By Jonathan H. Freiberger Folks enter into brokerage agreements all the time. The most familiar situation involving brokerage agreements are those related to the sale of real property. Litigation over brokerage agreements often involves the payment of commissions. In general, “to prevail on a cause of action to recover a commission, the broker must establish (1) that it is duly licensed, (2) that it had contract, express or implied, with the party to be charged with paying the commission, and (3) that it was the procuring cause of the sale.” Blooming Home Realty, LLC v. Infinity Holdings Northeast, LLC, 228 A.D.3d 815, 816 (2nd Dep’t 2024) (citations, internal quotation marks and brackets omitted). However, a broker with an “exclusive right to sell” is entitled to a commission even if the seller “alone were responsible for the sale” because under such circumstances, the broker “need not show that it was the procuring cause of the sale.” Id. (citations and internal quotation marks omitted). On July 23, 2025, the Appellate Division, Second Department, decided Angelic Real Estate, LLC v. Aurora Properties, LLC, a case that gave the Court “the opportunity to examine the law of brokerage agreements granting an ‘exclusive right to sell,’ as well as the application of such agreements outside the context of transactions involving the sale or lease of real property.” The plaintiff in Angelic had contended “that it had an exclusive agreement to secure certain financing on behalf of the defendant and that it was entitled to a commission even though it was not the procuring cause of a loan the defendant ultimately obtained.” The Second Department, however, disagreed. The parties to Angelic entered into an agreement pursuant to which the plaintiff, a licensed real estate broker specializing in obtaining financing for commercial properties, was to secure financing on the defendant’s behalf. The agreement “stated that the defendant was engaging the plaintiff ‘exclusively’ to obtain debt financing for multiple office buildings located in Tennessee.” The agreement, dated June 8, 2020, also provided that if term sheet(s) were not procured from lenders by June 20, 2020, the agreement remained “in place but shall become non-exclusive with regards to any lenders not already approached and engaged by the plaintiff. (Bracket omitted.) The agreement had a 120-day term. If the defendant agreed on financing terms, the plaintiff was to be paid a fee at closing. The agreement also contained a provision providing that plaintiff was not entitled to a fee if Mountain Commerce Bank (“MCB”) provided a term sheet on or before June 30, 2020. “On August 21, 2020, the defendant obtained a $16,750,000 loan commitment from MCB. The plaintiff allegedly informed the defendant that if MCB entered into a terms sheet before the expiration of the agreement and after the exclusion period, i.e., June 30, 2020, the plaintiff would be entitled to a fee under the agreement. The defendant subsequently closed on the loan with MCB and did not tender a fee to the plaintiff.” The plaintiff commenced an action to recover a brokerage fee and moved for summary judgment arguing that: the plaintiff had the exclusive right to secure debt financing for the defendant; because the agreement was “exclusive,” it was entitled to a fee as long as financing was secured during the life of the agreement regardless of whether it was the procuring cause; the exclusion period for MCB expired two months prior to the defendant’s term sheet with MCB. The defendant cross-moved for summary judgment contending that: the agreement did not provide that the plaintiff was entitled to a fee if the defendant independently negotiated its own terms; and there is no dispute that the plaintiff was not the procuring cause of the loan. The trial court denied the plaintiff’s motion and granted the defendant’s cross-motion finding that although the exclusion provision expired on June 30, 2020, “given the lack of clear exclusivity in the agreement, the plaintiff was not entitled to receive a fee for a loan negotiated and secured solely by the defendant.” The Second Department affirmed. The Court noted that although a broker seeking a commission “is normally required to make a showing that it was the procuring cause of the transaction,” “there is a distinction between brokerage agreements granting an exclusive agency and those conferring an exclusive right to sell, the latter of which permits a broker to recover a commission even if it was not the procuring cause of the transaction.” (Citations omitted.) The Court then explained the distinction between an exclusive agency agreement and an exclusive right to sell. Thus, “pursuant to an exclusive agency agreement, if the owner finds its own buyer, then no commission is due to the broker.” (Citation omitted.) Put another way, “where a broker has been granted an exclusive agency, the seller cannot employ another broker, but would not be precluded from itself making the sale without becoming liable to the broker for a commission." (Citations, internal quotation marks and brackets omitted.) However, if a broker has been granted an exclusive right to sell, the broker would be entitled to a commission even if the owner were solely responsible for the sale.” The Court explained that exclusive rights to sell has been found where, inter alia, there is “clear and express” language in an agreement that: (1) a commission was owed “regardless of whether the broker was the procuring cause of the transaction”; (2) “the owner was precluded from independently negotiating a sale”; or (3) "inquiries or offers were required to be referred to the broker.” (Numerous citations omitted.) The Court noted that an exclusive right to sell may not be found even though the preamble of an agreement provided that the broker was given an “exclusive right to sell.” In one such example provided by the Court, the phrase “exclusive right to sell” was undefined and the agreement contained a provision requiring the broker to obtain a “ready, willing and able” buyer, which “was deemed clearly inconsistent with any entitlement to a commission upon an independent sale by the owner." (Citations and internal quotation marks omitted.) The Court, quoting Morpheus Capital Advisors LLC v UBS AG, 23 N.Y.3d 528, 535 (2014), stated that “‘a contract giving rise to an exclusive right of sale must clearly and expressly provide that a commission is due upon sale by the owner or exclude the owner from independently negotiating a sale’” because “‘requiring an affirmative and unequivocal statement to establish a broker's exclusive right to sell is consistent with the general principle that an owner's freedom to dispose of her own property should not be infringed upon by mere implication.’” The Court also noted that the Court of Appeals “made clear” that “the rule requiring a clear statement to confer an exclusive right of sale is not limited to real estate brokerage agreements” and that it “saw ‘no reason to apply a different rule to brokerage contracts concerning the sale of financial instruments in the investment banking context,’ noting that, ‘in both cases, the governing principles arise from the law of agency and contract, not from the law of real property.’” (Quoting Morpheus, 25 N.Y.3d at 536 (internal brackets omitted). In holding for the defendant, the Court stated: Applying these principles here, the defendant established its prima facie entitlement to judgment as a matter of law dismissing the complaint. Initially, it is undisputed that the plaintiff did not secure a lender or loan with conforming terms on behalf of the defendant before June 20, 2020. Further, the defendant demonstrated that the plaintiff was not entitled to a commission for the loan the defendant independently obtained from MCB in August 2020. The agreement did not clearly and expressly provide the plaintiff with the exclusive right to deal or negotiate on the defendant's behalf. The defendant also demonstrated that the plaintiff was not the procuring cause of the loan from MCB. 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 As readers know from past articles, CPLR § 7511 (b) sets forth the statutory grounds for vacating an arbitration award.[1] Under that section, a court may vacate an award if the rights of the movant were prejudiced by: (1) corruption, fraud, or misconduct in procuring the award; (2) partiality of the arbitrator; (3) the arbitrator exceeding or imperfectly executing his/her power; or (4) the arbitrator failing to follow the procedure of Article 75. With respect to whether an arbitrator exceeded or imperfectly executed his/her power, an award will not be overturned unless the award violates a strong public policy, is totally irrational, or exceeds a specifically enumerated limitation on the arbitrator’s power.[2] In general, the grounds for vacating an arbitration award are narrowly construed.[3] It will be upheld even when the arbitrator makes errors of law and/or fact.[4] As noted by the Court of Appeals, the courts are not to assume the role of overseer of the arbitration and mold an award to their sense of justice.[5] An arbitration award violates strong public policy “only where [the] court can conclude, without engaging in any extended fact-finding or legal analysis, that a law prohibits the particular matters to be decided by arbitration, or where the award itself violates a well-defined constitutional, statutory, or common law of this state.”[6] An award will be found to violate public policy only where such policy prohibits, in the absolute sense, particular matters being decided or certain relief being granted by the arbitrator.[7] Vacatur on public policy grounds is exercised sparingly[8] in order to preserve the parties’ choice of a nonjudicial forum to the greatest extent possible.[9] Additionally, “[a]n arbitration award may be vacated on the ground that the arbitrator exceeded his or her power where the ‘award … is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator's power.’”[10] “An arbitrator’s award is irrational ‘where there is no proof whatever to justify the award.”[11] “A party seeking to overturn an arbitration award bears a heavy burden and must establish a ground for vacatur by clear and convincing evidence.”[12] In Matter of Centurion Cos., Inc. v. Bowne Tech Constr. Corp., 2025 N.Y. Slip Op. 04246 (2d Dept. July 23, 2025) (here), the Appellate Division, Second Department reversed, in part, a judgment entered by the Supreme Court confirming an arbitration award on the grounds that the “there was no proof whatever to justify” the award.[13] Centurion Companies involved, among other things, the renovation of real property located in West Nyack, N.Y. that was to be used as a new self-storage facility (the “project”). Petitioner Centurion Companies, Inc. (“Centurion”), and respondent, Bowne Tech Construction Corp. (“Bowne”), entered into an agreement with regard to the project pursuant to which Bowne agreed to perform certain steel work for the project in exchange for $840,000 (the “subcontract”). Over one year later, Bowne filed a notice of mechanic’s lien against the subject property in the sum of $261,200, the amount allegedly owed to it for its work on the project pursuant to the terms of a change order increasing the subcontract price by $150,000. On May 25, 2022, Centurion served upon Bowne a notice of demand for arbitration in accordance with the subcontract, challenging the validity of Bowne’s $261,200 claim for unpaid construction work and seeking its own damages based on Bowne’s alleged noncompliance with the subcontract. In an arbitration award dated March 22, 2023, the arbitrator denied Bowne’s claim and awarded Centurion damages in the principal sum of $156,790, including $91,250 in delay damages. Subsequently, Centurion commenced a special proceeding pursuant to CPLR Article 75 to confirm the arbitration award. Bowne opposed the petition and cross-moved to vacate or modify the arbitration award. In an order dated July 17, 2023, the Supreme Court, inter alia, granted the petition, confirmed the arbitration award, denied Bowne’s cross-motion, and directed the entry of a judgment in favor of Centurion and against Bowne in the principal sum of $156,790. A judgment dated August 7, 2023, was entered upon the order in favor of Centurion and against Bowne in the principal sum of $156,790. Bowne appealed. The Court held that “Supreme Court erred in granting that branch of Centurion’s petition which was to confirm so much of the arbitration award as determined that Centurion [was] entitled to $91,250 for delay damages, and in denying that branch of Bowne’s cross-motion which was to vacate that portion of the arbitration award.”