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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.

By: Jeffrey M. Haber A contract is an agreement between two or more parties to do something (e.g., provide goods or services) in exchange for a benefit. When one or more parties to a contract fail to perform a term in their agreement, they are in breach of that agreement. Most breaches fall into one of two categories: actual or anticipatory.[1] In the former, a party to the contract fails or refuses to perform his/her obligations under the agreement or performs his/her obligations incompletely. In the latter, a party to the contract declares, before performance is required, that he/she does not intend to perform the obligations under the agreement.[2] A breach of contract, regardless of the form it takes, entitles the non-breaching party to bring an action for damages. When one party unconditionally refuses to perform under the contract, regardless of when performance is supposed to take place, the refusal is called a “repudiation” of the contract. A breach may be considered a repudiation even if it is not of an essential term or a material breach of an intermediate term. (This Blog previously wrote about the types of breaches here.) Anticipatory Breach Examined There are two types of anticipatory breaches: (1) express, and (2) implied.[3] In an express repudiation, a party to a contract announces, before performance is required, that he/she will not perform under the agreement. The repudiation must be clear, straightforward, and directed at the other party.[4] The declaration cannot be qualified or ambiguous. (For example, “Unless it stops raining, I will not be able to fix the roof.”) In an implied repudiation, a party takes actions that put the performance of a contract out of his/her power to perform (such as when a contractor sells the tools required to fix his customer’s roof). If the breach can be shown to be repudiatory in nature, then the non-breaching party can terminate the contract, even though the date for performance has not yet occurred or proceed as if the contract is valid.[5] Importantly, the non-repudiating party need not tender performance or prove its ability to perform the contract in the future.[6] Rather, the non-repudiating party is relieved of his/her obligation of future performance and can recover the present value of his/her damages from the repudiating party’s breach of the contract.[7] The decision whether to accept that the contract has been repudiated and terminate or wait until the date for performing the obligation passes and treat the defaulting party as being in actual breach, is not an easy one. One commentator described the difficulty as follows: If the promisee regards the apparent repudiation as an anticipatory repudiation, terminates his or her own performance and sues for breach, the promisee is placed in jeopardy of being found to have breached if the court determines that the apparent repudiation was not sufficiently clear and unequivocal to constitute an anticipatory repudiation justifying nonperformance. If, on the other hand, the promisee continues to perform after perceiving an apparent repudiation, and it is subsequently determined that an anticipatory repudiation took place, the promisee may be denied recovery for post-repudiation expenditures because of his or her failure to avoid those expenses as part of a reasonable effort to mitigate damages after the repudiation.[8] “When one party to a contract commits an anticipatory breach, the nonbreaching party, must choose one of two options: either treat the contract as terminated and seek damages, or ignore the breach and wait for the breaching party to perform.”[9] The nonbreaching party must “make an election and cannot ‘at the same time treat the contract as broken and subsisting. One course of action excludes the other.’”[10] “On learning of the breach, the other party has a reasonable time to elect its remedy.”[11] “In determining which election the nonbreaching party has made, ‘the operative factor … is whether the non-breaching party has taken an action (or failed to take an action) that indicated to the breaching party that [it] had made an election.’”[12] Once the nonbreaching party has chosen a remedy, the choice becomes binding and cannot be altered.[13] Accordingly, asserting a cause of action alleging breach of contract precludes pleading a cause of action alleging anticipatory breach of contract.[14] Whether a party has anticipatorily breached a contract is ordinarily a question of fact reserved for a jury, but a court may decide the issue as a matter of law when the purported repudiation is embodied in an unambiguous writing.[15] Can the Breaching Party Take Back the Repudiation? A breaching party can repudiate the contract and then later retract the repudiation, as long as the non-breaching party has not made a material change in his/her position because of the repudiation. Notwithstanding, retraction cannot be made if the only contractual obligation remaining is for one party to pay money to the other. In that case, the party seeking the payment must wait until the due date for the payment has passed. The Non-Breaching Party’s Duty to Mitigate If one party repudiates the contract, most courts require the non-breaching party to avoid incurring unnecessary costs or expenses. This is referred to as “mitigating damages” and generally means that the non-breaching party cannot sit on his/her rights and let the situation get worse. JP Pizza Eastport, LLC v. Luigi’s Main St. Pizza, Inc. The foregoing principles were recently addressed by the Appellate Division, Second Department, in JP Pizza Eastport, LLC v. Luigi’s Main St. Pizza, Inc., 2025 N.Y. Slip Op. 02915 (2d Dept. May 14, 2025) (here). JP Pizza was an action, inter alia, to recover damages for breach of contract involving certain real property located in Eastport (hereinafter, the “subject premises”) that was owned by defendant Luigi’s on Main, LLC (“Luigi’s, LLC). The subject premises was a mixed-use property with a pizzeria business and residential apartments located thereon. Defendant Luigi’s Main Street Pizza, Inc. (hereinafter, “Luigi’s Pizza”) operated the pizzeria business. In July 2018, Luigi’s Pizza sold the pizzeria business to plaintiff JP Pizza Eastport, LLC (hereinafter, “JP Pizza”). On or around the same date as the closing of the sale of the pizzeria business, Luigi’s Pizza, as lessor, entered into a lease agreement with JP Pizza for a portion of the subject premises used for the operation of the pizzeria business. On or around July 16, 2018, plaintiff 491 Montauk Highway Eastport, LLC (hereinafter, “Montauk Highway, LLC”) entered into a contract to purchase the subject premises from Luigi’s, LLC. JP Pizza and Montauk Highway, LLC were related companies, sharing a common managing member. Pursuant to the contract, Montauk Highway, LLC paid a down payment of $33,250, which was deposited into an escrow account. The contract provided that the closing was to occur on or around September 15, 2018. The contract required Luigi’s, LLC to deliver a “[c]ertificate of [o]ccupancy or other required certificate of compliance, or evidence that none was required, covering the building(s) and all of the other improvements located on the property authorizing their use as a commercial property with permit for restaurant, cottage and apartment rentals” at closing. The contract further provided that Luigi’s, LLC could adjourn the closing up to October 15, 2018, if necessary, in order to cure any defects or objections to title. By letter dated August 22, 2018, plaintiffs advised defendants they had discovered that the pizzeria business and the subject premises lacked “required approvals, permits, and licenses,” declared all agreements entered into between the parties “void ab initio,” and demanded the immediate return of the $33,250 down payment paid by Montauk Highway, LLC, in connection with the contract for the sale of the subject premises and the payment of certain monies allegedly expended by JP Pizza in connection with the purchase of the pizzeria business and the making of improvements to the subject premises. Plaintiffs further advised defendants that JP Pizza would cease operations of the pizzeria business on the following day and that it would return the subject premises to Luigi’s Pizza. JP Pizza vacated the subject premises and ceased operations in August 2018. By letter dated August 27, 2018, defendants responded that they would obtain any required certificates for the subject premises in accordance with the terms of the contract. On September 4, 2018, plaintiffs commenced the action asserting causes of action sounding in, among other things, fraud, rescission, and breach of contract. The complaint did not assert a cause of action seeking specific performance of the contract. Defendants interposed an answer, asserting, inter alia, an affirmative defense alleging that Montauk Highway, LLC, had repudiated the contract and that Luigi’s, LLC, was entitled to retain the down payment as liquidated damages. In May 2019, several months after JP Pizza had vacated the subject premises and stopped paying rent, Luigi’s, LLC, entered into a 10-year lease agreement for the subject premises with a third party. Thereafter, by letter dated November 25, 2019, plaintiffs purported to schedule a time-of-the-essence closing for December 9, 2019. After the completion of discovery, defendants moved, among other things, for summary judgment dismissing the cause of action alleging breach of contract. Plaintiffs cross-moved, inter alia, for summary judgment on that cause of action. In an order dated March 22, 2022, the Supreme Court, among other things, granted that branch of the defendants’ motion and denied that branch of the plaintiffs’ cross-motion. Plaintiffs appealed. The Appellate Division, Second Department, affirmed. The Court held that “the Supreme Court properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging breach of contract and denied that branch of the plaintiffs’ cross-motion which was for summary judgment on that cause of action.”[16] The Court found that “defendants established their prima facie entitlement to summary judgment dismissing the cause of action alleging breach of contract.”[17] The Court explained that defendant established that plaintiffs had anticipatorily breached the contract of sale: Pursuant to the contract, the defendants had until September 15, 2018, to obtain the requisite approvals and were entitled to extend that deadline to October 15, 2018. By declaring the contract void ab initio through their attorney’s letter dated August 22, 2018, and demanding the return of the down payment, the plaintiffs anticipatorily breached the contract.[18] Having found that plaintiffs breached the contact of sale, the Court explained that defendants properly elected their remedy for said breach by ignoring the breach and waiting for plaintiffs to perform.[19] But, as noted, plaintiffs did not perform. Under the circumstances, the Court found that plaintiffs repudiated the contract, entitling defendants to retain the down payment for the subject property: The plaintiffs’ conduct, first by the letter declaring the contract void ab initio and demanding the return of the down payment, and then by the commencement of this action, amounted to a positive and unequivocal expression of their intent not to perform, and the defendants, under the terms of the contract, were entitled to retain the down payment as liquidated damages for the plaintiffs’ anticipatory breach.