization for over $600,000 despite not having raised sufficient capital to stage the production. Plaintiffs claimed they invested over $600,000 into the production from late January through early March 2016. On March 8, 2016, defendants announced they were not moving forward with the production. Plaintiffs alleged that “the failure of the venture was the foreseeable and inevitable result of the reckless financial commitments Defendants caused the [Nerds] LLC to make without adequate capitalization, contrary to Defendants’ representations of financial health.” Plaintiffs asserted five causes of action. The first cause of action was for breach of contract against defendants Eleven LLC and Halmos LLC, alleging that they “breached the Operating Agreement by failing to render services customary and usually rendered by theatrical producers, devote as much time to the affairs of the LLC as necessary, or perform their duties in good faith and instead performed their duties in a grossly negligent manner and/or through willful misconduct.” The second cause of action against all defendants was for breach of fiduciary duty and the third cause of action was for the same relief purportedly brought on a derivative basis. The fourth cause of action sounded in fraud and misrepresentation. The fifth cause of action sought rescission of the operating agreement. Defendants moved to dismiss the complaint. The motion court held that plaintiffs’ fraud allegations were barred because of a disclaimer clause and a merger clause in the operating agreement governing the parties. According to the motion court, the operating agreement expressly provided that “[e]ach Member represent[ed], warrant[ed], and covenant[ed] that such Member … ha[d] not been induced to enter into th[e] Agreement by any warranties, guarantees, promises, statements or representations, whether express or implied, except those that [were] expressly and specifically set forth [t]herein, and that the Managers [were] not … bound or liable in any manner by any express or implied warranties, guarantees, promises, statements or representations pertaining hereto except as [were] expressly and specifically set forth [t]herein.” Because plaintiffs failed to state a fraud claim, their request for rescission was dismissed. Plaintiffs appealed. The First Department affirmed. The First Department’s Decision The Court held that the disclaimer clause in the operating agreement foreclosed plaintiffs’ request for relief: The court, however, properly dismissed the fraud claims as barred by the disclaimers in the agreement, which included an express representation that plaintiffs’ professionals had examined the financial records of the company. Given that the fraud alleged was a misrepresentation of how much money had been raised and invested, this disclaimer requires dismissal.[20] The Court also held that plaintiffs lacked derivative standing to pursue the claims on behalf of the company: Plaintiff investors’ claims for breach of contract and fiduciary duty are based on defendants’ decision to have the company enter into a contract with the Shubert Organization. Because they allege harm only to the company, and not based on some particular injury or right of the plaintiffs, these claims are derivative. As such, they were properly dismissed for lack of standing, because the transaction complained of occurred before any were members of the company.[21] Finally, the Court held that “[b]ecause plaintiffs’ claims for fraud, breach of contract, and fiduciary duty were properly dismissed, their ‘claim’ for rescission, which is actually a remedy, was also properly dismissed.”[22] Takeaway The rules concerning derivative standing make sense. They are designed to prevent plaintiffs from buying into a lawsuit or commencing a derivative action by simply purchasing shares after the alleged wrong has occurred.[23] Although there are exceptions to the rule (not applicable in Goldman), the law has long required plaintiffs bringing a derivative action to have a stake in the company on whose behalf the action is commenced. After all, if the plaintiff is not a shareholder of the company, then he or she has no right to vindicate the company’s rights and obtain a judgment on its behalf. In Goldman, the Court reinforced this common-sense rule. In Danann Realty, the Court of Appeals noted that “specific disclaimer[s] destroy[] the allegations in the complaint that the [subject] agreement was executed in reliance upon contrary oral representations.”[24] Goldman reiterates this basic principle of law. As the First Department observed, the contractual disclaimer at issue was specific to plaintiffs’ allegations and directly addressed the subject of the alleged misrepresentation. Consequently, the contract provision at issue was specific enough to preclude the fraud 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. [1] Golden Gate Yacht Club v. Societe Nautique De Geneve, 12 N.Y.3d 248 (2009). [2] W.W.W. Assoc. v Giancontieri, 77 N.Y.2d 157, 162 (1990). [3] Id. [4] See Hobart v. Schuler, 55 N.Y.2d 1023, 1024 (1982) (deeming merger clause to be insufficient to bar parol evidence of fraudulent misrepresentation where clause states “all representations, warranties, understandings and agreements between the parties are set forth in the agreement”); LibertyPointe Bank v. 75 E. 125th St., LLC, 95 A.D.3d 706, 706 (1st Dept. 2012) (concluding that merger clause is insufficient to bar claim for fraudulent inducement where it fails to reference particular misrepresentations allegedly made by former president). [5] Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21 (1959) (holding that fraudulent inducement claim premised upon representations as to building’s operating expenses and expected profits was barred by merger clause that specifically disclaimed plaintiff’s reliance on representations regarding building’s “physical condition, rents, leases, expenses, [and] operation”); Laduzinski v. Alvarez & Marsal Taxand LLC, 132 A.D.3d 164, 169 (1st Dept. 2015) (holding that merger clause was mere boilerplate that was “too general to bar plaintiff’s claim since it makes no reference to the particular misrepresentations allegedly made here by [defendants].”) (internal quotation marks and citation omitted) (alteration in original). [6] Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty, 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011). [7] Basis Yield, 115 A.D.3d at 137. [8] Danann Realty, 5 N.Y.2d at 322. [9] Marx v. Akers, 88 N.Y.2d 189, 193 (1996) (quoting Business Corporation Law § 626 (a)). [10] Auerbach v. Bennett, 47 N.Y.2d 619, 631 (1979). [11] Yudell v. Gilbert, 99 A.D.3d 108, 114 (1st Dept. 2012). [12] Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A2d 1031, 1039 (Del. 2004). [13] Abrams v. Donati, 66 N.Y.2d 951, 953 (1985) (“[a] complaint the allegations of which confuse a shareholder’s derivative and individual rights will, therefore, be dismissed.”) (internal citations omitted). [14] See, e.g., BCL § 626(b); Pessin v. Chris-Craft Indus., 181 A.D.2d 66, 70 (1st Dept. 1992). See also Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984). [15] Lewis, 477 A.2d at1049. [16] Honzawa Holding Co. v. Hiro Enter. USA, 291 A.D.2d 318, 318 (1st Dept. 2002). [17] In re Bank of New York Deriv. Litig., 320 F.3d 291, 298 (2d Cir. 2003). [18] Roy v. Vayntrub, 15 Misc. 3d 1127(A), 2007 NY Slip Op 50868(U) (Sup Ct., Nassau County 2007), at *6 (citing Barr v. Wackman, 36 N.Y.2d 371 (1975)). [19] See, e.g., In re Computer Sciences Corp. Deriv. Litig., 2007 WL 1321715, at *15 (C.D. Cal. Mar. 26, 2007) (“[G]eneral allegation[s] [are] insufficient to allege contemporaneous ownership during the period in which the questioned transactions occurred.”). [20] Slip Op. at *1 (citation omitted). [21] Id. (citations omitted). [22] Id. (citations omitted). [23] See, e.g., Independent Investor Protective League v. Time, Inc., 50 N.Y.2d 259, 263 (1980). [24] 5 N.Y.2d at 320-21.