[14] The Court found that “[t]his portion of the arbitration award was irrational because there was no proof whatever to justify it.”[15] The Court explained that “when claims are made for damages for delay, a plaintiff must show that the defendant was responsible for the delay, that the delay caused a delay in the completion of the contract (eliminating overlapping or duplication of delays), and that the plaintiff suffered damages as a result of the delay.”[16] The record, said the Court, showed that Centurion had acknowledged that the project site was not ready for Bowne to begin work until December 2020 “due to its own delays”.[17] The Court further found that “[t]here was no evidence presented to show that Centurion suffered any damage as a result of any alleged further delay by Bowne.”[18] The Court also held that there was no “rational basis for using a figure for damages for delay of $1,000 per day.”[19] “Under the circumstances presented,” concluded the Court, “the arbitrator’s determination that Centurion is entitled to $91,250 for delay damages was clearly irrational and contrary to public policy.”[20] However, held the Court, “Supreme Court properly denied that branch of Bowne’s cross-motion which was to modify the arbitration award.”[21] Bowne contended that the arbitrator should have offset the damages awarded to Centurion by $84,000. That challenge, noted the Court, was “a challenge to the arbitrator’s legal and factual conclusions rather than to the arbitrator’s arithmetic.”[22] “As such,” concluded the Court, “it is not a proper ground for modification.”[23] Finally, the Court rejected Bowne’s contention that the award should be vacated because the arbitrator improperly applied the law (i.e., manifestly disregarded the law)[24] “relevant to the subcontract’s no-oral-modification clause.”[25] The Court explained that “the subcontract expressly provided that change orders must be signed by both parties, as well as the owner of the property, in order to be enforceable, and the evidence demonstrated that only Bowne signed the subject change order.”[26] “Under such circumstances,” concluded the Court, “the arbitrator’s determination that the change order was unenforceable was not irrational.”[27] Takeaway In New York, arbitration, like other alternative dispute resolution mechanisms, is valid and enforceable. Like many jurisdictions, New York has a strong public policy that favors arbitration. In fact, arbitration is not only favored but encouraged as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process. Because of the strong public policy favoring arbitration, courts give considerable deference to arbitrators and their awards. In fact, judicial review of arbitration awards is severely limited in New York. As this Blog previously noted, setting aside an arbitral award is difficult. Although courts typically defer to arbitrators’ decisions, even when there are factual or legal errors, Centurian reaffirms that such deference has limits—specifically when an award is irrational (i.e., the award is unsupported by any evidence). Centurian also illustrates that an award violating public policy—such as awarding damages without proof—can be vacated. However, as the legal discussion above makes clear, this ground for vacatur is applied sparingly to preserve the integrity of arbitration as an alternative dispute resolution mechanism. Centurian further highlights the boundaries of CPLR 7511(c)(1)—the provision that permits modification of an arbitral award. As discussed, the Court rejected Bowne’s attempt to modify the award because Bowne’s request went beyond a mathematical error. The Court made clear that legal or factual disagreements with the arbitrator’s conclusions are not valid grounds for modification under CPLR 7511(c). ____________________________________ 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 written dozens of articles addressing numerous aspects of arbitration and arbitration awards. To find such articles, please visit the Blog tile on our website and search for any arbitration issue that may be of interest to you. [2] Matter of Silverman (Benmor Coats), 61 N.Y.2d 299 (1984); Matter of Kowaleski (New York State Dept. of Correctional Servs.), 16 N.Y.3d 85, 90 (2010); Frankel v. Sardis, 76 A.D.3d 136, 139 (1st Dept. 2010). [3] Frankel, 76 A.D.3d at 139-140. [4] Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 479-480 (2006) (citing, Matter of Sprinzen (Nomberg), 46 N.Y.2d 623, 629 (1979)). [5] Wein & Malkin, 6 N.Y.3d at 480. [6] Matter of Reddy v. Schaffer, 123 A.D.3d 935, 937 (2d Dept. 2014). [7] Sprinzen, 46 N.Y.2d at 631. [8] Matter of Neirs-Folkes, Inc. (Drake Ins. Co. of N.Y.), 75 A.D.2d 787 (1st Dept. 1980). [9] Sprinzen, 46 N.Y.2d at 630. [10] Matter of CEO Bus. Brokers, Inc. v. 1431 Utica Ave. Corp., 187 A.D.3d 1185, 1186 (2d Dept. 2020) (internal quotation marks omitted) (quoting Matter of Quality Bldg. Constr., LLC v. Jagiello Constr. Corp., 125 A.D.3d 973, 973 (2d Dept. 2015)); see also Matter of Douglas Elliman of LI, LLC v. O’Callaghan, 220 A.D.3d 945, 946 (2d Dept. 2023). [11] Matter of Briscoe Protective, LLC v. North Fork Surgery Ctr., LLC, 215 A.D.3d 956, 957 (2d Dept. 2023) (internal quotation marks omitted) (quoting Matter of J-K Apparel Sales Co., Inc. v. Esposito, 189 A.D.3d 1045, 1046 (2d Dept. 2020)); see also Matter of CEO Bus. Brokers, 187 A.D.3d at 1186. [12] Kotlyar v. Khlebopros, 176 A.D.3d 793, 795 (2d Dept. 2019). [13] Slip Op. at *3. [14] Id. [15] Id. (citations omitted). [16] Id. (citations omitted). [17] Id. According to the Court, “[t]he project was substantially completed seven months later in July 2021”. Id. [18] Id. [19] Id. [20] Id. (citations omitted). [21] Id. [22] Id. Bowne was moving under CPLR 7511(c). Under that rule, the court must modify an arbitration award if “there was a miscalculation of figures.” CPLR 7511(c)(1). [23] Id. (citations omitted). [24] On July 23, 2025, this Blog examined the manifest disregard of the law doctrine (here). [25] Id. Bowne contended that Supreme Court erred in denying that branch of its cross-motion which was to vacate so much of the arbitration award as denied its claim for $261,200 in unpaid construction work. Id. [26] Id. [27] Id.

By: Jeffrey M. Haber This Blog has written about Ponzi schemes on numerous occasions.[1] A Ponzi scheme is a type of investment fraud where returns to earlier investors are paid using investment capital from new or existing investors, rather than from legitimate profits earned through the enterprise’s business activities. Ponzi schemes persist by exploiting trust, promising high returns with little risk, and using money from new or existing investors to pay “profits” to earlier ones. The Securities and Exchange Commission (“SEC”) has intensified its crackdown on Ponzi schemes and Pyramid schemes, focusing on enhanced enforcement, investor education, and transparency. Despite the SEC’s efforts, promoters of Ponzi schemes continue to find ways to perpetrate their fraud. In today’s article, we examine an enforcement action brought by the SEC against Edwin Emmett Lickiss (“defendant”), a former investment adviser located in the Bay Area of California. Between 1998 and September 2024, defendant was a financial advisor who owned and operated Foundation Financial Group, a firm that provided investment services to investors in the Northern District of California, Idaho, and throughout the United States. Defendant was a registered broker until 2014, when the Financial Industry Regulatory Authority suspended his broker’s license. Despite the suspension and loss of his broker’s license, defendant allegedly continued to solicit and obtain investments from investors until around September 2024. As part of his scheme, defendant allegedly represented to investors that he would invest their funds in government bonds and other bonds. To induce his victims to invest their money with him, defendant allegedly claimed that he had exclusive access to bonds that paid very high rates of returns, including rates in excess of 20 percent. Defendant allegedly described the bonds as safe, secure, and tax-free, and is alleged to have falsely claimed, among other things, that the bonds could be redeemed at any time. Though the bonds allegedly paid interest on a monthly basis, defendant advised investors to roll them over. To convince investors that he had invested their funds as promised, defendant allegedly gave investors fraudulent promissory notes that included the terms of the bond investments and purported to track investors’ total investment in the bonds. According to the SEC, defendant fraudulently offered and sold to investors approximately $12.7 million in promissory notes, which purported to pay interest rates of between 9 and 32 percent per annum. Defendant also allegedly made payments to investors, some of whom were repaid in full, to lull them into believing that they were receiving a return on their investment. Defendant allegedly described the payments as interest that had accrued on the bonds, when, in fact, the payments were allegedly made with funds defendant obtained from subsequent investors. Instead of investing the funds as promised, defendant allegedly used investors’ funds to pay earlier investors, as in a Ponzi scheme, and for his personal use, including cash withdrawals, home renovations, travel, and car, mortgage, and personal credit card payments. In all, defendant allegedly obtained at least $9.5 million from no fewer than 50 investors. The SEC filed its complaint (here) in the U.S. District Court for the Northern District of California. In the complaint, the SEC charged defendant with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks permanent injunctive relief, including conduct-based injunctions against defendant, disgorgement with prejudgment interest, and a civil penalty. In a parallel action, the U.S. Attorney’s Office for the Northern District of California announced that a federal grand jury indicted defendant, on one count of wire fraud and one count of money laundering in connection with the alleged fraudulent scheme (here).[2] _______________________________________ 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 written scores of articles addressing SEC enforcement actions and settlements involving Ponzi schemes. To find such articles, please visit the Blog tile on our website and search for “Ponzi schemes” or any SEC enforcement action issue that may be of interest to you. [2] It must be remembered that an indictment merely alleges that crimes have been committed. Like all defendants, defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

