By: Jeffrey M. Haber In Greer v. FAM Networks, LLC, 2026 N.Y. Slip Op. 04039 (1st Dept. June 25, 2026), the Appellate Division, First Department, held that a complaint alleging breach of a media exploitation agreement sufficiently pleaded the elements of a contract claim by identifying the agreement, claiming performance, alleging nonpayment and failure to account, and asserting resulting damages. The Court emphasized that damages need not be precisely quantified at the pre-discovery stage, particularly where defendants control the relevant financial information. It further rejected arguments that the action was premature, finding that defendants failed to establish that contractual notice and mediation provisions constituted mandatory conditions precedent. In 2024, plaintiff and defendants FAM Networks, LLC (“FAM”) and Zohar Entertainment Group International Inc. (“Zohar”) entered into an agreement (the “Contract”) governing the exploitation of plaintiff’s name, likeness, and intellectual property, primarily consisting of online video content (“IP”). Under the Contract, defendants were authorized to distribute and monetize the IP through approved channels, with the resulting income to be shared between the parties. Plaintiff is a public figure and content creator who describes himself as an expert on extraterrestrial intelligence and related technologies and maintains a substantial audience across multiple social media platforms. FAM is a social media management company with approximately four employees, and Zohar is a video editing company with approximately three employees. On October 4, 2024, plaintiff, acting through his representative, executed a Statement of Work (“SOW”) with defendants that set forth operational terms, including revenue sharing and reporting obligations. The Contract included provisions addressing termination and dispute resolution. Under Section 10 of the Contract, a party seeking to terminate for breach of contract was required to provide written notice and allow a 30-day period to cure the alleged breach. The Contract also established a sequential dispute resolution process requiring (1) written notice of dispute, (2) a written mediation demand if the dispute remains unresolved after 14 days, and (3) the filing of any lawsuit no earlier than 45 days after service of a mediation demand. On November 22, 2024, plaintiff’s representatives sent defendants a written notice by email purporting to terminate the Contract based on alleged unauthorized use of his content. The notice did not reference allegations of nonpayment, unpaid profit share, or absence of net income. No mediation demand was issued prior to the commencement of litigation. Plaintiff subsequently filed a complaint alleging, among other things, that defendants exercised unauthorized control over the IP and continued to exploit it without consent. The complaint further alleged financial harm, asserting that defendants failed to pay plaintiff any share of the revenues and failed to provide the required accountings. Specifically, the complaint alleged that defendants retained all proceeds from the exploitation of the IP, failed to make payments required under Section 2(C) of the SOW, and asserted a right to use the IP without compensation. Defendants disputed the allegations and contended, among other things, that the complaint failed to adequately state a claim for damages. Plaintiff maintained that defendants had exclusive control over revenue generated from the IP and were obligated under the SOW to provide monthly payments and accountings. The complaint alleged two principal categories of asserted breach and resulting harm: (1) reputational and intellectual property-related harm arising from the alleged unauthorized posting and use of the IP, and (2) monetary damages related to defendants’ alleged failure to pay plaintiff his share of income and to provide accountings. The motion court denied defendants’ motion to dismiss the breach of contract claim. On appeal, the First Department unanimously affirmed that decision and order. The Court held that the motion court “properly denied defendants' motion to dismiss the breach of contract cause of action pursuant to CPLR 3211(a)(7).”[1] The Court explained that the “complaint sufficiently state[d] a claim for breach of contract, as it identifie[d] the agreement, and allege[d] plaintiff's performance, defendants’ breach of numerous provisions, including the profit-sharing agreement’s payment obligations, and resulting damages.”[2] Regarding damages, the Court held that “[a]lthough the pleaded damages were imprecise, it [was] not fatal” because the parties were “at [the] pre-answer, pre-discovery stage of the litigation.”[3] The Court also held that the “action was not premature, as defendants did not prove that there was no notice or that the agreement’s notice and mediation provisions were express conditions precedent.”[4] “That either party ‘may’ demand mediation,” said the Court, “suggests permissiveness.”[5] Finally, “[a]s to the argument that plaintiff failed to invoke the agreement’s audit procedures,” the Court found that “defendants’ alleged withholding of accountings frustrated the process.”