By: Jeffrey M. Haber The internal affairs doctrine is a “conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.”[1] Stated differently, “[u]nder the internal affairs doctrine, claims concerning the relationship between the corporation, its directors, and a shareholder are governed by the substantive law of the state or country of incorporation.”[2] However, the “internal affairs doctrine, although potent, has very specific applications.”[3] In particular, the doctrine only “governs the choice of law determinations involving matters peculiar to corporations, that is, those activities concerning the relationships inter se of the corporation, its directors, officers and shareholders.”[4] The doctrine “does not apply to those defendants who are not current officers, directors, and shareholders” of the corporation.[5] The internal affairs doctrine has been consistently invoked by New York courts in derivative actions to apply foreign law on substantive issues, including those affecting a party’s right to sue.[6] [Eds. Note: this Blog previously examined the internal affairs doctrine here.] A plaintiff may sue derivatively so long as the plaintiff is a shareholder of the company “at the time of bringing the action,” and at the time of the alleged wrongdoing.[7] “[A] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing” to sue derivatively.[8] Accordingly, courts have focused on the plaintiff’s stock ownership during both points in time, and in particular at the time of the alleged misconduct. In New York, the contemporaneous ownership rule is “strictly enforced.”[9] To satisfy the requirement, the plaintiff must have “acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired” and continued to own the stock “throughout the course of the activities that constitute the primary basis of the complaint.”[10] “[F]ailure to satisfy the . . . contemporaneous ownership requirement of § 626(b) is such a fundamental lack of capacity that it results in failure to state a cause of action.”[11] For this reason, courts require the plaintiff to plead contemporaneous ownership with particularity rather than through boilerplate assertions.[12] [Eds. Note: this Blog previously examined derivative standing, in particular stock ownership, here.] In Ezrasons, Inc. v. Rudd, 2023 N.Y. Slip Op. 02938 (1st Dept. June 1, 2023) (here), the Appellate Division, First Department examined these principles. As discussed below, the Court affirmed the dismissal of a derivative litigation brought on behalf of Barclays PLC due to the lack of derivative standing by the plaintiff under English law. [Eds. Note: the factual discussion below comes from the record and briefing on appeal.] In Ezrasons, plaintiff, a New York–registered corporation, brought a derivative action on behalf of Barclays PLC under English law against 46 individual defendants and Barclays PLC’s subsidiary BCI for allegedly breaching fiduciary duties to Barclays PLC. BCI and certain individual defendants moved to dismiss the complaint. The moving defendants advanced five reasons for dismissal: (1) the motion court lacked subject-matter jurisdiction under BCL § 1319; (2) plaintiff lacked standing under English substantive law — applicable under the internal affairs doctrine — because it was not a registered member of Barclays PLC; (3) plaintiff did not satisfy the ownership requirement of BCL § 626(b); (4) plaintiff did not allege facts sufficient to excuse the pre-suit demand requirement of BCL § 626(c); and (5) forum non conveniens. In support of their motion, defendants submitted an affirmation from Barclays PLC Assistant Company Secretary stating, among other things, that plaintiff did not appear “as a registered, legal owner of Barclays PLC shares as of April 30, 2021,” on the official share register maintained by Equiniti Limited and Equiniti Financial Services Limited. Defendants also submitted an affirmation from an expert on English law, who opined on the requirements of English law governing shareholder derivative actions under both the Companies Act and common law. Following oral argument, the motion court granted defendants’ motion with prejudice. Speaking to the issue of standing and the internal affairs doctrine, the motion court held that the BCL “does not override the internal affairs doctrine on the issue of standing to bring a derivative claim because it is a mere statutory predicate to jurisdiction.” The motion court rejected plaintiff’s argument that the First Department’s decision in Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC, 118 A.D.3d 422 (1st Dept. 2014) “dictates a different outcome,” because “Culligan concerned regulation of conduct within New York and did not purport to alter settled New York law on the application of the internal affairs doctrine.” Having determined that substantive English law applied, the motion court held that “the membership requirement of the United Kingdom’s Companies Act is a substantive provision that … had to be met here” and that “Plaintiff lacks standing to sue” because it “is not a registered member of Barclays.” The motion court noted that: (1) “[t]here is an admission by [plaintiff’s] attorneys in the course of their opposition that they could become a member which speaks plainly that they are not members”; and (2) “[t]here is an affidavit … searching the record of documents that would show who are or are not members.” Consequently, the motion court rejected the “conclusory statement in the complaint” that plaintiff was a “registered” member of Barclays PLC and found that plaintiff lacked standing. On appeal, the First Department unanimously affirmed. The Court held that “[t]he [motion] court correctly dismissed the complaint based on plaintiff’s lack of standing to bring this shareholder derivative action.”