By: Jeffrey M. Haber Introduction What is a “loan” under New York law? The question appears straightforward, but the answer is often far more complicated than the label parties attach to transaction documentation. Courts applying New York law have long recognized that whether a transaction constitutes a loan depends on its substance rather than its form. This distinction is important because a finding that a transaction is a loan can trigger a host of legal consequences, including the application of New York’s civil and criminal usury statutes. At its core, a loan involves the transfer of money from one party to another, coupled with an absolute obligation to repay the principal, usually with additional compensation in the form of interest. Yet modern financing transactions frequently blur the lines. Merchant cash advances, litigation funding arrangements, revenue-based financing agreements, and other financial products are often structured to avoid characterization as loans. As a result, New York courts have devoted considerable attention to determining when a transaction creates a true repayment obligation and when repayment is contingent on future events or performance. The distinction is more than academic. If a transaction is not a loan, New York’s usury laws typically do not apply. Conversely, if a court concludes that an arrangement is, in substance, a loan, the transaction may be subject to statutory limitations on interest rates and other lending regulations. Consequently, litigants and courts frequently focus on the threshold question of whether a loan exists before addressing any broader challenges to the transaction. In NewCo Capital Group LLC v. SPE Trading, Inc., 2026 N.Y. Slip Op. 04057 (4th Dept. June 26, 2026), the definition of a loan under New York law, the elements courts consider when making that determination, and the key principles that distinguish loans from other forms of financing and commercial investment arrangements were addressed by the Court. Applicable Principles “A transaction ... is usurious under criminal law when it imposes an annual interest rate exceeding 25%.”[1] General Obligations Law § 5–521 bars a corporation from asserting usury in any action, except in the case of criminal usury as defined in Penal Law § 190.40, and then only as a defense to an action to recover repayment of a loan, and not as the basis for a cause of action asserted by the corporation for affirmative relief.[2] As the Appellate Division, First Department, explained three decades ago:[3] While the statute expressly prohibits only the interposition of usury as a defense, this court has employed the principle that a party may not accomplish by indirection what is directly forbidden to it and has accorded the rule a broader scope. Thus, it is well established that the statute generally proscribes a corporation from using the usury laws either as a defense to payment of an obligation or, affirmatively, to set aside an agreement and recover the usurious premium. The statutory exception for interest exceeding 25 percent per annum is strictly an affirmative defense to an action seeking repayment of a loan and may not, as attempted here, be employed as a means to effect recovery by the corporate borrower. As noted, the “rudimentary element of usury is the existence of a loan or forbearance of money.”[4] Thus, “where there is no loan, there can be no usury, however unconscionable the contract may be.”[5] If the borrower establishes that the loan is usurious, the transaction is deemed void and unenforceable.[6] “When determining whether a transaction constitutes a usurious loan, it must be considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it.”[7] The primary question in determining if a transaction is a loan or some other arrangement is “whether the plaintiff is absolutely entitled to repayment under all circumstances; [u]nless a principal sum advanced is repayable absolutely, the transaction is not a loan.”[8] “Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy.”[9] In NewCo Capital, the Appellate Division, Fourth Department, applied the foregoing three-factor test to distinguish a loan from a merchant cash advance and held that the agreement was not a loan because it contained meaningful reconciliation provisions, had no finite term or fixed repayment schedule, and placed the risk of the merchant’s business failure, including bankruptcy, on the purchaser rather than guaranteeing repayment. Accordingly, as discussed below, because repayment was contingent on the merchant’s future receivables and not absolutely required, the Court concluded that the agreement was a revenue purchase agreement rather than a usurious loan. NewCo Capital Group LLC v. SPE Trading, Inc. Plaintiff commenced the action following defendants’ alleged breach of a revenue purchase agreement (“agreement”) entered into between plaintiff and defendants. Under the agreement, plaintiff advanced a monetary amount to the entity defendants in exchange for 7% of the future revenues of their business until the purchased amount, i.e., an agreed-upon amount that was greater than the advanced amount, was paid to plaintiff. The agreement contained a weekly remittance amount, which constituted a “good faith estimate of” plaintiff’s share of the future revenue stream. The individual defendant guaranteed the entity defendants’ performance of the agreement. Under the agreement, an event of default included, among other things, the entity defendants’ failure to request a reconciliation or adjustment to the remittance within one business day after the remittance was returned for insufficient funds in the bank account. On January 4, 2024, the entity defendants’ bank returned their remittance for insufficient funds, and the entity defendants failed to request a timely reconciliation or adjustment to that remittance. After the alleged event of default, plaintiff commenced the action for breach of the agreement and personal guarantee and moved for summary judgment on the complaint. Defendants appealed from an order granting the motion in part and awarding damages and attorneys’ fees to the plaintiff. As an initial matter, the Court held that plaintiff proved its claim for breach of contract by “establish[ing] that an agreement existed, it performed under the agreement, defendants breached the agreement, and plaintiff sustained damages.”[10] Having found that plaintiff satisfied its burden of proving a breach, the Court turned to defendants’ contention that the agreement was void because it was a criminally usurious loan. The Court rejected that contention using the three factors discussed above. With respect to the first factor, the Court noted that “the agreement had two reconciliation provisions, whereby the weekly remittance would be modified both retroactively and prospectively upon request and with proof of earned revenue amounts.”[11] The Court explained that “[i]f the entity defendants made either request, plaintiff was required to modify the remittance amount to reflect the entity defendants’ actual receipts.”[12] Based upon the clarity of the foregoing provisions, the Court “reject[ed] defendants’ contentions that the reconciliation provisions [were] convoluted or that the agreement provide[d] plaintiff with sole discretion to reconcile, so as to render the provisions illusory.”[13] Under the second factor, the Court found that the “agreement did not have a finite term or payment schedule.”[14] “Indeed,” observed the Court, “‘the term of the agreement was not finite inasmuch as the amount of the [weekly] payments [made by the entity defendants] could change as a consequence of the application of the agreement’s reconciliation provisions.’”[15] With respect to the third factor, the Court noted that the “agreement stated that the entity defendants ‘going bankrupt or going out of business, or experiencing a slowdown in business, or a delay in collecting [their] receivables, in and of itself, [did] not constitute a breach of this Agreement.’”[16] Thus, concluded the Court, “plaintiff did not have recourse in the event that the entity defendants declared bankruptcy.”[17] Accordingly, the Court found “that the agreement was a revenue purchase agreement and not a usurious loan.”[18] Takeaway NewCo Capital reinforces the principle that, under New York law, the threshold question in any usury analysis is whether the transaction is a loan. Labels are not dispositive; courts will look to the economic reality of the arrangement and, in particular, whether the funder is absolutely entitled to repayment under all circumstances. If repayment is contingent on the merchant’s future receivables and the funder assumes a genuine risk of nonpayment, the transaction is not a loan and therefore falls outside New York’s usury laws. The decision also reaffirms the focus on the three factors used to evaluate whether financial arrangements, such as merchant cash advances and revenue-purchase agreements, are loans: (1) the existence of a meaningful reconciliation provision that adjusts payments to actual receipts; (2) the absence of a finite term or fixed repayment schedule; and (3) the funder’s lack of recourse if the merchant’s business fails or files for bankruptcy. Where these indicators are real and enforceable, not merely illusory, the agreement will be characterized as a purchase of future receivables rather than a loan. Importantly, NewCo Capital demonstrates that courts will reject attempts to invalidate merchant cash advance agreements based on claims that reconciliation provisions are overly complex or discretionary when the contractual language requires the funder to adjust remittances to reflect the merchant’s true revenue stream. Finally, the case serves as a reminder that even where a transaction results in a very high effective rate of return, that fact alone does not establish usury. As New York courts repeatedly emphasize, there can be no usury without a loan. Consequently, parties challenging financing transactions, such as merchant cash advance agreements, must first establish the existence of an absolute repayment obligation before a court will even reach the question of whether the return charged exceeds New York’s civil or criminal usury limits. __________________________________ 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] Abir v. Malky, Inc., 59 A.D.3d 646, 649 (2d Dept. 2009); see also Penal Law § 190.40. [2] Paycation Travel, Inc. v. Glob. Merch. Cash, Inc., 192 A.D.3d 1040, 141 (2d Dept. 2021); LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664, 666 (2d Dept. 2020). [3] Intima-Eighteen, Inc. v. Schreiber Co., 172 A.D.2d 456, 457-458 (1st Dept. 1991) (internal quotation marks and citations omitted). [4] LG Funding, 181 A.D.3d at 665. [5] Id. (citations omitted). [6] See Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320, 326 (2021); Davis v. Richmond Capital Group, LLC, 194 A.D.3d 516, 517 (1st Dept. 2021). [7] True Bus. Funding, LLC v. Guerrero A Constr. Corp., 239 A.D.3d 787, 788 (2d Dept. 2025) (internal quotation marks omitted); see Adar Bays, 37 N.Y.3d at 334. [8] Samson MCA LLC v. Joseph A. Russo M.D. P.C./IV Therapeutics PLLC (appeal No. 2), 219 A.D.3d 1126, 1127 (4th Dept. 2023) (internal quotation marks omitted); see Bridge Funding, 240 A.D.3d at 1188; LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664, 665-666 (2d Dept. 2020). [9] Bridge Funding, 240 A.D.3d at 1188 (internal quotation marks omitted); see Kapitus Servicing, Inc. v. Suburban Waste Servs., Inc., 246 A.D.3d 661, 661 (1st Dept. 2026); True Bus. Funding, 239 A.D.3d at 788; Samson MCA, 219 A.D.3d at 1128. [10] Slip Op. at *1, citing Tapp Partners, LLC v. Wall Sections Inc., 244 A.D.3d 1727, 1728 (4th Dept. 2025); cf. Bridge Funding, 240 A.D.3d, at 1189-1190. [11] Id. at *2. [12] Id. [13] Id. (citation omitted). [14] Id. [15] Id., citing Bridge Funding, 240 A.D.3d at 1189 (internal quotation marks omitted). [16] Id., citing Samson MCA, 219 A.D.3d at 1128. [17] Id., citing id. [18] Id. at 1-2, citing Bridge Funding Cap LLC, 240 A.D.3d at 1188-1189; True Bus. Funding, LLC, 239 A.D.3d at 788; Samson MCA, 219 A.D.3d at 1128.