[20] ________________________ 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 cases involving an anticipatory breach of contract on numerous occasions. To find articles related to this topic, visit the “Blog” tile on our website and enter “anticipatory breach” in the “search” box. [2] Princes Point LLC v. Muss Dev. L.L.C., 30 N.Y.3d 127, 133 (2017); Fuoco Group, LLP v. Weisman & Co., 222 A.D.3d 619, 621-622 (2d Dept. 2023); see also 10-54 Corbin on Contracts § 54.1 (2017) (“An anticipatory breach of a contract by a promisor is a repudiation of [a] contractual duty before the time fixed in the contract for . . . performance has arrived”); 13 Williston on Contracts § 39:37 (4th ed.). [3] Norcon Power Partners v. Niagara Mohawk Power Corp., 92 N.Y.2d 458, 463 (1998) (noting that an anticipatory repudiation “can be either a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach or a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach”) (internal quotation marks omitted). [4] Tenavision, Inc. v. Neuman, 45 N.Y.2d 145, 150 (1978) (noting that the expression of intent not to perform must be “positive and unequivocal”). See also Central Park Capital Grp., LLC v. Machin, 189 A.D.3d 984, 986 (2d Dept. 2020) (quoting, Princes Point, 30 N.Y.3d at133). [5] Strasbourger v. Leerburger, 233 N.Y. 55, 59 (1922); see also American List Corp. v. U.S. News & World Report, 75 N.Y.2d 38, 44 (1989). [6] American List Corp., 75 N.Y.2d at 44. [7] Id. [8] Norcon Power, 92 N.Y.2d at 463 (quoting, Crespi, The Adequate Assurances Doctrine after U.C.C. § 2-609: A Test of the Efficiency of the Common Law, 38 Vill. L. Rev. 179, 183 (1993)). [9] Contract Pharmacal Corp. v. Air Indus. Grp., 224 A.D.3d 873, 874 (2d Dept. 2024); see Princes Point, 30 N.Y.3d at 133. [10] Inter-Power of N.Y. v. Niagara Mohawk Power Corp., 259 A.D.2d 932, 934 (3d 1999) (quoting, Strasbourger, 233 N.Y. at 59). [11] Todd English Enters. LLC v. Hudson Home Grp., LLC, 206 A.D.3d 585, 587 (1st Dept. 2022). [12] AG Props. of Kingston, LLC v. Besicorp-Empire Dev. Co., LLC, 14 A.D.3d 971, 973 (3d Dept. 2005) (quoting Bigda v. Fischbach Corp., 898 F. Supp. 1004, 1013 (S.D.N.Y. 1995), aff’d 101 F.3d 108 (2d Cir. 1996)). [13] See Lucente v. International Bus. Machs. Corp., 310 F.3d 243, 258-259 (2d Cir. 2002). [14] Id. at 258-260. [15] Briarwood Farms, Inc. v. Toll Bros., Inc., 452 Fed. App’x. 59, 61 (2d Cir. 2011). [16] Slip Op. at *3. [17] Id. at *2. [18] Id. [19] Id. (citing Contract Pharmacal, 224 A.D.3d at 874). [20] Id. at 2-3 (citation omitted).

By: Jeffrey M. Haber In Libman v. Hershey Co., 2025 N.Y. Slip Op. 31769(U), (Sup. Ct., N.Y. County May 5, 2025) (here), the motion court was asked to consider whether a front-of-the-package label on the Twizzlers candy wrapper violated General Business Law (“GBL”) §§ 349 and 350. Front-of-package labels are labels that manufacturers put on the front of packaged foods to give consumers basic nutrition information in a way that is easy to understand and allows them to compare different products more efficiently and effectively. These labels typically highlight when foods contain high levels of nutrients that are commonly overconsumed and linked to adverse health outcomes (e.g., sodium, added sugar, and saturated fat). By contrast, the nutritional facts label on the back of the packaging provides comprehensive nutrition information per serving for the product. It includes all nutrients, serving size, and % Daily Value, and is intended to help consumers understand the nutritional content of a specific food and how it fits into their overall diet. Thus, while front-of-package labeling focuses on key nutrients (like saturated fat, sodium, and added sugars) and may use a “Low,” “Med,” or “High” scale for easy understanding, the nutrition facts label provides comprehensive nutrition information per serving for the product. GBL Section 349 prohibits “[d]eceptive acts or practices,” and Section 350 bars “[f]alse advertising.” To plead a cause of action under either section, a plaintiff must allege that the defendant “engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.”[1] Notably, the deceptive practice does not have to rise to “the level of common-law fraud to be actionable under section 349.”[2] In fact, “[a]lthough General Business Law § 349 claims have been aptly characterized as similar to fraud claims, they are critically different.”[3] For example, while reliance is an element of a fraud claim, it is not an element of a GBL § 349 claim.[4] Whether a statement is misleading is governed by an objective reasonable consumer standard. Under that standard, the statement must be “likely to mislead a reasonable consumer acting reasonably under the circumstances.”[5] “Accordingly, “plaintiffs must do more than plausibly allege that a label might conceivably be misunderstood by some few consumers.”[6] Instead, “[p]laintiffs must plausibly allege that a significant portion of the general consuming public or of targeted customers, acting reasonably in the circumstances, could be misled.”[7] “[A] court may determine as a matter of law that an allegedly deceptive advertisement would not have misled a reasonable consumer.”[8] “[I]n determining whether a reasonable consumer would have been misled by a particular advertisement, context is crucial.”[9] Relevant to today’s article, courts examining allegedly misleading product claims will rely on common-sense observations and judicial experience.[10] “Courts have also found that the presence of a disclaimer or similar clarifying language, such as a Nutrition Fact Panel, may defeat a claim of deception.”[11] “Thus, where the allegedly deceptive practice is fully disclosed, there is no deception claim.”[12] Finally, a plaintiff must prove “actual” injury to recover under the statutes, though not necessarily pecuniary harm.[13] And, the plaintiff must prove the deceptive act caused the injury.