[13] The Court explained that the motion court “correctly ruled that defendants made the showing necessary for dismissal for lack of standing under the ECA [English Companies Act].”[14] The Court found that the “unrebutted affirmation from Barclays [Assistant Company Secretary] stating that inquiries with its registrar showed that plaintiff’s name did not appear as a registered, legal owner of Barclays PLC shares as of April 30, 2021,” to be dispositive “[d]espite the complaint’s verified allegations of plaintiff’s stock ownership and membership.”[15] The Court also found persuasive “plaintiff’s counsel’s clear acknowledgement in its opposition brief to defendants’ dismissal motion that plaintiff was not a member” of Barclays PLC, which it noted was “an informal judicial admission entitled to some evidentiary weight.”[16] The Court rejected plaintiff’s argument that BCL § 1319 regulates the internal affairs of foreign corporations, such that New York law applies to the substantive issues raised in the dispute.[17] In doing so, the Court adopted the rationale of the court in City of Aventura Police Officers’ Retirement Fund v. Arison, 70 Misc. 3d 234 (Sup. Ct., N.Y. County 2020), which ruled that BCL § 1319 merely confers jurisdiction upon New York courts over derivative suits on behalf of a foreign corporation.[18] In that case, the court explained that BCL § 1319 is a jurisdictional provision and “does not require application of New York law in such suits,” and does not “override the internal affairs doctrine.”[19] As such, the court held that the ECA’s requirement that suit be brought by a “member of the company” was an applicable substantive rule in a New York derivative suit. Accordingly, in applying the internal affairs doctrine, the Arison court held that the plaintiff lacked derivative standing under the English Companies Act.[20] The Court also rejected plaintiff’s argument that Cullen silently overruled the application of the internal affairs doctrine.[21] Citing to multiple authorities, the Court stated that if it were to overrule a longstanding principle of law, it would do so explicitly.[22] In conclusion, the Court reiterated that, as it has “demonstrated in many decisions since [Cullen], the internal affairs doctrine continues to apply to derivative actions.”[23] __________________________ 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] New Greenwich Litig. Trustee, LLC v. Citco Fund Servs. [Europe] B.V., 145 A.D.3d 16, 22 (1st Dept. 2016), lv. denied, 29 N.Y.3d 917 (2017) (quoting, Edgar v. MITE Corp., 457 U.S. 624, 645 (1982)); see also Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC, 118 A.D.3d 422 (1st Dept. 2014). [2] Davis v. Scottish Re Group Ltd., 138 A.D.3d 230, 233 (1st Dept. 2016). [3] Matter of Am. Intl. Group, Inc., 965 A.2d 763, 817 (Del. Ch. 2009) (cited with approval, New Greenwich, 145 A.D.3d at 23). [4] Id. at 817 (internal quotation marks omitted). [5] Culligan, 118 A.D.3d at 422. [6] See, e.g., Lerner v. Prince, 119 A.D.3d 122, 127-128 (1st Dept. 2014); Hart v. General Motors Corp., 129 A.D.2d 179, 183 (1st Dept. 1987), lv. denied, 70 N.Y.2d 608 (1987). [7] See, e.g., BCL § 626(b); Pessin v. Chris-Craft Indus., 181 A.D.2d 66, 70 (1st Dept. 1992). See also Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984). [8] Lewis, 477 A.2d at1049. [9] Honzawa Holding Co. v. Hiro Enter. USA, 291 A.D.2d 318, 318 (1st Dept. 2002). [10] In re Bank of New York Deriv. Litig., 320 F.3d 291, 298 (2d Cir. 2003). [11] Roy v. Vayntrub, 15 Misc. 3d 1127(A), 2007 NY Slip Op 50868(U), at *6 (Sup. Ct., Nassau County 2007) (citing Barr v. Wackman, 36 N.Y.2d 371 (1975)). [12] See, e.g., In re Computer Sciences Corp. Deriv. Litig., 2007 WL 1321715, at *15 (C.D. Cal. Mar. 26, 2007) (“[G]eneral allegation[s] [are] insufficient to allege contemporaneous ownership during the period in which the questioned transactions occurred.”). [13] Slip Op. at *1. [14] Id. [15] Id. [16] Id. (citing, Matter of Union Indem. Ins. Co. of N.Y., 89 N.Y.2d 94, 103-104 (1996)). [17] Id. [18] Id. [19] Id. (quoting, Arison, 70 Misc. 3d at 244 (internal quotation marks omitted)). [20] Arison, 70 Misc. 3d at 248-253. [21] Slip Op. at *1. [22] Id. at 1-2 (citing, Matter of Orozco v. City of New York, 200 A.D.3d 559,562 (1st Dept. 2021) (“If we are to depart from settled principle, we should do so explicitly and not on the basis of a one-paragraph memorandum opinion that does not cite or discuss the relevant precedent let alone express an intent to overrule it”), lv. granted, 39 N.Y.3d 903 (2022); Arison, 70 Misc. 3d at 245 n.3 (“‘if the court in Culligan wanted to change the clear precedents about the internal affairs doctrine it most assuredly would have said just that, and why’”) (internal brackets omitted) (quoting, Stephen Blau MD Money Purchase Pension Plan Trust v. Dimon, 2015 N.Y. Slip Op., 32909(U), at*8 n.1 (Sup. Ct., N.Y. County 2015)). [23] Id. at *2 (citations omitted).