By: Jeffrey M. Haber “A transaction ... is usurious under criminal law when it imposes an annual interest rate exceeding 25%.”[1] General Obligations Law § 5–521 bars a corporation from asserting usury in any action, except in the case of criminal usury as defined in Penal Law § 190.40, and then only as a defense to an action to recover repayment of a loan, and not as the basis for a cause of action asserted by the corporation for affirmative relief.[2] As the Appellate Division, First Department explained three decades ago:[3] While the statute expressly prohibits only the interposition of usury as a defense, this court has employed the principle that a party may not accomplish by indirection what is directly forbidden to it and has accorded the rule a broader scope. Thus, it is well established that the statute generally proscribes a corporation from using the usury laws either as a defense to payment of an obligation or, affirmatively, to set aside an agreement and recover the usurious premium. The statutory exception for interest exceeding 25 percent per annum is strictly an affirmative defense to an action seeking repayment of a loan and may not, as attempted here, be employed as a means to effect recovery by the corporate borrower. As noted, the “rudimentary element of usury is the existence of a loan or forbearance of money.”[4] Thus, “where there is no loan, there can be no usury, however unconscionable the contract may be.”[5] To determine whether a transaction constitutes a usurious loan, it “must be ‘considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it.’”[6] The court must examine whether the plaintiff “is absolutely entitled to repayment under all circumstances.”[7] “Unless a principal sum advanced is repayable absolutely, the transaction is not a loan.”[8] When considering whether repayment is absolute or contingent, courts typically weigh three factors:[9] (1) Whether there is a reconciliation provision in the agreement. The reconciliation provisions of a contract allow the merchant to seek an adjustment of the amounts being taken out of its account based on its cash flow (or lack thereof). If a merchant is doing poorly, the merchant will pay less, and will receive a refund of anything taken by the company exceeding the specified percentage (which often can also be adjusted downward). If the merchant is doing well, it will pay more than the daily amount to reach the specified percentage. If there is no reconciliation provision, the agreement may be considered a loan.[10] (2) Whether the agreement has a finite term. If the term of the agreement is indefinite, then it is consistent with the contingent nature of each and every collection of future sales proceeds under the contract. This is because the defendant’s collection of sales proceeds is contingent upon the plaintiff actually generating sales and those sales resulting in the collection of revenue.[11] (3) Whether there is any recourse should the merchant declare bankruptcy. In 110% Effort, 1000% of the Time LLC v. High Roller Rentals LLC, 2021 N.Y. Slip Op. 32678(U) (Sup. Ct., Kings County Dec. 13, 2021) (here), the Court examined the foregoing principles in denying a motion to dismiss, finding that the agreement between the parties was not a loan and therefore did not require the payment of criminally usurious interest. On January 30, 2020, the parties entered into a contract whereby defendant, High Roller Rentals LLC, sold $129,000.00 worth of High Roller’s future receivables to plaintiff for $100,000.00 (the “Purchase Agreement”). Defendant William Casey Penn personally guaranteed High Roller’s obligations under the Purchase Agreement. The Purchase Agreement obligated High Roller to deposit all of its receipts into a designated bank account and authorized plaintiff permission to debit and retain 12% of all future receipts until the sum of $129,000.00 was paid back to plaintiff. Plaintiff alleged that High Roller breached the Purchase Agreement by changing the designated bank account without its authorization. Defendant moved to dismiss the complaint claiming that the Purchase Agreement was in actuality a criminally usurious loan and was, therefore, unenforceable under General Obligations Law § 5-521. Applying the three factors discussed above, the Court concluded that the Purchase Agreement was not a loan. With respect to the first factor (i.e., whether there is a reconciliation provision in the agreement), the Court held that the “fact that High Roller ha[d] no right of adjustment/reconciliation … under the Purchase Agreement militate[d] in favor of deeming the transaction a loan.” “However,” said the Court, “this is just one of the three factors that must be weighed in determining the true nature of the transaction at issue.” With respect to the second factor (i.e., whether the agreement has a finite term), the Court held that plaintiff’s entitlement to repayment was not absolute and was contingent upon several factors, such as the cessation of defendant’s business due to “adverse business conditions” beyond defendant’s control, the loss of the premises where defendant operated its business, defendant’s bankruptcy, and/or natural disasters or similar occurrences beyond defendant’s control. With respect to the third factor (i.e., whether there is any recourse should the merchant declare bankruptcy), the Court held that High Roller’s obligations under the Purchase Agreement terminated if High Roller was declared bankrupt. In other words, said the Court, “bankruptcy [was] not a default under the Purchase Agreement, entitling plaintiff to an immediate judgment against High Roller. Based upon the foregoing three-factor analysis, and a review of the Purchase Agreement, the Court concluded that the agreement between the parties was not a loan. As such, the Purchase Agreement was “not subject … to New York’s usury statutes.” Takeaway In New York, there is a presumption that a transaction is not usurious. As a result, claims of usury must be proved by clear and convincing evidence.[12] In determining whether a transaction is a loan or not, the court must examine whether the defendant is absolutely entitled to repayment under all circumstances. Weighing the factors discussed above, the Court in 110% Effort concluded that defendants were not absolutely entitled to repayment under all circumstances. As such, the Purchase Agreement was not a loan. _________________________________ 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] Abir v. Malky, Inc., 59 A.D.3d 646, 649 (2d Dept. 2009); see also Penal Law § 190.40. [2] Paycation Travel, Inc. v. Glob. Merch. Cash, Inc., 192 A.D.3d 1040, 141 (2d Dept. 2021); LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664, 666 (2d Dept. 2020). [3] Intima-Eighteen, Inc. v. Schreiber Co., 172 A.D.2d 456, 457-458 (1st Dept. 1991) (internal quotation marks and citations omitted). [4] LG Funding, 181 A.D.3d at 665. [5] Id. (citations omitted). [6] Abir, 59 A.D.3d at 649 (quoting Ujueta v. Euro–Quest Corp., 29 A.D.3d 895, 895 (2d Dept. 2006) (internal quotation marks omitted). [7] K9 Bytes, Inc. v. Arch Capital Funding, LLC, 56 Misc. 3d 807, 816 (Sup. Ct. Westchester County 2017). [8] LG Funding, 181 A.D.3d at 666. [9] K9 Bytes, 56 Misc. 3d at 816–819. [10] Id. [11] Id. [12] Giventer v. Arnow, 37 N.Y.2d 305, 309 (1975).

By: Jeffrey M. Haber This Blog has written frequently about the substance and scope of general releases.[1] In New York, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.”[2] If “the language of a release is clear and unambiguous, the signing of a release is a ‘jural act’ binding on the parties.”[3] For this reason, “[a] release should never be converted into a starting point for … litigation except under circumstances and under rules which would render any other result a grave injustice.”[4] “Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release ‘shifts the burden of going forward … to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release.’”[5] “A plaintiff seeking to invalidate a release due to fraudulent inducement must ‘establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.’”[6] A party that releases “a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.” Id. (citation omitted). “Were this not the case,” observed the Court of Appeals, “no party could ever settle a fraud claim with any finality.” Id. “‘A party may move for judgment dismissing one or more causes of action asserted against [it] on the ground that … the cause of action may not be maintained because of … [a] release.’”[7] “In resolving a motion to dismiss pursuant to CPLR 3211(a)(5), ‘the plaintiff’s allegations are to be treated as true, [and] all inferences that reasonably flow therefrom are to be resolved in his or her favor.’”[8] In Schneier v. Clermont York Assoc., LLC, 2025 N.Y. Slip Op. 04498 (2d Dept. July 30, 2025) (here), the foregoing principles were before the Appellate Division, Second Department. Schneier involved a putative class action brought on behalf of “opt out members of” a prior class action, entitled Gerard v. Clermont York Assoc. LLC, commenced in the Supreme Court, New York County, under Index No. 101150/10 (the “prior class action”), against defendant, inter alia, to recover damages for certain rent overcharges. The prior class action was settled by an agreement dated May 20, 2019 (the “settlement agreement”). Plaintiff was a member of the prior class. The settlement agreement was approved by the Supreme Court by judgment dated August 26, 2020, and contained a general release barring every class member “who [did] not timely and properly opt out” of the settlement agreement from asserting “all … claims[ or] causes of action … of any nature whatsoever … arising at any time on or before entry of the [judgment] that are based upon or related to, or arise out of, in whole or in part, the facts, transactions, events, occurrences, acts, or failures to act that were or could have been alleged” in the prior class action by a class member. The settlement agreement further provided that a class member could opt out of the settlement by sending a written request for exclusion from the settlement by first-class mail postmarked by a certain date. In Schneier, Plaintiff moved, inter alia, pursuant to Article 9 of the Civil Practice Law and Rules (“CPLR”) for class certification and, in effect, pursuant to CPLR 3126 to impose discovery sanctions. Defendant opposed the motion and cross-moved pursuant to CPLR 3211(a) to dismiss the complaint as barred by the release. In an order entered April 1, 2024, the Supreme Court denied plaintiff’s motion and granted defendant’s cross-motion. Plaintiff appealed. The Second Department affirmed. The Court held that defendant “met its initial burden of establishing that the instant action was barred by the release.”[9] The Court found that, “in support of its cross-motion, the defendant submitted,” inter alia, evidence sufficient to support dismissal of the action.[10] This evidence included “the settlement agreement containing the release, which, by its terms, barred the action against defendant for those class members in the prior class action who did not opt out of the settlement in the manner required by the settlement agreement” and “evidence that the plaintiff, who was a class member, received the requisite notice of the settlement agreement and its opt out provision but failed to opt out of the settlement in the manner required by the settlement agreement.”[11] The Court noted that “[i]n opposition, the plaintiff failed to show that there [had] been fraud, duress, or some other circumstance that would be sufficient to set aside the release.”[12] The Court rejected plaintiff’s argument that she was relieved of the settlement agreement’s opt-out provision by the Governor’s executive orders during the pandemic: “Contrary to the plaintiff’s contention, she was not relieved of the opt out requirements of the settlement agreement by virtue of the toll provided by Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8) and the subsequent orders extending that order, issued by the Governor in response to the COVID-19 public health crisis.”[13] Accordingly, concluded the Court, “the Supreme Court properly granted the defendant’s motion pursuant to CPLR 3211(a) to dismiss the complaint as barred by the release.”[14] Takeaway A “release is … a species of contract” that “is governed by the same principles of law applicable to other contracts.”[15] Therefore, in the absence of duress, illegality, fraud, or mutual mistake, a release will not be set aside.[16] In Schneier, the release language at issue was expansive and released “all … claims[ or] causes of action … of any nature whatsoever … arising at any time on or before entry of the [judgment] that are based upon or related to, or arise out of, in whole or in part, the facts, transactions, events, occurrences, acts, or failures to act that were or could have been alleged” in the prior class action by a class member. For the Second Department (and the Supreme Court), such language was broad enough to cover the claims asserted in plaintiff’s complaint. Since the release barred the action, and plaintiff failed to plead fraud, duress, mistake or illegality, the Second Department affirmed dismissal of the complaint. ________________________________________ 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] We have written numerous articles addressing releases and their bar on subsequent actions involving the released subject matter. To find such articles, please see the BLOG tile on our website and search for “release”, “general release”, or any other commercial litigation issue that may be of interest you. [2] Global Minerals & Metals Corp. v. Holme, 35 A.D.3d 93, 98 (1st Dept. 2006). [3] Booth v. 3669 Delaware, Inc., 92 N.Y.2d 934, 935 (1998) (quoting Mangini v. McClurg, 24 N.Y.2d 556, 563 (1969)). See also Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011). [4] Id. (internal quotation omitted). [5] Centro Empresarial Cempresa, 17 N.Y.3d at 276 (“A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake”) (internal quotation marks and citation omitted) (quoting Fleming v. Ponziani, 24 N.Y.2d 105, 111 (1969)). [6] Id. (quoting Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93, 98 (1st Dept. 2006)). [7] Davin v. Plymouth Rock Assur. Co. of N.Y., 227 A.D.3d 862, 863 (2d Dept. 2024) (quoting CPLR 3211(a)(5)). [8] Id. at 863-864 (quoting Sacchetti-Virga v. Bonilla, 158 A.D.3d 783, 784 (2d Dept. 2018). [9] Slip Op. at *2. [10] Id. [11] Id. (citations omitted). [12] Id. (citations omitted). [13] Id. (citations omitted) [14] Id. [15] Schuman v. Gallet, Dreyer & Berkey, L.L.P., 180 Misc. 2d 485, 487 (Sup. Ct., N.Y. County 1999), aff’d, 280 A.D.2d 310 (1st Dept. 2001). See also Ivasyuk v. Raglan, 197 A.D.3d 635, 636 (2d Dept. 2021). [16] Toledo v. W. Farms Neighborhood Hous. Dev. Fund Co., Inc., 34 A.D.3d 228, 229 (1st Dept. 2006).