[6] Takeaway Greer highlights several interrelated principles governing breach of contract claims, with an emphasis on the role and limits of contractual conditions precedent at the pleading stage. To begin, the Court reaffirmed that a breach of contract claim will survive a motion to dismiss where the complaint plausibly alleges the core elements: the existence of a contract, the plaintiff’s performance, the defendant’s breach, and resulting damages. Notably, the Court emphasized that imprecision in damages is not fatal where the defendant allegedly controls the relevant financial information. In such circumstances, a plaintiff may plead damages generally and refine them through discovery, especially where the contract includes reporting and accounting obligations that the defendant is alleged to have ignored. The decision then focuses on conditions precedent. Under New York law, conditions precedent must be expressed in clear, unmistakable language. Absent such clarity, Courts are reluctant to interpret notice, cure, or mediation provisions as mandatory prerequisites to suit. In Greer, although the Contract contemplated a sequence of notice and mediation steps, the Court found that defendants failed to demonstrate that those provisions were drafted as binding conditions precedent rather than permissive mechanisms. In particular, the Court underscored that contractual language stating that a party “may” pursue mediation is generally construed as permissive, not mandatory. As a result, plaintiff’s failure to issue a formal mediation demand before commencing litigation did not render the action premature. The decision also addresses, though not in any detail, the doctrine of frustration of performance. Even where contractual procedures exist (such as audit rights or reporting mechanisms), a party may be excused from strictly complying with them if the opposing party’s conduct has made compliance impracticable or impossible. In Greer, allegations that defendants withheld accountings supported the inference that they may have frustrated plaintiff’s ability to utilize contractual audit or reconciliation processes. Finally, Greer reflects a broader theme: disputes involving compliance with contractual preconditions, such as whether sufficient notice was given, whether a cure period was triggered, or whether dispute resolution steps were required, are often fact-intensive and not well suited for resolution on a motion to dismiss. Unless the contract language and the alleged facts conclusively foreclose the claim, courts will allow the case to proceed to discovery. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Slip Op. at *1. [2] Id., citing Harris v. Seward Park Hous. Corp., 79 A.D.3d 425, 426 (1st Dept. 2010). [3] Id., citing Chanko v American Broadcasting Cos. Inc., 27 N.Y.3d 46, 56 (2016). [4] Id., citing MCC Dev. Corp. v. Perla, 81 A.D.3d 474, 474 (1st Dept. 2011), lv. denied, 17 N.Y.3d 715 (2011); Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995). [5] Id., citing (Oppenheimer, 86 N.Y.2d at 690-691. [6] Id., citing MHR Capital Partners, 12 N.Y.3d at 646.

By: Jeffrey M. Haber On occasion, we examine procedural matters that have an impact on the substantive rights of the parties. In Richardson v. Beal, 2025 N.Y. Slip Op. 32804(U) (Sup. Ct., N.Y. County July 24, 2025) (here), the procedural matter at issue concerned the date on which a filing is deemed to be filed. As discussed below, the date on which a filing is deemed filed might surprise you. Overview In Richardson v. Beal, plaintiffs sought a default judgment against defendant, alleging that he failed to respond to their complaint in a timely manner. Plaintiffs served the summons and complaint on defendant in September 2023, with service deemed complete by October 12, 2023. Defendant did not file an answer by the November 12, 2023 deadline. Although he attempted to file a motion to dismiss in October, it was rejected by the clerk’s office due to procedural errors and not refiled until December 21, 2023. The motion court determined that the December filing was the only valid response, and thus defendant had defaulted in November 2023. Under CPLR 3215(c), plaintiffs were required to seek a default judgment within one year of the default. Their motion, filed in January 2025, exceeded this deadline. The motion court held that plaintiffs failed to provide a reasonable excuse for the delay or demonstrate a meritorious cause of action, both of which are required to excuse late filings under CPLR 3215(c). Consequently, the motion court denied plaintiffs’ motion and granted defendant’s cross-motion to dismiss the complaint, ruling the case was abandoned under CPLR 3215(c). Factual Background Plaintiffs brought the underlying action on August 23, 2023. According to the affidavit of service, on September 16, 2023, plaintiffs served the summons and complaint on defendant by means other than personal service. Proof of service was filed with the Clerk of the Court on October 2, 2023. Pursuant to CPLR 308(4), service was complete ten (10) days after such filing, on October 12, 2023. The time to answer the complaint expired on November 12, 2023. Defendant failed to file an answer within thirty (30) days after service was complete as required under CPLR 3012(c). According to NYSCEF,[1] defendant, acting pro se, attempted to file, albeit late, a notice of motion on October 30, 2023. The Clerk rejected the filing and deleted the document from NYSCEF and returned the motion to defendant. On December 21, 2023, Defendant refiled the motion to dismiss the complaint, alleging improper service in a single sentence without any further explanation. The notice of motion was notarized and dated December 21, 2023. The motion was successfully filed. On January 29, 2024, the Court denied defendant’s motion for failure to provide an explanation for how service was improper. The Motion Court’s Decision On January 29, 2025, plaintiffs moved, pursuant to CPLR 3215, for a default judgment. Defendant, through his attorney, opposed the motion and cross-moved to dismiss the complaint pursuant to CPLR 3215(c). CLPR 3215(a) permits a plaintiff to seek a default judgment against a defendant who has failed to respond to a pleading. Pursuant to CLPR 3215(f), a defendant may extend their time to serve a pleading responsive to a complaint by serving a “a notice of motion … [which] extends the time to serve the pleading until ten days after service of notice of entry of the order.” However, the defendant must complete service of the notice of motion before “service of the responsive pleading is required”.