By: Jeffrey M. Haber In Bent v. Cirone, 2026 N.Y. Slip Op. 03875 (1st Dept. June 18, 2026), the Appellate Division, First Department, addressed the scope of the business judgment rule and the requirements for derivative standing. The dispute arose after a condominium resident claimed that board members retaliated against him for opposing a proposed $3 million capital improvement project. Although the motion court dismissed the claims against the individual board members, finding that their conduct was protected by the business judgment rule and that Plaintiff lacked standing to assert derivative claims, the First Department modified the order (i.e., the motion court’s decision). The Court reinstated the plaintiff's direct claims, holding that allegations of an animus-driven campaign of retaliation and other tortious conduct were sufficient to survive dismissal and were not barred by the business judgment rule at the pleading stage. At the same time, the Court reaffirmed that derivative standing belongs to shareholders/unitholders and cannot be acquired merely through an assignment of litigation claims. Bent arose from a disagreement between Plaintiff and the Condominium Board and Residential Board (“Board”) of the 99 Jane Street Condominium (“Condominium”) over the management of the residential section of the Condominium. Plaintiff and his family live in a unit of the Condominium (“Unit”), which is owned solely by his wife. Just prior to commencement of the action, Plaintiff and his wife executed an agreement in which she “irrevocably sold, conveyed, transferred and assigned” to Plaintiff all of her “ownership, right, title and interest in and to the litigation claims” against Defendants. The Individual Defendants are members of the Board responsible for managing the Condominium’s residential section. According to Plaintiff, in June 2021, he objected to the Board’s proposed plans to conduct $3 million in capital improvements of the building. Plaintiff contended the Board’s response to his objections resulted in improper and retaliatory conduct. In that regard, Plaintiff alleged that (a) Defendants purposefully created unsafe and unhealthy living conditions for him and his family, (b) his family had been denied paid-for services, such as routine maintenance work in the Unit, (c) sewage odors were prevalent in the Unit, of which Defendants were aware, and (d) there were unrepaired issues with the air conditioning, including noise from the ventilation fans. Plaintiff further asserted that Defendants intentionally spread false and malicious communications about Plaintiff in notices distributed to unit owners, among others, through the Condominium’s official, building-wide communication system, impacting his participation in Board elections. Plaintiff commenced the action on September 29, 2023, and amended the complaint on December 22, 2023. Of the ten causes of action, eight were brought individually, and two were brought derivatively on behalf of all the Condominium’s unit owners. Defendants moved to dismiss all causes of action pursuant to CPLR 3211(a)(1), (3), and (7), except for those against the Board for breach of contract and for a permanent injunction. In support of their motion to dismiss, Defendants argued that Plaintiff failed to allege any wrongdoing of the Individual Defendants that would be separate from their action as Board Members, and, in any event, under the exculpation of liability provision of the Condominium’s By-Laws, the Individual Defendants were exempt from liability. They further argued, inter alia, that their actions were protected by the business judgment rule and that Plaintiff failed to demonstrate that he had standing to bring his claims for record inspection and his derivative actions. Relevant to this article, the motion court granted Defendants’ motion to dismiss the amended complaint with respect to the direct and derivative claims asserted against the Individual Defendants. The motion court held that Plaintiff improperly brought his claims collectively against multiple defendants without specifying the precise tortious conduct charged to a particular defendant.[1] The motion court explained that the amended complaint did not specify any individual conduct each Individual Defendant purportedly had undertaken that would result in the tortious conduct warranting damages or the permanent injunction sought by Plaintiff. The motion court also held that even if Plaintiff had been sufficiently specific in his allegations, the Individual Defendants’ conduct was protected under the business judgment rule.[2] The motion court explained that Plaintiff’s causes of action against the Individual Defendants were rooted in the Board’s decision not to perform repairs in the Condominium as requested by Plaintiff. Such conduct, said the motion court, was subject to the business judgment rule. Accordingly, the Individual Defendants could not be held liable under Plaintiff’s tort-based causes of action. Further, the motion court held that Plaintiff, as a non-unit owner, lacked standing to bring derivative claims against the Individual Defendants on behalf of all Condominium unit owners.[3] On appeal, the First Department modified the motion court’s order, to deny the motion as to the direct claims, and otherwise affirmed. The Court held that “Plaintiff adequately stated direct claims against the individual defendants.”[4] The Court explained that the “allegations that the individual board members all participated in, directed, controlled and/or approved the alleged tortious acts that were taken collectively by the condominium board [were] sufficient to sustain the claims at this pre-discovery stage.”[5] The Court also held that the “[t]o the extent the complaint include[d] nonconclusory allegations of an animus-driven campaign of retaliatory actions that constitute[d] tortious conduct, the direct tort claims [were] not properly dismissed at this stage based on the business judgment rule.”[6] The Court further held that Plaintiff’s claims should not have been dismissed based on the Condominium’s by-law provisions that limit the personal liability of the board members, where the members engaged in bad faith or willful misconduct.[7] Finally, the Court held that the motion court “properly dismissed the derivative claims that were asserted against the individual defendants on behalf of the condominium’s unit owners” on standing grounds.