By: Jeffrey M. Haber The Custody Rule provides that “it is a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of section 206(4) of the [Advisers] Act … for [a registered investment adviser] to have custody of client funds or securities unless” the adviser implements an enumerated set of requirements to prevent loss, misuse, or misappropriation of those funds and securities.[1] The purpose of the Custody Rule is to protect investment advisory clients from, among other things, the loss, misuse, or misappropriation of their funds and securities. Under the rule, an investment adviser has custody if it holds, directly or indirectly, client funds or securities, or if it has the ability to obtain possession of those funds and securities.[2] Custody is defined to include, among other things, “[a]ny arrangement … under which [the adviser is] authorized or permitted to withdraw client funds or securities maintained with a custodian upon [its] instruction to the custodian” and “[a]ny capacity (such as … trustee of a trust) that gives [the adviser or its] supervised person legal ownership of or access to client funds or securities.”[3] A “related person” is defined as any person, directly or indirectly, controlling or controlled by the adviser, and any person that is under common control with the adviser.[4] Under the Custody Rule, an investment adviser who has custody of client funds and securities must, among other things: (i) ensure that a qualified custodian maintains the client funds and securities; (ii) notify the client in writing of accounts opened by the adviser at a qualified custodian on the client’s behalf; (iii) have a reasonable basis for believing that the qualified custodian sends account statements at least quarterly to clients; and (iv) ensure that client funds and securities are verified by actual examination each year by an independent public accountant pursuant to a written agreement at a time chosen by the accountant without prior notice or announcement to the adviser (i.e., the “surprise examination” requirement).[5] The written agreement with the accountant must provide for the first examination to occur within six months of becoming subject to the requirement and require, among other things, that the accountant file a Form ADV-E with the SEC within 120 days of the date chosen by the accountant to perform the examination, which states that the accountant has examined the client funds and securities and describes the nature and extent of the examination.[6] Today we examine In the Matter of Munakata Associates LLC (here), an administrative action that was settled in anticipation of the institution of enforcement proceedings involving the alleged violation of the Custody Rule. According to the SEC, from at least 2018 to 2024 (the “Relevant Period”), respondent’s president, sole principal, and chief compliance officer (the “Munakata’s President”) served as a co-trustee of two trusts that were advisory clients of Munakata. The trust agreements granted each co-trustee “broad investment and other powers under the trust agreement and applicable law to enter into transactions and to trade, buy, sell, sell short or otherwise acquire, receive, deliver, assign, endorse for transfer, hold or dispose of all manner of securities, futures, currencies and commodities …” as well as “broad powers under the trust agreements and applicable law to engage in borrowing and other loan and credit transactions ….” The trust agreements further stated that each co-trustee could act independently. As a result, respondent had access to and/or the ability to obtain possession of trust funds and securities without the consent of the respective co-trustees. During the Relevant Period, said the SEC, Munakata’s President had signatory authority on four client accounts. Pursuant to this authority, explained the SEC, Munakata’s President had the same ability to instruct the broker about the delivery of the accounts’ funds and securities as did the beneficial owner of the account. Thus, said the SEC, respondent had access to and/or the ability to obtain possession of client funds and securities. During the Relevant Period, said the SEC, Munakata’s President acted as an authorized agent with power of attorney on five client accounts. Pursuant to the power of attorney, explained the SEC, Munakata’s President had “the power to place orders in an account, request disbursements and make inquiries concerning the account such as obtaining account balances” as well as the power “to make gifts or other transfers of … money or other property from [the client’s] account during [the client’s] lifetime, without restriction, to any one or more persons, including the agent himself or herself.” (Orig’l emphasis). Thus, said the SEC, respondent had access to and/or the ability to obtain possession of client funds and securities. As a result, said the SEC, during the Relevant Period, respondent had custody of client funds and securities under the Custody Rule. Accordingly, noted the SEC, respondent was required to obtain surprise examinations in accordance with Rule 206(4)-2(a)(4) during the Relevant Period. According to the SEC, at no time during the Relevant Period, however, did respondent arrange for the required surprise examinations for the client accounts. As a result, the SEC alleged that, during the Relevant Period, respondent violated Section 206(4) of the Investment Advisers Act and Rule 206(4)-2 thereunder. Without admitting or denying the findings in the SEC’s order instituting cease-and-desist proceedings (here), respondent agreed to cease and desist from committing or causing any violations and any future violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder, and to pay a civil penalty in the amount of $50,000. Takeaway: Over the years, the SEC has actively enforced the Custody Rule: · In September 2022, the SEC resolved nine enforcement proceedings alleging violations of the Custody Rule and associated requirements for amending Form ADV to provide accurate information about fund audits. · In September 2023, the SEC resolved five additional enforcement proceedings arising out of the Custody Rule. · In December 2023, the SEC settled charges with an investment adviser who allegedly failed, among other things, to conduct surprise examinations of its client funds or securities. · In August 2024, the SEC settled charges against an investment advisory firm for failing to deliver required audited financial statements in a timely manner and failing to promptly file an annual updating amendment to its Form ADV. · In September 2024, the SEC settled charges against a Florida-based (former) registered investment adviser for a private fund that primarily invested in crypto assets, for failing to comply with requirements related to the safeguarding of client assets, including crypto assets being offered and sold as securities. Munakata stands as another recent example of the SEC’s active enforcement of, and commitment to, enforcing the Custody Rule. Munakata also underscores the SEC’s emphasis on compliance even in the absence of client loss. As discussed, there was no allegation of investor loss in Munakata. ____________________________________________ 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] Rule 206(4)-2(a). [2] Rule 206(4)-2(d)(2). [3] Id. [4] Rule 206(4)-2(d)(7). [5] Rule 206(4)-2(a)(1) – (4). [6] Rule 206(4)-2(a)(4).

By: Jonathan H. Freiberger In today’s BLOG we will address the enforcement of foreign judgments (i.e., judgments obtained outside the State of New York) in New York.[1] Simply stated, armed with a money judgment, a judgment creditor can employ numerous available procedures to assist in the collection of the outstanding judgment debt. Article 52 of the CPLR (Enforcement of Money Judgments) provides for many enforcement options. Judgments obtained in New York can be enforced immediately. What happens, however, when a litigant obtains a judgment in another state, but would like to enforce it in New York because the judgment debtor has real property, personal property or bank accounts in New York? The United States Constitution provides that “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.” U.S.Const., Art. IV, § 1. The “Full Faith and Credit Clause” “requires each State to recognize and give effect to valid judgments rendered by the courts of its sister States. It serves to alter the status of the several states as independent foreign sovereignties, each free to ignore obligations created under the laws or by the judicial proceedings of the others, and to make them integral parts of a single nation.” V.L. v. E.L., 577 U.S. 404, 406-07 (2016) (citations and internal quotation marks omitted). Thus, a “final judgment in one State, if rendered by a court with adjudicatory authority over the subject matter and persons governed by the judgment, qualifies for recognition throughout the land” even if a sister state “disagrees with the reasoning underlying the judgment or deems it to be wrong on the merits.” Id. at 407. However, states are “not required … to afford full faith and credit to a judgment rendered by a court that did not have jurisdiction over the subject matter or the relevant parties.” Id. (citation and internal quotation marks omitted). While foreign judgments are entitled to full faith and credit in New York, they must first be “domesticated” in New York before they are enforceable. The CPLR provides two methods for domestication. The first method is contained in Article 54 of the CPLR, which codified the Uniform Enforcement of Foreign Judgments Act.[2] Under CPLR 5402(a), to recognize a foreign judgment, a judgment creditor must: (1) obtain an authenticated copy of the foreign judgment and, within 90 days of authentication, file it in the office of any county clerk of New York State; and (2) file an affidavit, stating (i) that the judgment was not obtained by default in appearance or by confession of judgment, (ii) that the judgment is unsatisfied in whole or in part, (iii) that the amount remaining on the judgment is unpaid, (iv) that enforcement of the judgment has not been stayed, and (v) setting forth the name and last known address of the judgment debtor. If the judgment creditor complies with the requirements of CPLR 5402(a), CPLR 5402(b) permits the foreign judgment to be treated “in the same manner as a judgment of the supreme court of this state.” Therefore, a foreign judgment that is filed in accordance with the requirements of CPLR § 5402 will have the same legal effect as a judgment entered in New York and will be “subject to the same procedures, defenses, and proceedings for reopening, vacating or staying” a New York judgment. CPLR 5402(b). Since CPLR § 5402(a) specifically excludes judgments obtained by default, a foreign judgment creditor must commence a plenary action or move for summary judgment in lieu of complaint to domesticate the foreign judgment. CPLR 5406; Madjar v. Rosa, 83 A.D.3d 1011, 1012-13 (1st Dep’t 2011) (citations omitted). Against this backdrop, today’s article addresses Cadlerock Joint Venture, L.P. v. Simms, an opinion rendered on August 6, 2025, by the Appellate Division, Second Department. The abridged and simplified facts of Cadlerock follow. The plaintiff in Cadlerock was a judgment creditor who obtained a money judgment, by default, in North Carolina. Because the judgment was obtained by default, it could not be domesticated by the procedures found in CPLR 5402(a). Accordingly, in 2023, the judgment creditor commenced an action by moving for summary judgment in lieu of complaint pursuant to CPLR 3213[3] to domesticate, in New York, its North Carolina judgment. The judgment debtor opposed the motion by arguing that there was no personal jurisdiction over him in New York and, therefore, the motion must be denied.[4] The judgment creditor opposed the cross-motion by arguing that “lack of personal jurisdiction in New York was not a cognizable defense to an action seeking to domesticate a judgment from another state.” The motion court, in granting the cross-motion and denying the motion for summary judgment in lieu of complaint, held that New York lacked personal jurisdiction over the judgment debtor. On the judgment creditor’s appeal, the Second Department reversed and answered in the negative, the question presented on appeal – “whether New York must possess personal jurisdiction over the defendant in order for the plaintiff to obtain such recognition and potential enforcement of the judgment in New York.” After discussing full faith and credit and CPLR Article 54, the Court explained the issue of personal jurisdiction. Among other things, the Court reiterated that the “Due Process Clause of the Fourteenth Amendment limits the power of a state court to render a valid personal judgment against a nonresident defendant [and] protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful contacts, ties, or relations.” (Citations and internal quotation marks omitted.) The Court also noted that a “judgment rendered in violation of due process is void in the rendering State and is not entitled to full faith and credit elsewhere. Due process requires that the defendant be given adequate notice of the suit, and be subject to the personal jurisdiction of the court.” (Citation and internal quotation marks omitted.) There could be no dispute that while “New York would lack jurisdiction to pass upon the merits of the controversy underlying the 2017 North Carolina judgment[, the judgment creditor] is not asking the New York courts to consider the merits of the underlying action, only to recognize the judgment entered by the North Carolina court so as to make it enforceable in New York.” The Court then held “that New York need not possess personal jurisdiction over the defendant judgment debtor in order to recognize and domesticate a judgment entitled to full faith and credit.” “Accordingly, the Supreme Court should have granted the plaintiff’s motion for summary judgment in lieu of complaint and denied that branch of the defendant’s cross-motion which was pursuant to CPLR 3211(a)(8) to dismiss the action for lack of personal jurisdiction.” 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 previously addressed the recognition of foreign judgments (see, e.g., [here], [here] and [here]) and some of the introductory points of this article have been adapted from prior articles. [2] The second method, which is found in Article 53 of the CPLR and relates to the domestication of judgments obtained in foreign countries, is beyond the scope of today’s article. [3] This BLOG has addressed CPLR 3213 numerous times. To find our numerous BLOG articles related to CPLR 3213, visit the “BLOG” tile on our website and enter “3213” in the “search” box. [4] This BLOG has addressed personal jurisdiction numerous times. To find our numerous BLOG articles related to Personal jurisdiction, visit the “BLOG” tile on our website and enter “personal jurisdiction” in the “search” box.