[14] Libman v. Hershey Company Libman was brought as a putative class action in which plaintiffs asserted claims for deceptive business practices and false advertising pursuant to GBL §§ 349 and 350 on behalf of a proposed class of New York State consumers who purchased strawberry-flavored Twizzlers King-Size Candy (“Twizzlers”), which is produced by defendant. Plaintiffs alleged that the front-of-the-package branding of Twizzlers as a “low fat snack” mislead consumers into believing that Twizzlers is “specially made or altered” to be low fat and that the product is not just low fat but also low sugar. Defendant moved, pre-answer, to dismiss the amended complaint pursuant to CPLR 321l(a)(7) (i.e., failure to state a claim). Plaintiff opposed the motion. As discussed below, the motion court granted the motion. Plaintiff alleged that the front-of-the-package branding of Twizzlers as a “low fat snack” is misleading to consumers as it lulls them into believing the candy is “specially made or altered” to be low fat and that the candy is also low sugar. Plaintiffs admitted, however, that Twizzlers is “low fat,’ containing zero grams of “Total Fat,” as accurately reflected in the Nutrition Facts label on the reverse side of the product packaging. The motion court ruled that plaintiffs failed to adequately allege facts demonstrating that reasonable consumers were likely to be misled in the manner they claimed.[15] The motion court noted that the “specially made or altered” claim was premised on an alleged technical violation of an FDA food-labelling regulation that allows for the use of “low fat” on food labels, but requires additional disclosure language on the label “[i]f the food meets these conditions without the benefit of special processing, alteration, formulation, or reformulation to lower fat content.”[16] The motion court further noted that “private plaintiffs are not authorized to sue for violations of the Federal Food, Drug, and Cosmetic Act, FDA regulations, or identical New York labeling requirements under New York’s Agriculture and Markets Law.[17] Thus, concluded the motion court, plaintiffs’ claim, that the Twizzlers’ packaging violated the FDA’s food-labelling regulation because it omitted the required additional disclosure language despite being a type of candy that is inherently low fat without any special alteration, had to be dismissed. Turning to the GBL allegations, the motion court held that plaintiffs failed to allege “facts sufficient to allow a reasonable inference that the labeling of Twizzlers as a ‘low fat snack’ constitute[d] false advertising or a deceptive business practice.”[18] The motion court explained that plaintiffs did not “allege that reasonable consumers [were] aware of the federal regulation, much less that they incorporate[d] the regulation into their day-to-day marketplace expectations.”[19] Similarly, said the motion court, plaintiffs failed to “supply extrinsic evidence that the perceptions of ordinary consumers align[ed] with the FDA’s labeling standards, such that they would understand any product labelled as a ‘low fat snack’ as having been ‘specially made or altered’ to be low fat absent the regulation’s additional disclosure language.”[20] In facts, noted the motion court, “plaintiffs concede[d] that reasonable consumers [understood] that Twizzlers is ‘candy,’ as is … expressly stated on the front of the product’s packaging.”[21] Accordingly, concluded the motion court, “it is beyond cavil that reasonable consumers understand that candy, as a category, is not inherently low fat.”[22] With respect to plaintiffs’ other theory of liability – that ‘low fat snack’ is likely to mislead consumers into thinking that Twizzlers are also low sugar – the motion court found that plaintiffs made several concessions that were fatal to their claims under GBL 349 and 350.[23]For example, plaintiffs conceded “that: Twizzlers does not expressly market itself as ‘low sugar’; the Nutrition Facts and Ingredient List included on the product packaging accurately disclose[d] its total and per-serving added sugar content and percentage Daily Value of added sugars; the front of the product packaging describes the product as ‘candy’; and reasonable consumers understand that Twizzlers is ‘candy’ made from sugar.”[24] “These concessions,” concluded the motion court, were “fatal to plaintiffs’ claim, as no reasonable consumer, understanding that Twizzlers is candy made from sugar, would reasonably assume the product was low in sugar absent any express claim to that effect, especially given the accurate disclosure of the product’s sugar content on the reverse side of the product packaging.”[25] ______________________ 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] Koch v. Acker, Merrall & Condit Co., 18 N.Y.3d 940, 941 (2012); Goshen v. Mut. Life Ins. Co. of New York, 98 N.Y.2d 314, 324 n.l (2002) (explaining the “standard for recovery under [GBL] § 350, while specific to false advertising, is otherwise identical to section 349”). [2] Boule v. Hutton, 328 F.3d 84, 94 (2d Cir. 2003) (citing Gaidon v. Guardian Life Ins. Co., 94 N.Y.2d 330, 343 (1999)). [3] Gaidon, 94 N.Y.2d at 343. [4] Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000); Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55-56 (1999). [5] Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26 (1995). [6] Jessani v. Monini N. Am., Inc., 744 Fed. App’x 18, 19 (2d Cir. 2018). [7] Id. [8] Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013) (citing Oswego, 85 N.Y.2d at 26). [9] Id. at 742. [10] See, e.g., Warren v. Coca-Cola Co., 670 F. Supp. 3d 72, 80-83 (S.D.N.Y. 2023). [11] Mazella v. Coca-Cola Co., 548 F. Supp. 3d 349, 357 (S.D.N.Y. 2021). [12] Id. (citing Broder v. MBNA Corp., 281 A.D.2d 369, 371 (1st Dept. 2001). [13] Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000); Oswego, 85 N.Y.2d at 26. [14] Id.; Oswego, 85 N.Y.2d at 26. [15] Slip Op. at *3. [16] Id. (quoting 21 C.F.R. § 101.62(b)(2)(ii)) (internal quotation marks omitted). [17] Id. (citing 21 U.S.C. § 337(a); Steele v. Wegmans Food Markets, Inc., 472 F. Supp. 3d 47, 49 (S.D.N.Y. 2020)). [18] Id. [19] Id. [20] Id. at 3-4 (citing Warren v. Whole Foods Mkt. Grp., Inc., 574 F. Supp. 3d 102, 113-14 (E.D.N.Y. 2021); N. Am. Olive Oil Ass’n v. Kangadis Food Inc., 962 F. Supp. 2d 514, 519 (S.D.N.Y. 2013); Wynn v. Topco Assocs., LLC, No. 19-CV-11104 (RA), 2021 WL 168541, at *3 ([S.D.N.Y. Jan. 19, 2021)). [21] Id. at *4. [22] Id. [23] Id. [24] Id. [25] Id.