[8] Under New York law, “[a] membership interest in a limited liability company is assignable in whole or in part.”[9] However, the assignment of a membership interest “does not . . . entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member.”[10] Rather, “the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled.”[11] The Court found that “neither the assignment, nor any other instrument, transferred to him the membership interest in the condominium that is required for the assertion of derivative claims on behalf of the unit owners.”[12] Takeaway The principal takeaway from Bent is that the business judgment rule will not shield board members from suit when a complaint contains nonconclusory allegations of bad faith, retaliation, or other tortious conduct, but derivative standing remains limited to those who hold a membership interest in the corporation and cannot be acquired merely through an assignment of litigation claims. With respect to the business judgment rule, the motion court viewed the dispute as one involving board decisions concerning repairs, maintenance, and condominium operations, precisely the type of discretionary decisions typically protected under the rule. The motion court, therefore, concluded that the Individual Defendants were insulated from liability because the challenged conduct arose from decisions made within the scope of their authority as board members. The First Department applied the doctrine differently than the motion court. While recognizing the application of the business judgment rule, the Court held that the rule does not require dismissal where a complaint alleges more than mere disagreement with board decisions. In Bent, Plaintiff alleged that the board members engaged in an animus-driven campaign of retaliatory actions in response to his opposition to a multimillion-dollar capital improvement project. According to the Court, allegations that the Individual Defendants participated in, directed, controlled, or approved retaliatory and otherwise tortious conduct were factually sufficient to state claims for relief. As a result, the Court held that the business judgment rule did not warrant dismissal of the direct tort claims at the pleading stage. The Court’s decision reinforces the principle that the rule protects good-faith board decision-making but does not provide blanket immunity for conduct alleged to have been motivated by bad faith, retaliation, or willful misconduct. The First Department similarly rejected reliance on the Condominium’s by-law provisions limiting personal liability of board members. Those protections, the Court noted, do not apply where the complaint adequately alleges bad faith or willful misconduct. Thus, Bent underscores that both the business judgment rule and exculpatory by-law provisions have limits when a plaintiff alleges facts that board members acted with improper motives. The second significant holding of Bent concerns derivative standing. Plaintiff’s wife owned the Unit and assigned him all rights and interests in the litigation claims against Defendants. The First Department held that the assignment was sufficient to give Plaintiff standing to pursue the direct claims. However, it was insufficient to confer standing to assert derivative claims on behalf of the Condominium’s unit owners. The Court emphasized the distinction between the assignment of a cause of action and ownership of the membership interest from which derivative standing flows. A derivative action is not based on an individual’s personal rights; rather, it is an assertion of the rights of the corporation by one of its owners. Because Plaintiff never acquired his wife’s ownership or membership interest in the corporation, only her litigation claims, he lacked the standing necessary to sue derivatively on behalf of the unit owners. The assignment transferred claims, but it did not transfer the ownership interest required to step into the shoes of a Condominium member for derivative purposes. Accordingly, Bent stands for two important propositions: first, factual allegations of bad faith and retaliatory conduct may prevent board members from obtaining dismissal under the business judgment rule at the pleading stage; and second, derivative standing depends on ownership or membership status in the corporation itself, not merely on the assignment of litigation claims. An assignee may pursue the assignor’s direct claims, but absent a transfer of the underlying ownership interest, the assignee cannot maintain derivative claims on behalf of the corporation. __________________________________ 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 or litigation releases and not on matters handled by the firm. ___________________________________ [1] Aetna Cas. & Sur. Co. v Merchants Mut. Ins. Co., 84 A.D.2d 736 (1st Dept. 1981). [2] Berenger v. 261 W. LLC, 93 A.D.3d 175, 184 (1st Dept. 2012) (“[T]he business judgment rule protects individual board members from being held liable for decisions, such as those concerning the manner and extent of repairs, that were within the scope of their authority”). [3] Bd. of Mgrs. of the 28 Cliff St. Condominium v. Maguire, 191 A.D.3d 25, 33 (1st Dept. 2020) (“[a] derivative action proceeds not on the basis of any individual right, but as an assertion of the interest of the entity by one or more of its owners”) (citing Caprer v. Nussbaum, 36 A.D.3d 176, 186 (2d Dept. 2006). [4] Slip Op. at *1. [5] Id., citing Fletcher v. Dakota, Inc., 99 A.D.3d 43, 49 (1st Dept. 2012); see also Stewart Tit. Ins. Co. v. Liberty Tit. Agency, LLC, 83 A.D.3d 532, 533 (1st Dept. 2011). [6] Id., citing Board of Mgrs. of the Alfred Condominium v. Miller, 202 A.D.3d 467, 469 (1st Dept. 2022); Gochberg v. Sovereign Apts., Inc., 119 A.D.3d 431, 432 (1st Dept. 2014). [7] Id. [8] Id. [9] Behrend v. New Windsor Group, LLC, 180 A.D.3d 636, 639 (2d Dept. 2020); see Limited Liability Company Law (“LLC Law”) § 603(a)(1). [10] LLC Law § 603(a)(2); see Behrend, 180 A.D.3d at 639. It is important to note that Section 603(a) of the LLC Law makes clear that an assignment of a membership interest is governed by the statute, “[e]xcept as provided in the operating agreement.” [11] LLC Law § 603(a)(3); see Behrend, 180 A.D.3d at 639. [12] Id., citing Kober v. Nestampower, 243 A.D.3d 902, 904 (2d Dept. 2025); MFB Realty LLC v. Eichner, 161 A.D.3d 661, 661 (1st Dept. 2018).