By: Jeffrey M. Haber On August 1, 2025, the Securities and Exchange Commission (“SEC”) announced (here) that it charged a Wisconsin resident and three limited liability companies that he owns and controls – Investors Capital LLC, Global Investors Capital LLC, and High Income Performance Partners LLC (collectively, the “Entity Defendants”) – with perpetrating a real estate-related offering fraud. According to the SEC’s complaint (here), from approximately May 2020 through at least January 2024 (the "Relevant Time Period"), Defendants allegedly solicited investors by promising to purchase, fix, and flip real estate for profit. Defendants collectively raised at least $1.9 million from at least 30 investors throughout the United States, including at least nine investors in Wisconsin. Many of the investors were members of the Nigerian-American community. According to the SEC, defendant misused the money raised by spending at least 80% of it on himself and his other ventures, and not on the promised real estate transactions. The SEC alleged that defendant held himself out as an “Incredibly Successful Entrepreneur” who amassed a multi-million dollar real estate portfolio after emigrating from Africa to Wisconsin in 2016 “with just $4,700,” to become a “notable and sought after millionaire investor” who serves as a speaker, life coach, mentor, consultant, and philanthropist. Defendant allegedly made these and similar representations on his website, on social media sites, during presentations to potential investors, and during financial coaching seminars. According to the SEC, defendant’s story was misleading. Defendant allegedly had sufficient assets when he emigrated to the United States to support himself and his family without needing to work. Likewise, said the SEC, defendant’s claims on his website in 2024 that he owned “real estate assets currently valued at over $23 million,” were also untrue. According to public records searches, noted the SEC, during the Relevant Time Period, defendant and the entities he controlled – including defendants Investors Capital, Global Investors Capital, and High Income Performance Partners (together, the “Entity Defendants,”) – owned only 11 properties with a collective value of approximately $1 million. The SEC alleged that defendant enticed investors with promises of lucrative returns on investments (or “ROI”) in one year or less. Defendants allegedly promised different investors a variety of different ROI, typically in the range of 10% to 30%, but at times higher. The SEC alleged that defendants usually promised to make a payment to investors within three to 12 months consisting of the ROI and the return of their principal investment. According to the SEC, defendants usually entered into written investment agreements with investors making their first investment. The SEC claimed that the agreements typically stated that the relevant Entity Defendant would provide services, including purchasing, fixing, and flipping properties, on behalf of investors and “acquir[ing] investment property that befits the investment fund.” Defendants allegedly told investors that profits would be generated through defendant’s investment of their funds in either a specific property or in unspecified real estate to be purchased, renovated, and sold. Some investors, said the SEC, subsequently entered into verbal agreements with defendant and one or more of the Entity Defendants for additional real estate investments, subject to terms similar to the terms of their initial investments. Regardless of whether the investment agreements were written or verbal, defendant allegedly told investors that the money they invested was to be used for real estate development projects with repayment of their investment principal and ROI by a specified time. Despite these core representations and promises, claimed the SEC, defendants spent only a small fraction (less than one-fifth) of the investors’ money on purchasing or renovating real estate. Instead, alleged the SEC, defendant commingled investor funds in his personal bank accounts and accounts for the Entity Defendants and his other businesses, and often used the investors’ funds for other purposes, including paying his personal living expenses, buying jewelry and automobiles, and paying for travel and entertainment. Although the written investment agreements identified at least l0 specific properties that defendants were going to purchase, fix, and flip, the SEC alleged that public records showed that during the Relevant Time Period, seven of those 10 properties were never owned by defendants and, of the three properties that were acquired by defendant or a company he controlled, two were subject to foreclosure proceedings. According to the SEC, Defendants have not paid most investors as promised in the written and verbal investment agreements. The SEC alleged that investors who contacted defendant seeking repayment of their investment principal and ROI when their investment period ended were met with a series of excuses and delays. In addition, maintained the SEC, several of the investors sued defendant and/or the Entity Defendants when the defendants failed to meet their payment obligations. Despite these lawsuits, said the SEC, defendants continued to solicit funds for additional “successful investments” without disclosing that defendants had not repaid prior investors. The SEC alleged that, based on the foregoing conduct, defendants violated the federal securities laws, namely Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule l0b-5 thereunder. Accordingly, the SEC seeks a judgment against defendants that: (a) imposes permanent injunctive relief, including prohibiting defendant from offering or selling securities; (b) orders disgorgement of ill-gotten gains, plus prejudgment interest; and (c) imposes civil monetary penalties. The SEC filed the action (SEC v. Nantomah, Case No. 2:25-cv-01130) in the United States District Court for the Eastern District of Wisconsin. Takeaway Nantomah reflects an ongoing effort by the SEC to target affinity fraud. Affinity fraud is a deceptive investment scheme that preys on trust and close relationships within specific communities or social groups.[1] These groups often share a common identity, such as religious affiliation, ethnicity, profession, or membership in a social organization. The promoter of the fraud either belongs to the group or uses a trusted insider to promote the scam, making it more believable and harder to detect. Victims of affinity fraud are often persuaded to invest in fraudulent ventures with promises of high returns and minimal risk. Because the offer comes from someone they trust—or appears to—individuals may forego due diligence and even encourage others in the group to invest, amplifying the damage. Affinity fraud and real estate scams often intersect in ways that make these schemes particularly damaging and difficult to detect. Real estate is an attractive vehicle for fraud because it typically involves large sums of money and complex transactions that can be difficult for the average investor to fully understand. Fraudsters use this complexity to their advantage, presenting fake or exaggerated investment opportunities that appear legitimate. They may promise high returns from flipping houses, investing in commercial developments, or participating in exclusive property deals. These offers are often framed as opportunities to build wealth within the community or support shared values, making them emotionally compelling. One case of an alleged real estate affinity fraud involved a Miami-based developer who orchestrated a $135 million Ponzi scheme targeting the South Florida Cuban exile community. The developer allegedly used his cultural ties and community standing to gain trust, convincing over 400 investors to fund real estate projects that either didn’t exist or were grossly misrepresented. Another case in California saw an alleged promoter targeting the Filipino-American community with promises of high returns from legal funding tied to real estate. The alleged scam operated as a Ponzi scheme, using new investors’ money to pay earlier ones, while the fraudster lived lavishly off the proceeds. The SEC and other regulators have warned that affinity real estate scams often involve fake deeds, inflated property values, or nonexistent developments, and they urge investors to verify all claims independently—even when the opportunity comes from someone within their group. ________________________________________ 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 enforcement actions and the settlement of enforcement actions involving affinity fraud on numerous occasions. To find these articles, visit the “BLOG” tile on our website and enter “affinity fraud” in the “search” box.