By: Jeffrey M. Haber A claim for fraud requires “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.”[1] In First Trinity Life Ins. Co. v. Advance Funding LLC, 2025 N.Y. Slip Op. 03133 (1st Dept. May 22, 2025) (here), discussed below, knowledge of falsity (i.e., scienter) and reliance were the elements at issue. First Trinity concerned the assignment of lottery winnings. A former defendant won a New York State Lottery game in April 2008 that had a minimum prize of $2 million. In August 2016, the former defendant entered into an agreement with defendant Advance Funding, LLC (“AF”) in which he agreed to assign 32 months of prize payments totaling over $800,000 in exchange for a lump sum payment of $465,000. AF then assigned its right to the money to plaintiff in exchange for a payment in excess of $500,000. Plaintiff alleged that although AF represented that the former defendant had been paid in full by AF (and even included a wire transfer), the former defendant never received what he was owed and, therefore, plaintiff paid AF but did not receive any lottery payments. In connection with the assignment to AF, the former defendant filed a petition in Schenectady, New York to approve the transfer. However, the former defendant later moved to strike the assignment and disavow an affidavit he signed in which he agreed to the transaction. He later withdrew the order to show cause in exchange for an increased lump sum payment. Thereafter, the former defendant brought an application seeking to stop any more payments by the state’s Lottery Commission because AF allegedly did not make the additional payments promised to him in the settlement. Defendant moved for summary judgment dismissing the action on the grounds that she was without knowledge of the circumstances underlying the action. Defendant claimed that, as a favor to her boss, she assisted his brother’s company, defendant AF, to broker structured settlements for various winners (such as lottery winners) with large institutional funders, such as plaintiff. Defendant claimed that when she was reviewing documents to close AF’s transaction with plaintiff, she was provided with a wire transfer that plaintiff alleged to be fraudulent. This wire transfer showed that the former defendant was paid $335,000. Defendant claimed that she had no reason to doubt the authenticity of that document. According to defendant, she was employed by Northeastern Capital Funding LLC (“Northeastern”) from May 2006 until June 2017 and never had any ownership interest in that entity. She emphasized that her job responsibilities included contacting funding entities to inform them of transactions between Northeastern and winners/settlement recipients. Defendant argued that she never had interactions with winners or structured settlement recipients. Defendant provided similar services for AF. Plaintiff maintained that defendant helped to facilitate hundreds of transactions for AF and Northeastern. It insisted that in each transaction it entered into with AF and Northeastern, its sole contact person was defendant and that she held herself out as a senior officer for AF. Plaintiff further alleged that for the transaction at issue—the purchase from AF of the former defendant’s lottery winnings for $552,000—it was defendant who provided the closing binder and other documents to plaintiff. Plaintiff claimed that it relied upon those documents and other representations from defendant when executing the transaction. Plaintiff alleged that the wire transfer was fraudulent, that the former defendant never received the money he was owed by AF, and that plaintiff did not receive the stream of lottery payments for which it paid $552,000. Plaintiff claimed that bank statements showed that defendant received significant payments from Majestic Funding LLC (“Majestic”), an LLC owned by the same principals that owned AF and Northeastern, despite the fact that she never worked for Majestic. Plaintiff contended that defendant was a key point person at AF and was not a mere low-level employee. Defendant argued that plaintiff did not show that she knew the wire confirmations were fake and that the agreement between AF and plaintiff was an arm’s length transaction, thereby vitiating plaintiff’s reliance on her statements. Defendant also argued that she could not be held personally liable for AF’s alleged fraud. Defendant moved for summary judgment, claiming, inter alia, that the court lacked personal jurisdiction over her and that plaintiff failed to demonstrate that she perpetrated a fraud on it.[2] The motion court denied the motion. First, the motion court held it that it possessed jurisdiction over defendant. The motion court noted that “[t]here [was] no dispute that this case involves a New York resident … who won a lottery in New York and a transaction between AF and [the former defendant] about those lottery winnings in New York (including a litigation in New York to approve the transaction between AF and [the former defendant).” The motion court found that defendant “signed her emails with a signature block that indicated that she was the director of the legal department for AF and included an address on Wall Street.” Under such circumstances, the motion court concluded that defendant could not “claim surprise that she [was] subject to a lawsuit in New York about a New York lottery winner when she worked for a company that did business out of a New York office and represented to others that she did business out of that New York office.” “Simply put,” concluded the motion court, “there [were] numerous contacts to satisfy New York’s long-arm statute, even despite [defendant’s] claim that she never lived in New York.” Second, the motion court found that issues of fact precluded the grant of summary judgment, noting that “a jury could conclude that [defendant] was part of the [alleged] fraudulent scheme as she