By: Jeffrey M. Haber In Tiburcio v. Grant Ave. Bronx Realty Corp., 2025 N.Y. Slip Op. 02669 (1st Dept. May 01, 2025) (here), the Appellate Division, First Department was asked to decide whether the statute of limitations expired on all causes of action alleged by the plaintiff or whether the continuing wrong doctrine applied to toll the applicable limitations periods. As discussed below, the Court held that the continuing wrong doctrine to did not apply to save the complaint from dismissal. The continuous wrong doctrine is an exception to the general rule that the statute of limitations runs from the date a cause of action accrues.[1] The doctrine “is usually employed where there is a series of continuing wrongs and serves to toll the running of a period of limitations to the date of the commission of the last wrongful act.”[2] Where applicable, the doctrine will save all claims for recovery of damages but only to the extent of wrongs committed within the applicable statute of limitations.[3] The doctrine “may only be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.”[4] The doctrine is inapplicable where there is one tortious act complained of since the cause of action accrues in those cases at the time that the wrongful act first injured plaintiff and it does not change as a result of “‘continuing consequential damages.’”.[5] In contract actions, the doctrine is applied to extend the statute of limitations when the contract imposes a continuing duty on the breaching party.[6] Thus, where a plaintiff asserts a single breach—with damages increasing as the breach continued—the continuing wrong theory does not apply.[7] [Eds. Note: this Blog has examined the continuing wrong doctrine on numerous occasions. E.g., here, here, here, and here. To find additional articles related to the continuing wrong doctrine, visit the “Blog” tile on our website and enter “continuing wrong” or “continuous wrong” in the “search” box.] Tiburcio involved an alleged fraudulent conveyance of real property located in the Bronx, New York (the “Property”). On March 26, 2014, the parties entered into a contract pursuant to which plaintiff transferred ownership of the Property to defendant for $559,000.00. The purchase price included the underlying remaining mortgage on the property of $534,000, as well as a $25,000 cash payment to the plaintiffs. According to plaintiffs, defendant approached them in connection with a foreclosure proceeding that had commenced in January 14, 2014, and advised them that it would negotiate with plaintiffs’ lender on their behalf, locate a bona-fide purchaser who would buy the Property by way of short sale, and relieve plaintiffs of their obligation under the mortgage. All the foregoing representations, said plaintiffs, were memorized in the written purchase agreement. Based on the alleged fraudulent representation that the mortgage would be paid off, plaintiffs transferred the deed to defendant, which plaintiffs allegedly believed was part of a standard short sale transaction. Consequently, on March 26, 2014, plaintiffs sold the Property to defendant for an additional $25,000.00 subject to the mortgage and all liens. The deed was recorded on April 11, 2014. Plaintiffs alleged that they never received the $25,000 payment and did not receive any consideration for the execution of the deed. Plaintiffs maintained that their attempts to contact defendant regarding the short sale transaction went unanswered. Plaintiff alleged that defendant never had any intention of entering into a short sale agreement and only wanted to use the Property for its own enrichment. According to plaintiffs, they were notified in May 2016 that defendant failed to make payment towards the mortgage in violation of their agreement and, as such, another foreclosure action was commenced. On July 22, 2016, plaintiffs filed a conversion action seeking to nullify and/or void the deed, asserting that it was fraudulently created because defendant never intended to pay the mortgage. On April 20, 2017, the lender/mortgage holder filed a foreclosure action on the Property and against plaintiffs. Defendants moved to dismiss the complaint on the grounds that, inter alia, the statute of limitations expired on plaintiffs’ claims.[8] Plaintiff argued that defendant’s repeated failure to make the payment required under the purchase agreement and the ongoing prosecution of the foreclosure action constituted a “continuous wrong” that rendered all the causes of action asserted in the complaint timely. The motion court granted defendant’s motion to dismiss. On appeal, the First Department unanimously affirmed. [Eds. Note: the underlying facts of Tiburcio were taken from the motion court’s decision, the briefing on appeal, and the First Department’s decision and order.] In a pithy decision, the Court held that “Supreme Court correctly determined that defendant’s alleged failure to pay off the mortgage, resulting in the 2017 foreclosure action, did not qualify as ‘a series of independent, distinct wrongs’ to toll the applicable statutes of limitations under the ‘continuous wrong doctrine’”.[9] The Court explained that the doctrine did not apply because there was only one tortious act complained of – that is, the causes of action (e.g., fraud, conversion, and breach of contract) accrued “at the time that the wrongful act first injured plaintiff” and did “not change as a result of ‘continuing consequential damages.’”[10] Accordingly, the Court held that plaintiffs’ claims were time barred. ________________________________________ 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] Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). [2] Henry v. Bank of Am., 147 A.D.3d 599, 601 (1st Dept. 2017); Selkirk v. State of New York, 249 A.D.2d 818, 819 (3d Dept. 1998). [3] Jensen v. General Elec. Co., 82 N.Y.2d 77, 83-85, 88 (1993); Sutton Investing Corp. v. City of Syracuse, 48 A.D.3d 1141, 1143 (4th Dept. 2008), lv. dismissed 10 N.Y.3d 858 (2008). [4] Doukas v. Ballard, 39 Misc. 3d 1227(A), 2013 N.Y. Slip Op. 50776(U), *6 (Sup. Ct., Suffolk County 2013) (citation omitted); see also Henry, 147 A.D.3d at 601; Roslyn Sav. Bank v. National Westminster Bank USA, 266 A.D.2d 272 (2d Dept. 1999). [5] Town of Oyster Bay v. Lizza Indus., Inc., 22 N.Y.3d 1024, 1032 (2013); see also Quintana v. Wiener, 717 F. Supp. 77, 80 (S.D.N.Y. 1989); Henry, 147 A.D.3d at 601. [6] Henry, 147 A.D.3d at 601 (citing cases). [7] Id.; see also Kahn v. Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1041 (2d Cir. 1992), cert. denied 506 U.S. 986 (1992). [8] Defendant moved to dismiss pursuant to CPLR 3211(a)(5). To prevail on the latter, the movant must establish a prima facie case that the plaintiff’s time to commence an action has expired; then the burden shifts to the plaintiff to raise a question of fact as to whether it commenced the action within the applicable limitations period, or whether an exception or tolling applies. Williams v. City of Yonkers, 160 A.D.3d 1017, 1019 (2d Dept. 2018) (citation omitted); Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc., 137 A.D.3d 685, 689 (1st Dept. 2016). [9] Slip Op. at *1 (citing Henry, 147 A.D.3d at 601). [10] Id. (citing id.)