By: Jeffrey M. Haber In today’s fraud notes, we examine two cases: K.M. v. Ursuline School of New Rochelle, 2025 N.Y. Slip Op. 04643 (2d Dept. Aug. 13, 2025) (here), and Three C, LLC v. City Settlement Serv., Inc., 2025 N.Y. Slip Op. 04678 (Aug. 13, 2025) (here). Ursuline involved the failure to satisfy the elements of a fraud claim.[1] To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.”[2] The claim must pleaded with particularity.[3] Conclusory allegations will not suffice.[4] Neither will allegations based on information and belief.[5] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[6] The requirement that a fraud claim be pleaded with particularity can be found in Section 3016(b) of the Civil Practice Law and Rules (“CPLR”). Under CPLR 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[7] To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. As noted, a plaintiff pleading fraud must identify a misrepresentation or a material omission of fact. The misrepresentation must be a misrepresentation of present fact; it cannot be a misrepresentation of future intent to perform under the contract.[8] The failure to plead a misrepresentation or omission will result in dismissal of the claim. Three C involved the statute of limitations applicable to a claim of fraud.[9] Under New York law, “a fraud-based action must be commenced within six years of the fraud or within two years from the time the plaintiff discovered the fraud or could with reasonable diligence have discovered it, whichever is later”[10] “The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud turns on whether the plaintiff was ‘possessed of knowledge of facts from which [the fraud] could be reasonably inferred.’”[11] “Generally, knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute.”[12] “‘Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.’”[13] Three C, LLC v City Settlement Service, Inc. Three C involved a dispute between two brothers.[14] Defendant had performed private investigation work for the defendant attorneys. Through his work, defendant learned of an investment opportunity to purchase the inventory of Warwick Winthrop Silver, an entity owned by a client of one of the attorney defendants. In connection with the opportunity, defendant approached plaintiff for a loan to purchase the inventory (primarily silver). On or about March 20, 2010, plaintiff, Three C LLC (“Three C”), and defendant, City Settlement Service Inc. (“City Settlement”) executed a promissory note (the “Note”) under which City Settlement was to repay $275,000 to Three C. The balance and interest on the Note was due September 20, 2010. The Note stated that it was “secured by a UCC Filing against certain inventory owned by City Settlement Services, Inc.” Defendant allegedly represented to plaintiff that the silver would be sold by September 2020 for double the purchase price and that the short-term note would be paid. Defendants also told plaintiff that the UCC Filing referenced in the Note had been filed with the necessary authorities. In July of 2010, plaintiffs provided defendants the $275,000 for the purchase of the silver. According to plaintiffs, defendants failed to make payment by the required September 20, 2010 due date under the Note. In 2011, defendant made intermittent payments to plaintiff toward the balance due under the Note. Those payments totaled $120,000.00. The remaining balance due under the Note remained unpaid. On or about July 8, 2016, plaintiffs commenced the action. Defendant moved to dismiss the Complaint. Supreme Court granted the motion as to five of the six causes of action asserted in the Complaint, with the sixth cause of action severed for a separate proceeding. In 2020, plaintiff took defendant’s deposition, which, according to plaintiff, revealed additional facts warranting the filing of an amended complaint; namely, the purchase price for the silver was allegedly only $145,000, and not the $275,000 originally represented. Plaintiff alleged that he learned that defendant formed In Season Décor Corp. (“In Season”) to control the silver and deposit funds from sales of the silver. Defendant also allegedly paid himself from In Season’s bank account despite there being an outstanding balance on the Note. Deposition testimony from other defendants allegedly confirmed the foregoing. With the information learned from discovery, plaintiffs filed an amended complaint on May 12, 2021 that re-inserted defendant as a named defendant and added In Season Décor Corp. as an additional party. The Amended Complaint included allegations that the purchase price for the silver was only $145,000, and that defendant improperly transferred the silver to In Season Décor Corp. from which he sold the silver and paid himself and one of the other defendants from the proceeds. Defendants moved to dismiss the amended complaint, asserting, among other things, that the claims asserted in the amended complaint were time-barred under CPLR 3211(a)(5). Supreme Court dismissed all claims, but the fraud causes of action. Regarding the statute of limitations, Supreme Court held that there were issues of fact as to whether the two-year discovery rule applied, noting “the scheme to defraud [was] only discovered during deposition testimony on January 30, 2020 and the Amended Complaint was filed on May 12, 2021, within the two (2) years of Statute of Limitations.” Defendants appealed. The Appellate Division, Second Department affirmed. The Court held that “Supreme Court properly denied those branches of the defendants’ separate motions which were pursuant to CPLR 3211(a)(5) to dismiss the fraud causes of action insofar as asserted against each of them as time-barred.”[15] The Court explained that “[t]he facts presented … did not conclusively demonstrate, as a matter of law, that the alleged fraudulent conduct could have been discovered earlier in the exercise of reasonable diligence.”[16] K.M. v. Ursuline School of New Rochelle Defendant, Ursuline School of New Rochelle (“Ursuline”), operates an all-girls private school in New Rochelle. Plaintiff (the “mother”) enrolled her daughter (the “student”) at Ursuline in September 2020. In January 2022, the student was expelled from Ursuline for engaging in an off-campus physical altercation in May 2021. Subsequently, the mother, as guardian for the student, commenced the action against Ursuline, asserting causes of action to recover damages for breach of contract, fraud, and breach of the implied covenant of good faith and fair dealing. Among other things, the mother alleged that Ursuline breached its obligations under a student-parent handbook that was distributed in September 2020 (the “Handbook”) by expelling the student for the off-campus incident. The mother also alleged that Ursuline engaged in fraud by inducing her to enroll the student at Ursuline and that Ursuline breached the implied covenant of good faith and fair dealing by conducting an unfair investigatory process. Regarding the fraud claim, the mother alleged that Ursuline misrepresented in its student/parent handbook its intention to: (i) perform its obligations in accordance with the teachings of Jesus Christ; (ii) allow students to learn from their mistakes; and (iii) nurture students’ emotional wellbeing. In support of her claim, the mother cited to two excerpts from the Handbook. Plaintiff alleged that she relied on the statements in the Handbook when she apologized to the school for her involvement in the altercation. Ursuline moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the amended complaint. In an order dated June 30, 2022, Supreme Court granted Ursuline’s motion. Regarding the fraud claim, the court held that “the Amended Complaint [did] not meet the heightened standard of particularity required to sustain a cause of action sounding in fraud.” “Simply alleging that Ursuline [had] not lived up to the standard of the teachings of Jesus Christ,” said the court, “does not satisfy the particularity requirement for a fraud claim.” The court also held that “upon a close reading of the Amended complaint, the court [was] unable to make out any allegations which even suggest[ed] that Ursuline knowingly made any misrepresentation.” “In essence,” said the court, “Plaintiff argue[d] that Ursuline breached the terms of the Handbook by expelling her.” Noting that a plaintiff alleging fraud, “must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant,”[17] the court found that “[t]he Amended complaint simply does not make out a knowing misrepresentation by Ursuline.” The court further held that the mother failed to plead justifiable reliance. The court explained that the “[t]he portion of the Handbook which reads “[r]ooted in the truth and values of the teachings of Jesus Christ [was] an aspirational statement regarding the school’s Christian ethos.” The provision was not, held the court, “a catch-all provision totally negating disciplinary procedures.” “Nor,” said the court, was it “reasonable to rely on the excerpt which reads “[s]chool is a place to learn and we often learn from making mistakes after being afforded opportunities to correct mistakes.” “These two excerpts,” concluded the court, were “general expressions of Ursuline’s overall philosophy and [did] not render inoperative the specific disciplinary provisions of the Handbook.” “At best” said the court, they were “statements indicating that Ursuline ha[d] discretion in how it dealt with disciplinary issues.” Finally, the court held that the fraud claim duplicated the mother’s breach of contract claim. In that regard, the court noted that the fraud claim was based on Ursuline’s breach of contract “by not following the provisions of the Handbook.” The mother appealed. The Appellate Division, Second Department affirmed. The Court held that “the Supreme Court properly granted Ursuline’s motion pursuant to CPLR 3211(a) to dismiss the amended complaint.”[18] Focusing on the particularity requirement under CPLR 3016(b) and the first element of a fraud claim (i.e., a false statement), the Court held that “the mother’s bare and conclusory allegations [of fraud] failed to identify any specific misrepresentation of material present fact made by Ursuline.”[19] Takeaway The implications of Ursuline and Three C reflect two important aspects of fraud litigation: how fraud must be pleaded and when it can be pursued. In Ursuline, the Court emphasized the particularity pleading requirements for fraud. The plaintiff’s reliance on broad, aspirational statements from a school handbook was insufficient. The Court made clear that fraud must be based on a false statement, not “bare and conclusory” allegations. Ursuline, therefore, serves as a cautionary reminder: plaintiffs must articulate fraud claims with particularity, detailing the “who, what, where, when, and how” of the alleged fraud, and must plead all elements of the claim. Otherwise, the claim risks dismissal at the outset. Three C emphasized another aspect of pleading a fraud claim: application of the discovery rule. The Court affirmed the viability of the fraud claim under the two-year discovery rule, finding that there were issues of fact as to whether plaintiffs could have reasonably discovered the fraud absent the deposition that revealed key facts about the alleged fraudulent scheme. Three C underscores the point that the discovery of new evidence, which was not previously extant, may suffice to trigger the two-year discovery rule under CPLR 213(8). It also highlights the importance of discovery in uncovering hidden misconduct and reviving claims that might otherwise be 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] This Blog has written numerous articles addressing the elements of a fraud claim, including the failure to articulate a false and misleading statement and omission. To find such articles, please visit the Blog tile on our website and search for “misrepresentations” or “failure to plead a misrepresentation” or any other issue that may be of interest to you. [2] Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). [3] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009). [4] Id. [5] See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). [6] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014). [7] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted). [8] GoSmile, Inc. v. Levine, 81 A.D.3d 77, 81 (1st Dept. 2010), lv. dismissed, 17 N.Y.3d 782 (2011). [9] This Blog has written numerous articles addressing the statute of limitations for fraud, including the discovery rule under CPLR 213(8). To find such articles, please visit the Blog tile on our website and search for “statute of limitations”, “discovery rule” or “CPLR 213(8)” or any other issue that may be of interest to you. [10] Vilsack v. Meyer, 96 A.D.3d 827, 828 (internal quotation marks omitted); see CPLR 213(8). [11] Sargiss v. Magarelli, 12 N.Y.3d 527, 532 (quoting Erbe v. Lincoln Rochester Trust Co., 3 N.Y.2d 321, 326 (1957)). [12] Id. (internal quotation marks omitted). [13] Id. (quoting Trepuk v. Frank, 44 N.Y.2d 723, 725 (1978)). [14] The factual background for Three C comes from the briefs on appeal and the decision and order appealed from. [15] Three C, Slip Op. at *2. [16] Id. (citations omitted). [17] Lama, 88 N.Y.2d at 421. [18] Ursuline, Slip Op. at *3. [19] Id. (citations omitted).