was the main contact person involved on behalf of AF,” while at the same time believing “[defendant’s] account … that she was not a part of the alleged fraud.” The motion court found “multiple issues of fact” concerning defendant’s knowledge of the false wire transfer and her intent to induce reliance. Among other things, the motion court noted that defendant provided AF with a closing binder of transaction documents, which included, inter alia, identification documents for the former defendant, including his photo ID and W-9 form, affidavits by both AF and the former defendant indicating that the assignment was fully authorized, as well as the court documents approving the assignment. Most critically, said the motion court, plaintiff requested, and defendant provided, confirmation that the former defendant had been paid what he was due. According to plaintiff, defendant provided the sought after proof of funding and payment. The motion also found that there was an issue of fact regarding defendant’s personal liability for the alleged fraudulent scheme. Defendant maintained that she was a low-level employee even though she signed her emails with the signature line “Director, Legal Dept.”, which is an officer position. “That raises an issue about her role with AF and that she might be considered a corporate officer,” said the motion court. Under New York law, noted the motion court, “a corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced.”[3] Defendant appealed. The Appellate Division, First Department affirmed the portions of the motion court’s order involving personal jurisdiction and fraud. The Court held that the motion court “properly found that it had personal jurisdiction over [defendant] under New York’s long-arm statute, as the second amended complaint allege[d] that she engaged in purposeful actions directed at New York and that her actions substantially related to plaintiff’s claims.”[4] The Court explained that, “[a]lthough an employee ‘acting on behalf of his employer does not create jurisdiction upon the employee individually’…, the record support[ed] a finding that [defendant] was acting in her individual capacity as part of the fraudulent scheme, and not simply conducting business on behalf of defendant Advance Funding, LLC.”[5] The Court noted that “[i]f it is true, as plaintiff allege[d], that [defendant] knowingly sent a fake wire transfer to plaintiff in an effort to fraudulently induce the underlying transaction, she would not have been conducting legitimate business on behalf of the corporation.”[6] Further, said the Court, “the transaction at issue was specifically tied to New York.”[7] The Court found that defendant “allegedly consented to and benefitted from that transaction, and it [was] uncontested that she was paid for the services she undertook on behalf of Advance Funding.” The Court also held that the motion court “properly denied [defendant’s] motion with respect to the fraud cause of action.”[8] “At a minimum,” said the Court, “there are factual issues surrounding whether [defendant] made a material misrepresentation of fact with knowledge as to its falsity, and whether plaintiff relied on the representation and on the allegedly fraudulent wire transfer documentation.”[9] The Court noted that in her motion, defendant merely raised issues of credibility which were more properly resolved by the jury: With respect to the underlying transaction, plaintiff requested confirmation that the lottery winner had been paid in full by Advance Funding. In response, [defendant] provided a copy of a check that was issued to the winner and a purported wire transfer in the amount of $335,000, which was later discovered to be a fraud. [Defendant] also represented that the winner had been fully paid, and in fact that he had been overfunded by $10,000. Although [defendant] asserts that she had no idea that the wire transfer was fraudulent, this assertion merely raises an issue of fact as to [defendant’s] credibility that cannot be properly resolved on the summary judgment motion.[10] The Court also found that there were “some factual issues regarding whether plaintiff’s reliance on the fraudulent wire transfer was reasonable.”[11] The Court noted that defendant “provided Trinity with a closing binder containing more than 20 documents,” which “Trinity reviewed …, asked questions [about], and … requested written confirmation from Advance Funding regarding the accuracy of its representations.”[12] In response to plaintiff’s inquiries, defendant “provided Trinity with the fraudulent wire transfer and her own assurances that the lottery winner had actually been paid more than he was owed.”[13] The Court concluded that plaintiff “was entitled to rely on [those] representations.”[14] ____________________________________________ 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] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009); Braddock v. Braddock, 60 A.D.3d 84 (1st Dept.), appeal withdrawn 12 N.Y.3d 780 (2009). [2] This Blog has examined cases involving fraud and personal jurisdiction on numerous occasions. To find articles related to these topics, visit the “Blog” tile on our website and enter “personal jurisdiction”, “fraud”, “fraudulent inducement” and any of the elements of a fraud claim in the “search” box. [3] Am. Exp. Travel Related Services Co., Inc. v. N. Atl. Resources, Inc., 261 A.D.2d 310, 311 (1st Dept. 1999). [4] Slip Op. at *1 (citing, CPLR 302(a)(1); Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 71 (2006)). [5] Id. (quoting Laufer v. Ostrow, 55 N.Y.2d 305, 313 (1982); and citing Grosso v. Cy Twombly Found., — A.D.3d —, 2025 N.Y. Slip Op. 02007, *1 (1st Dept. 2025)). [6] Id. [7] Id. [8] Id. [9] Id. (citing, Eurycleia, 12 N.Y.3d at 559 (2009). [10] Id. [11] Id. [12] Id. at 1-2. [13] Id. [14] Id. (citing, DDJ Mgmt., LLC v. Rhone Group LLC, 15 N.Y.3d 147, 156 (2010)).