By: Jonathan H. Freiberger Today’s article relates to a decision in a mortgage foreclosure action[1] that combines numerous concepts about which we have previously written. We will quickly revisit CPLR 3215(c)[2], which provides, in pertinent part, that: If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed…. Courts have held that the language of CPLR 3215(c) is “mandatory” in the first instance unless plaintiff demonstrates “sufficient cause” for the failure to timely take proceedings for the entry of a default judgment. U.S. Bank N.A. v. Pane, N.Y.S.3d , 2025 N.Y. Slip Op. 02619 (2nd Dep’t April 30, 2025). We have also addressed the consequences of the death of a party during the pendency of a litigation. See, e.g., [here], [here] and [here]. Because litigation can be a drawn-out process, it is not uncommon for a party to die in the process. CPLR § 1015, which addresses this circumstance, provides, inter alia, that “[i]f a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties.” Significantly, the “death of a party divests the court of jurisdiction and stays the proceedings until a proper substitution has been made pursuant to CPLR 1015(a). Moreover, any determination rendered without such substitution will generally be deemed a nullity.” Hayden v. Brown, 230 A.D.3d 657, 658 (2nd Dep’t 2024) (citations and internal quotation marks omitted); see also Sorcigli v. Lombardo, N.Y.S.3d , 2025 N.Y. Slip Op. 02365 (2nd Dep’t April 23, 2025). The proceedings are generally stayed “pending the substitution of a personal representative for the decedent.” Wells Fargo Bank, N.A. v. Miglio, 197 A.D.3d 776, 777 (2nd Dep’t 2021) (citations and internal quotation marks omitted); see also Sorcigli, supra, at *1. However, “if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.” Wells Fargo Bank, N.A. v. Miglio, 197 A.D.3d 776, 777 (2nd Dep’t 2021) (citation and internal quotation marks omitted); see also Nationstar Mortgage, LLC v. Persaud, 231 A.D.3d 842 (2nd Dep’t 2024).[3] Against this backdrop, today we discuss U.S. Bank N.A. v. Sanon, a case decided by the Appellate Division, Second Department, on May 7, 2025. In January of 2009, the lender in Sanon commenced an action to foreclose a mortgage delivered by the borrower to secure the repayment of his obligations under a promissory note. The borrower was promptly served with process[4] but failed to appear in the action or answer the complaint and, accordingly, was in default in or about February of 2009. The borrower died in July of 2012. Subsequently, the lender moved for leave to enter a default judgment[5] and for an order of reference. While the motion was unopposed, it was denied by the motion court by an order entered in October of 2015, in which the motion court “also directed dismissal of the complaint pursuant to CPLR 3215(c) based on the [lender]'s failure to take proceedings for the entry of judgment within one year of [the borrower]'s default in appearing or answering the complaint….” Thereafter, in 2020, the lender moved pursuant to CPLR 5015(a)(4)[6] to vacate the dismissal order and to restore the action to the active calendar “arguing that the Supreme Court was without jurisdiction to enter the order because [the borrower] had died prior to the issuance of the dismissal order and, thus, the court was divested of jurisdiction until such time as a legal representative of the estate was substituted for the deceased defendant in this action.” The motion was denied and the lender appealed. The Second Department affirmed. After discussing some of the legal issues addressed, supra, the Court stated: However, if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution. Indeed, a mortgagor who has been duly served with notice of a foreclosure action and defaults in appearing is not entitled to notice of any subsequent judgment or sale. …It is undisputed that [the borrower] failed to appear or answer the complaint. Since [the borrower] defaulted in appearing or answering the complaint approximately 3½ years prior to his death, neither he nor any of his successors in interest was entitled to notice of a judgment of foreclosure or of an ensuing sale of the subject property. Pursuant to CPLR 3215(c), the [lender]’s time to take proceedings for the entry of judgment expired approximately 2½ years prior to [the borrower]’s death. Under the circumstances, the Supreme Court correctly determined that [the borrower]’s death did not affect the merits of this action, and there was no need to strictly adhere to the requirement for a stay pending substitution. Since the court was not divested of jurisdiction upon [the borrower]’s death, the dismissal order was properly issued. Accordingly, the court properly denied the [lender]’s motion pursuant to CPLR 5015(a)(4) to vacate the dismissal order, to restore the action to the active calendar, and to substitute the administrator of [the borrower’s] estate in place of [the borrower]. [Citations and internal quotation marks omitted.] 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] This BLOG has written dozens of articles addressing various aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosureor other commercial litigation issues that may be of interest to you. [2] This BLOG has written numerous articles addressing CPLR 3215(c). To find such articles, please see the BLOG tile on our website and type “3215(c)” into the “search” box. [3] This BLOG has previously written about Persaud [here]. [4] This BLOG has addressed various issues related to service of process. See, e.g., [here], [here], [here], [here], [here] and [here]. [5] This BLOG has previously addressed default judgments. See, e.g., [here], [here], [here] and [here]. [6] CPLR 5015 permits the court to vacate its own judgment or order under certain circumstances set forth therein. This BLOG has previously written about CPLR 5015. See, e.g., [here], [here], [here], [here].