By: Jonathan H. Freiberger Folks buy insurance to minimize loss in the event of occurrences that may cause injury to individuals or property. I would venture to say that most of the time, insureds do not read their policies and do not know the precise coverages they have purchased. While sometimes insurance is purchase directly from a carrier, many insureds rely on insurance agents or brokers to, inter alia, procure insurance for them. What happens, however, when a casualty occurs and the insured finds out that desired coverage was not procured by the broker? This question is a fertile source of litigation and today’s article addresses some of the issues relevant to the answer. “Insurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so: however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage.” American Bldg. Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.3d 730, 735 (2012) (citation, internal quotation, internal quotation marks and brackets omitted). This is because the “insurance agent-insured relationship is not a generally recognized professional relationship in which continuing obligations to advise might exist but, rather, is an ordinary commercial relationship which does not usually give rise to a duty to provide such ongoing guidance.” Marcellus Energy Services LLC v. Tompkins Insurance Agencies, Inc., 238 A.D.3d 1366, 1368 (3rd Dep’t 2025). “An insurance broker may be held liable under theories of breach of contract or negligence for failing to procure insurance upon a showing by the insured that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction.” DaSilva v. Champ Construction Corp., 186 A.D.3d 425 (2nd Dep’t 2020) (citations omitted). To establish that an insurance broker breached its contract or was negligence, “a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy.” Gibraltar Contracting, Inc. v. P.F. Northeast Brokerage, Inc., 189 A.D.3d 432 (1st Dep’t 2020) (emphasis supplied) (citation omitted). “A general request for coverage will not satisfy the requirement of a specific request for a certain type of coverage.” Hoffend & Sons, Inc. v. Rose & Kiernan, Inc., 7 N.Y.3d 152, 158 (2006). In Ewart v. Allstate Ins. Co., 221 A.D.3d 968 (2nd Dep’t 2023), an insurance agent was awarded summary judgment dismissing a complaint sounding in breach of contract and negligence by “establish[ing], prima facie, that [the agent] communicated multiple quotes to the [potential insured] and that the [potential insured’s] failure to respond demonstrated a lack of initiative or personal indifference that resulted in a failure to obtain coverage.” Id. at 969 (citations and internal quotation marks omitted). In American Bldg. the Court rejected the broker’s claim that the plaintiff should be barred from recovery because it received a copy of the policy, did not read it and did not complain about its contents. Nonetheless, the Court held that notwithstanding the absence of specific requested coverages, failure to read the policy should not foreclose plaintiff from suit. American Bldg., 19 N.Y.3d at 736. The Court noted that: “[w]hile it is certainly the better practice for an insured to read its policy, an insured should have a right to look to the expertise of its broker with respect to insurance matters [and t]he failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar, altogether, an action against a broker.” Id. at 736-77. In addition to common-law theories of recovery, liability against a broker may be found “where a special relationship develops between the broker and client.” Voss v. Netherlands Ins. Co., 22 N.Y.3d 728 (2014). If such a special relationship is found, liability against a broker may exist “even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage.” Id. at 735 (citations omitted). Thus, in certain “situations may arise in which insurance agents, through their conduct or by express or implied contract with customers and clients, may assume or acquire duties in addition to those fixed at common law” and that the question of whether such additional responsibilities should be “given legal effect is governed by the particular relationship between the parties and is best determined on a case-by-case basis.” Id. (citation and internal quotation marks omitted). “[A]n additional duty of advisement” may arise in special circumstances where, for example, “(1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.” Murphy v. Kuhn, 90 N.Y.2d 266, 272 (1997) (citations omitted); see also Voss, 22 N.Y.3d at 735 (relying on Murphy). The Court of Appeals recognized that expanding the scope of liability for insurance agents and brokers was not advisable because, in addition to “opening the flood gates” to litigation, “[i]nsurance agents or brokers are not personal financial counselors and risk managers, approaching guarantor status [and i]nsureds are in a better position to know their personal assets and abilities to protect themselves more so than general insurance agents or brokers, unless the latter are informed and asked to advise and act.” Id. at 273 (citations omitted). On August 13, 2025, the Appellate Division, Second Department, decided SPA Castle, Inc. v. Choice Agency Corp., a case addressing some of the issues discussed herein. In SPA, Plaintiffs commenced an action against broker for breach of contract because, according to the plaintiff, the broker failed to procure “appropriate insurance coverage.” The trial court denied the broker’s motion for summary judgment, and it appealed. The Second Department, finding that the plaintiff never made a specific request for insurance, reversed and stated: Here, the defendant established its prima facie entitlement to judgment as a matter of law dismissing the complaint insofar as asserted against it by submitting, inter alia, transcripts of the deposition testimony of the plaintiffs' CEO and president and the defendant's vice president of operations, which demonstrated that the plaintiffs did not make a specific request for a particular kind of insurance coverage that the defendant failed to procure. The plaintiffs' CEO and president testified, among other things, that he did not remember discussing specific risks that the plaintiffs were seeking to insure against, but that the plaintiffs needed general liability insurance. The defendant's vice president of operations testified that the plaintiffs' application was for general liability insurance, which the record reflects is the kind of insurance the defendant procured for the plaintiffs. In opposition, the plaintiffs failed to raise a triable issue of fact. 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 Southgate Owners Corp. v. Esposito, 2025 N.Y. Slip Op. 32750(U) (Sup. Ct., N.Y. County July 24, 2025) (here), plaintiff sued defendant, a shareholder in its cooperative building, seeking a declaratory judgment that 80 additional shares had been properly allocated to her unit following a 1996 expansion of her unit into terrace space. Plaintiff claimed that defendant refused to accept the allocation and pay her pro rata share of expenses and sought a declaratory judgment to that effect. Defendant moved to dismiss the complaint as time-barred under CPLR 213, which imposes a six-year statute of limitations on declaratory judgment actions. The motion court found that the cause of action accrued no later than 2014, when defendant definitively refused the proposed allocation after repeated requests from plaintiff’s board. The motion court rejected plaintiff’s argument that the claim accrued only in 2024, especially since the official notice of allocation was sent after the complaint was filed. The motion court also noted that retroactive charges from 1996 were impermissible under the proprietary lease, which allowed charges from the date of issuance. Since defendant successfully defended the claim, the motion court awarded her attorneys’ fees under the proprietary lease and Real Property Law. Background Plaintiff owns the cooperative building located at 424 East 52nd Street. When the building became a co-op in 1987, each apartment was issued a number of shares relative to its size and location. In that regard, the corporation’s bylaws required the board of directors (the “Board”) to allocate shares to apartments based on a “reasonable relationship to the portion of the fair market value of equity.” Under the original offering plan, 460 shares were allocated to defendant’s unit. In 1996, defendant made changes to the apartment, expanding the interior into the terrace space. No extra shares were allocated to defendant at that time. In 2011-2012, the corporation’s President asked defendant twice if she would voluntarily accept the allocation of additional shares. Defendant rejected the requests. In 2014, plaintiff’s then-attorney considered bringing an action against defendant but did not do so, admitting that the statute of limitations had run on the Board’s ability to bring an action against defendant regarding an additional share allocation. Counsel hoped that defendant would be willing to meet with the Board on the matter. No meeting apparently happened. In 2022, plaintiff’s then-attorney wrote a letter to defendant informing her that “shares are to be allocated to this additional space”, but no official allocation was made at that time. On April 19, 2024, plaintiff initiated the action. According to the complaint, the Board had allocated extra shares to defendant “as of” 1996 at the completion of the expansion. Plaintiff also alleged “upon information and belief” that defendant refused to accept the allocation and pay her pro rata share of co-operative expenses. Three days after plaintiff filed the complaint, the Board sent a letter to defendant, stating that her account had been allocated extra shares and that her account was being charged for the extra shares retroactively to 1996. Plaintiff asserted a single cause of action, seeking a declaratory judgment that plaintiff had properly allocated 80 additional shares to defendant “as of January 1, 1996” and that defendant was liable for the full pro rata share of the additional expenses together with interest dating from 1996. Defendant timely answered the complaint and asserted two counterclaims, one for attorneys’ fees pursuant to the proprietary lease and one seeking to annul the decision that allocated 80 additional shares. Defendant moved for summary judgment, seeking to dismiss the complaint as time-barred and to receive reimbursement of her attorneys’ fees. Plaintiff opposed, and cross-moved for summary judgment in its favor. The motion court granted defendant’s motion and denied plaintiff’s cross-motion. Declaratory judgments are governed by a six-year statute of limitations under CPLR 213. A claim for declaratory relief accrues “when there is a bona fide, justiciable controversy between the parties.”[1] Such a controversy occurs when “a plaintiff receives direct, definitive notice that the defendant is repudiating his or her rights.”[2] Plaintiff argued that its cause of action did not accrue until 2024. The motion court rejected the argument, holding that “the complaint was time-barred, for multiple reasons.”[3] First, said the motion court, “according to Plaintiff’s own complaint, the shares were allocated ‘as of’ 1996 and [it was] seeking charges from that date.”[4] The motion court noted that “according to the terms of the Proprietary Lease, a shareholder [could] only be obligated to pay rent based off an additional allocation of shares ‘from and after the date of issuance.’”[5] Thus, concluded the motion court, “[t]o the extent that Plaintiff alleges that the additional shares were not issued until 2024, by the terms of the Proprietary Lease they are not permitted to attempt to retroactively apply charges before the date of issuance.”[6] Second, said the motion court, plaintiff’s claim for declaratory relief accrued in 2014, “if not earlier.”[7] The motion court pointed to the “undisputed” fact that “from 2011 to 2014, multiple members of the Board, operating under the belief that any cause of action was time[-]barred, repeatedly attempted to get Defendant to voluntarily accept the additional shares and that she refused.”[8] The motion court noted that “Plaintiff attempted to allocate shares to Defendant by at least 2014, and Defendant definitively refused to accept such a proposed allocation.”[9] “It is at that time, if not earlier,” concluded the motion court, “that Plaintiff’s cause of action accrued.”[10] Thus, the motion court concluded that plaintiff’s claim was time-barred in 2024.[11] The motion court rejected plaintiff’s argument that defendant “did not definitively repudiate the allocation until 2024.” [12] The motion court noted that plaintiff did not send the letter notice to defendant “first stating that additional shares had been allocated to her account until after filing the complaint (where [it] aver[red] that Defendant had refused to accept the allocation).”[13] “By Plaintiff’s own complaint and records,” concluded the motion court, “[d]efendant made what Plaintiff considers to be a definitive repudiation worthy of judicial intervention at some time prior to the official notification of the share allocation.”[14] Finally, the motion court held that because defendant was successful in her defense to the complaint, under the terms of the proprietary lease and the Real Property Law, she was entitled to collect attorneys’ fees.[15] Takeaway The motion court’s decision in Southgate Owners serves as a reminder of the critical importance of timely legal action and adherence to contractual frameworks. The motion court’s dismissal of plaintiff’s declaratory judgment claim under CPLR 213 reinforces the principle that accrual begins to run not when a party chooses to act, but when a justiciable controversy arises—in Southgate Owners, no later than 2014, when defendant rejected the proposed share allocation. As discussed, plaintiff’s own records and prior counsel’s acknowledgment of the limitations issue were pivotal in establishing the timeline for accrual of the claim. Southgate Owners also serves as a good reminder that the parties should check any agreements between them to see if the agreement governs their dispute. As noted, the language in the proprietary lease prohibiting retroactive charges prior to the date of issuance was a dispositive fact relied upon by the motion court. Finally, the decision highlights the financial and strategic risks of pursuing stale claims, particularly when internal communications and prior legal assessments acknowledge those risks. In Southgate Owners, plaintiff’s delay in formalizing the share allocation and initiating legal proceedings resulted not only in dismissal of its claim but also an award of attorneys’ fees to defendant. ______________________________________ 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] Trump Vil. Section 4, Inc. v. Young, 217 A.D.3d 711, 714 (2d Dept. 2023). [2] Id. [3] Slip Op. at *4. [4] Id. [5] Id. [6] Id. [7] Id. [8] Id. [9] Id. [10] Id. [11] Id. [12] Id. at *5. [13] Id. [14] Id. [15] Id.