By: Jeffrey M. Haber The allure of guaranteed profits from sophisticated crypto asset and foreign exchange trading served as the underlying predicate for the claims asserted by the Securities and Exchange Commission (“SEC”) against Ramil Palafox (“Defendant”), the founder of Praetorian Group International Corporation (“PGI Global”), a now-defunct entity he controlled, in S.E.C. v. Palafox, Case 1:25-cv-00681 (E.D. Va. 2025). The case marks the first crypto enforcement action under Paul Atkins, the new Chairman of the SEC. According to the SEC, from in or about January 2020 through in or about October 2021 (the “Relevant Period”), Defendant orchestrated an international securities fraud scheme to misappropriate millions of dollars of investor funds he obtained through PGI Global. PGI Global claimed to be a crypto asset and foreign exchange (“Forex”) trading company. The SEC alleged that Defendant and PGI Global associates working at his direction represented to investors that PGI Global was generating large returns from crypto asset trading and Forex trading. According to the SEC, investors who purchased PGI Global “membership packages” were promised large passive returns from these purported trading operations. Though investors were promised such returns merely in exchange for their investments in PGI Global, said the SEC, PGI Global also allegedly offered members a multi-level marketing style system of referral incentives to encourage PGI Global membership package holders to recruit new investors.[1] Defendant allegedly secured over $198 million in Bitcoin (BTC) and fiat currency investments for PGI Global during the Relevant Period. The SEC maintained that Defendant obtained these funds from victims who purchased PGI Global membership packages based on false promises that their investments would guarantee them large low-risk returns from Forex and crypto asset trading. According to the SEC, Defendant misappropriated over $57 million of the funds he obtained through PGI Global’s unregistered securities offerings. Rather than trade with these funds as promised, the SEC alleged that Defendant used investor money to enrich himself and various insiders, including members of his family and certain other PGI Global associates—purchasing, among other things, real estate, Lamborghinis, and items from retailers including Cartier, Versace, and Louis Vuitton. The SEC also alleged that Defendant transferred funds, assets, vehicles, and other items purchased with PGI Global investor funds to the relief defendants. The SEC claimed that Defendant used the vast majority of the remaining PGI Global investor funds to pay certain other investors—payments that ostensibly represented profits and other rewards those investors had earned from PGI Global’s trading operations. The SEC alleged that this money represented funds circulated from new investors to old investors. The SEC further alleged that these payments allowed Defendant to continue PGI Global’s Ponzi-like scheme until its collapse in late 2021. According to the SEC, PGI Global never filed a registration statement in connection with its offerings of securities in the form of PGI Global membership packages. Defendant and others nevertheless offered and sold these PGI Global securities via general solicitations to investors worldwide, alleged the SEC. Commenting on the action, Scott Thompson, Associate Director of the SEC’s Philadelphia Regional Office, said: “As alleged in our complaint, [Defendant] attracted investors with the allure of guaranteed profits from sophisticated crypto asset and foreign exchange trading, but instead of trading, [Defendant] bought himself and his family cars, watches, and homes using millions of dollars of investor funds. We will continue to investigate and take action against bad actors who take advantage of investors with promises of guaranteed passive income and other lies and deceit.” “[Defendant] used the guise of innovation to lure investors into lining his pockets with millions of dollars while leaving many victims empty-handed,” said Laura D’Allaird, Chief of the Commission’s new Cyber and Emerging Technologies Unit. “In reality, his false claims of crypto industry expertise and a supposed AI-powered auto-trading platform were just masking an international securities fraud.” The SEC’s complaint (here),[2] filed in the U.S. District Court for the Eastern District of Virginia, charges Defendant with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing Defendant from participating in multi-level-marketing programs involving the offer or sale of securities and offerings of crypto assets bought or sold as a security, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. The complaint also names a number of persons and entities as relief defendants and seeks disgorgement of their ill-gotten gains and prejudgment interest. In a parallel action, Defendant was arraigned on criminal charges brought by the U.S. Attorney’s Office for the Eastern District of Virginia. ___________________________________ 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] A multi-level marketing program is a relative of pyramid scheme. “[A] pyramid scheme is an illegal investment scam based on a hierarchical setup.” See Investopedia.com, What Is a Pyramid Scheme? How Does It Work? (Updated June 3, 2024) (here). In the classic pyramid scheme, “participants attempt to make money solely by recruiting new participants, usually where: [t]he promoter promises a high return in a short period of time; [n]o genuine product or service is actually sold; and [t]he primary emphasis is on recruiting new participants.” See Investor.gov, Pyramid Schemes (here). To lure recruits into the scheme, pyramid scheme promoters work hard to make the operation look legitimate. But they are not and ultimately collapse because the promoter cannot raise enough money from new investors to pay earlier ones. This Blog has examined multi-level marketing schemes on numerous occasions. To find the articles related to multi-level marketing schemes, visit the “Blog” tile on our website and enter “Multi-Level” or “Multi-Level Marketing Schemes” in the “search” box. [2] It is important to remember that a complaint merely contains allegations. Until 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 defendant.