By: Jeffrey M. Haber This Blog has often noted that “securities fraud comes in all shapes and sizes.” (E.g., here.) Though the alleged fraudulent scheme may differ, the types of schemes implemented tend to fall into one of the following (non-exclusive) categories: financial statement/accounting fraud; pyramid schemes; Ponzi schemes; pump-and-dump schemes; affinity fraud; promissory note fraud; Internet fraud; “microcap” stock fraud; and fraud concerning information about a company, its operations and future prospects (id.). One of the frauds mentioned above – Ponzi schemes – happen all too often, notwithstanding regulatory efforts to stop such frauds.[1] A Ponzi scheme is intended to give investors the false impression that their investment is profitable. In a Ponzi scheme, the fraudster/promoter pays early investors with money that the investor believes is the return on his/her/its investment. In actuality, the money used to pay the investor comes from the investor’s own principal investment dollars or the pooled investment dollars of subsequent investors. As previous investors are “paid” their investment returns, the fraudster/promoter seeks new investors to fund the payments being made. Since Ponzi schemes need a steady supply of new investors to fund payments to early investors, Ponzi schemes ultimately collapse as the fraudster/promoter fails to lure enough new investors to cover the payments due to the prior investors. Once the Ponzi scheme has collapsed, recovering funds can be extremely difficult, especially if all the funds were paid out to earlier investors or misappropriated by the fraudster/promoter. In today’s post, this Blog looks at SEC v. Alexander, et al., Case No. 4:25-cv-00446 (E.D. Tex. Apr. 29, 2025), an enforcement action brought by the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) in which the defendants are alleged to have employed a Ponzi scheme that bilked 200 investors out of at least $91 million. Between May 2021 and February 2024, defendants Kenneth W. Alexander II (“Defendant A”) and Robert D. Welsh (“Defendant B”) allegedly orchestrated a Ponzi scheme, with Defendant Caedrynn E. Conner’s (“Defendant C”) substantial assistance and participation, that raised at least $91 million from more than 200 investors in an unregistered securities offering. Defendants A and B allegedly operated the scheme, which they called the Vanguard JV Cash Program, through Vanguard Holdings Group Irrevocable Trust (“VHG”), a Texas common law trust controlled by Defendant A. Defendants A and B allegedly promoted VHG as a highly profitable international bond trading business that held billions in assets. According to the SEC, they told investors that VHG or its affiliates would use investor funds to trade, or engage in other dealmaking, in the international bond markets. They also allegedly told investors that investments in VHG would have a14-month term, and that investors would receive 12 guaranteed monthly payments of between 3% to 6%, with the principal to be returned at the end of the 14-month term. In truth, said the SEC, VHG used investor funds – not profits from bond trading – to make these payments. As part of their scheme, alleged the SEC, Defendants A and B offered investors the option, for an additional fee, to protect their investments from risk of loss through purported financial instruments that Defendants A and B called “pay orders”. According to the SEC, investors who purchased the pay orders were required to enter into “pooling agreements” with other investors and a purported fiduciary (the “Fiduciary”). The SEC alleged that the Fiduciary was owned and controlled by a longtime associate of Defendants A and B and acted at Defendant A and B’s direction at all relevant times. The SEC further alleged that, pursuant to the pooling agreements, in the event VHG failed to make the guaranteed monthly payments, the Fiduciary was responsible for liquidating the pay order and distributing the proceeds to investors. However, said the SEC, the purported protection offered by the pay orders and the Fiduciary was illusory. The SEC alleged that VHG’s bank records did not reflect the purchase of any pay orders, and the Fiduciary never attempted to liquidate them. The SEC alleged that in July 2022, Defendants A and B authorized Defendant C, who was an early VHG investor and promoter, to create an investment program to pool funds to invest in the Vanguard JV Cash Program. According to the SEC, Defendant C operated this program (the “Benchmark JV Cash Program”) through Benchmark Capital Holdings Irrevocable Trust (“Benchmark”), a Texas common law trust that he controlled. According to the SEC, the Benchmark JV Cash Program was structured like the Vanguard JV Cash Program, including the pay order protection feature, except Benchmark generally promised even higher guaranteed monthly returns. The SEC alleged that Defendant C represented to Benchmark investors that their funds would be pooled to invest in VHG, and that the returns Benchmark received from VHG would fund the guaranteed monthly returns paid to Benchmark investors. Through Benchmark, said the SEC, Defendant C raised approximately $54.9 million from investors, more than $46 million of which he allegedly directed to VHG. According to the SEC, the Fiduciary also served as the purported fiduciary for Benchmark investors who purchased pay orders. The SEC alleged that during all relevant times, VHG had no material sources of revenue. The SEC also alleged that Defendant A misappropriated millions of dollars of investor funds for his personal use and Defendant B received more than a million dollars of investor funds. According to the SEC, Defendants A and B misused investor funds by using them to make Ponzi payments to Vanguard JV Cash Program investors – i.e., using funds from earlier investors to make monthly payments to later investors – and to pay victims of another apparent scheme that they started before, and then operated in parallel with, the VHG Ponzi scheme. For his part, said the SEC, Defendant C misappropriated millions of dollars of Benchmark investor funds.[2] According to the SEC, in or around February 2023, the VHG and Benchmark schemes began to collapse when VHG and Benchmark ceased paying the purported guaranteed monthly returns to nearly all investors. Throughout 2023, said the SEC, Defendants A and B made, and directed the Fiduciary to make, false excuses (such as, blaming banks and attorneys) for VHG’s failure to make the monthly payments. Defendant C allegedly repeated, and directed others to repeat, many of the same false statements to Benchmark investors. The SEC alleged that these statements had the effect of prolonging the Ponzi scheme because Defendants continued to solicit new investments and to encourage existing investors to roll over their principal to new l4-month terms, rather than withdraw their funds as their investment terms expired. Ultimately, the SEC claimed that the VHG and Benchmark schemes resulted in tens of millions of dollars of investor losses. Commenting on the complaint, Sam Waldon, Acting Director of the SEC’s Division of Enforcement, said: “As we allege, the defendants conducted a large-scale Ponzi scheme that caused devastating losses to investor victims, while [Defendants A and C misappropriated millions of dollars of investor funds. We remain unwavering in our commitment to hold individuals accountable for defrauding investors.” The SEC’s complaint (here),[3] filed in the U.S. District Court for the Eastern District of Texas, charged defendants with violating the antifraud and registration provisions of the federal securities laws. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against each of the defendants. A copy of the press release announcing the enforcement action can be found here. ___________________________ 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] This Blog has examined Ponzi schemes on numerous occasions. To find the articles related to Ponzi schemes, visit the “Blog” tile on our website and enter “Ponzi scheme” in the “search” box. [2] According to the SEC, Defendant C used the money from the alleged Ponzi scheme to purchase a $5 million home. [3] It is important to remember that a complaint merely contains allegations. Until such time as the claims in the complaint are fully adjudicated, readers should not interpret the allegations as anything more than statements of claimed facts made by the SEC against the defendants.