By: Jeffrey M. Haber On many occasions, we have written about Ponzi schemes that have been the subject of enforcement actions brought by, and/or settlements with, the Securities and Exchange Commission (“SEC” or the “Commission”). We remain unsurprised by the frequency with which people operate a Ponzi scheme and do so by exploiting the trust and friendship that exist in groups of people who have something in common, such as a religious group, an ethnic group, or a community – also known as affinity fraud.[1] Today, we examine an enforcement action brought by the SEC involving a Ponzi-like scheme that targeted retired senior citizens that the defendant met through his church community.[2] S.E.C. v. Mattson On May 22, 2025, the SEC announced (here) that it charged the former CEO of LeFever Mattson (“defendant”), a real estate investment firm, with defrauding approximately 200 investors of at least $46 million by selling them fake interests in real estate investment limited partnerships. Many of these investors were retired senior citizens that defendant met through his church community. According to the SEC, from approximately 2007 through April 2024, defendant orchestrated a Ponzi-like scheme that involved offering and selling fake interests in various legitimate limited partnerships created and managed by his company LeFever Mattson, a California corporation (“LeFever Mattson”). The limited partnerships in which defendant purported to sell interests (the “affiliated limited partnerships”) were real and invested in residential and commercial real estate. The affiliated limited partnerships were managed and partly owned by LeFever Mattson, a Citrus Heights, California-based company, which defendant co-founded and ran as both the entity’s chief executive officer and chief financial officer. LeFever Mattson has been in business since 1989 and boasted an approximately $400 million portfolio of real estate investments, most of which consisted of ownership interests in 50 limited partnerships. While the affiliated limited partnerships were real, and were in fact owned by a defined set of real investors, the SEC alleged that defendant fraudulently raised funds from another set of investors by falsely purporting to sell them ownership stakes in those same affiliated limited partnerships. Defendant allegedly told the investors that their investments would buy them a portion of LeFever Mattson’s ownership interests in specific affiliated limited partnerships and would entitle them to proportional distributions of the income generated by the underlying properties. According to the SEC, these representations were materially false. The SEC alleged that defendant took steps to hide his alleged fraudulent scheme from people associated with LeFever Mattson, including by using a personal post office box to receive documents from investors, receiving investor funds and sending purported distributions from a bank account in the name of LeFever Mattson that only defendant could fully access, and instructing his personal assistant not to discuss the investors with anyone else at LeFever Mattson. According to the SEC, defendant kept documents related to his alleged fraudulent scheme, including commercial bookkeeping records, on his laptop, which the SEC alleged he deleted after receiving an investigative subpoena from the staff of the Commission’s Division of Enforcement that required him to produce certain records concerning, among other things, the affiliated limited partnerships. Because defendant allegedly concealed his fake limited partnership sales from people associated with LeFever Mattson, said the SEC, the fake sales were not reflected in the legitimate records demonstrating ownership percentages of the affiliated limited partnerships. As a result, the SEC alleged that the investors who purchased interests in the affiliated limited partnerships from defendant never became actual limited partners or acquired any actual ownership interests, and they never received legitimate distributions from the limited partnerships in which they thought they invested. Instead, alleged the SEC, defendant commingled new investor funds with other personal and business funds in a bank account that he controlled and allegedly used the commingled funds to make Ponzi-like payments to existing investors. The SEC also alleged that defendant misappropriated investor money to fund certain real estate transactions through his personal partnership, relief defendant KS Mattson Partners LP (“KS Mattson Partners”), pay expenses of KS Mattson Partners, and pay for personal expenses. According to the SEC, defendant concealed from investors the fact that he was orchestrating a Ponzi-like scheme by, among other things, using some new investor funds to make payments to deceive existing investors, and providing investors with altered limited partnership documents. Defendant also allegedly prepared a separate set of false tax records for the defrauded investors, which contradicted the legitimate annual tax filings for the affiliated limited partnerships that he signed and submitted to the Internal Revenue Service. The SEC maintained that LeFever Mattson discovered defendant’s alleged misconduct in late 2023. In around April 2024, following an internal investigation, defendant resigned from his positions as chief executive officer and chief financial officer. In September 2024 and October 2024, LeFever Mattson and all of its affiliated limited partnerships filed for Chapter 11 bankruptcy protection. As a result of the conduct alleged in the SEC’s complaint (here),[3] the SEC charged defendant with violating the antifraud provisions of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) as well as the securities registration provisions of the Securities Act. The SEC claimed that KS Mattson Partners was unjustly enriched by defendant’s violations. The SEC seeks a permanent injunction against defendant, disgorgement of ill-gotten gains with prejudgment interest, and civil monetary penalties. The Commission also seeks an order prohibiting defendant from serving as an officer or director of a public company as well as from participating in the issuance, purchase, offer, or sale of any security. Finally, the SEC seeks disgorgement of ill-gotten gains with prejudgment interest from KS Mattson Partners. __________________________________ 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 and affinity fraud on numerous occasions. To find the articles related to Ponzi schemes and affinity fraud, visit the “Blog” tile on our website and enter “Ponzi scheme” or “affinity fraud” in the “search” box. [2] This Blog has examined financial elder abuse on numerous occasions. To find the articles related to financial elder abuse or financial exploitation of seniors, visit the “Blog” tile on our website and enter “financial elder abuse” in the “search” box. [3] The SEC filed its complaint in the U.S. District Court for the Northern District of California. It is important to remember that a complaint merely contains allegations. Until 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 defendant.