[2] If the defendant does not move before service of the responsive pleading is required, the plaintiff must move for the entry of a default judgment within “one year after the default.”[3] If the plaintiff fails to take such timely proceedings, CLPR 3215(c) provides that “the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative, or on motion, unless sufficient cause is shown why the complaint should not be dismissed.”[4] The one-year time limit for seeking default judgement begins to run at the time of a defendant’s default.[5] If a plaintiff fails to seek a default judgment within the one-year window, then they must “set forth a viable excuse for the delay and demonstrate a meritorious cause of action”, or dismissal of the underlying action is mandatory.[6] In seeking the motion for a default judgment, plaintiffs argued that the notice of motion was filed in October, when according to NYSCEF, the notice of motion was filed and then rejected and returned. Defendant opposed the motion on the grounds that it was untimely. Defendant maintained that the motion to dismiss was not successfully filed until December, and therefore it did not extend the time for plaintiffs to move for a default judgment. The issue before the motion court was “whether an unsuccessful attempt at filing is considered a response to the complaint, or whether Defendant did not respond to the complaint until his notice of motion was successfully filed and accepted by the Clerk.”[7] The motion court held “that Defendant’s notice of motion was filed in December, not October.”[8] The motion court noted that there were a number of “[i]mportant factors” that supported its decision, including “the fact that the notice of motion … [was] notarized and dated in December, and … that whatever document that was attempted to be filed in October was not available on NYSCEF during the gap between October and December.”[9] The motion court explained that the “only response by Defendant to the complaint was clearly dated and filed in December, and it was this response that the Plaintiffs and the Court responded to when deciding the motion to dismiss.”[10] The motion court also found support in the NYSCEF confirmation notice for the notice of motion that was filed in December. According to the confirmation notice, the “NYSCEF website ha[d] received an electronic filing on 12/21/2023 04:44 PM” and advised that the recipient should “keep [the] notice as a confirmation of this filing.”[11] The comments on NYSCEF concerning the filing on October 30, 2023, said the motion court, confirmed that the notice of motion was filed but that it was rejected because of a “‘missing or incorrect return date and no place of return.’”[12] Based upon the foregoing, the motion found that “the Clerk rejected the first attempt at filing the notice of the motion to dismiss for a failure to comport with local rules. This mean[t] that the purported filing on October 30, 2023, was not “deemed filed” in accordance with CPLR 2102(b).[13] Therefore, concluded the motion court, defendant “defaulted in November of 2023 by failing to respond to the complaint, and therefore the present motion was not brought within the statutory one-year period after a default.”[14] The motion court also held that plaintiffs failed to provide a reasonable excuse for their failure to timely seek a default judgment.[15] The motion court explained that “[i]n their papers and at oral argument on the motion, Plaintiffs insist[ed] that the present motion [was] timely and that this “render[ed] it unnecessary to establish a reasonable excuse for delay.”[16] “Because Plaintiffs [had] failed to proffer a reasonable excuse for the delay,” concluded the motion court, it was bound by CPLR 3215(c) to grant the cross-motion to dismiss the complaint.[17] Takeaway There are a number of lessons that can be learned from the motion court’s decision in Richardson. First, timeliness is critical when seeking a default judgment. Under CPLR 3215(c), plaintiffs must seek a default judgment within one year of the defendant’s default. As shown in Richardson, the failure to do so—without a valid excuse—will result in a mandatory dismissal of the complaint as abandoned. [1] NYSCEF stands for the New York State Courts Electronic Filing System. It is a system that allows for the electronic filing and serving of legal documents in various New York State courts. This includes the Surrogate’s Court, Supreme Court, and the Court of Claims (here). NYSCEF enables attorneys and other authorized users to file documents, manage cases, and access court information electronically. [2] CPLR 3211(e). [3] CLPR 3215(c). [4] Id. [5] CPLR 3215(c); see also IMP Plumbing & Heating Corp., v. 317 E. 34th St., LLC, 89 A.D.3d 593, 594 (1st Dept. 2011); PM OK Assocs. v. Britz, 256 A.D.2d 151, 152 (1st Dept. 1998) (holding that “a complaint shall not be dismissed as abandoned, pursuant to CPLR 3215(c), unless a plaintiff has failed to take proceedings for entry of a default judgment against the defendant within one year after the default”). [6] Hoppenfeld v. Hoppenfeld, 220 A.D.2d 302, 303 (1st Dept. 1995). [7] Slip Op. at *3 (orig’l emphasis). [8] Id. [9] Id. at 3-4. [10] Id. at *4. [11] Id. [12] Id. [13] Under CPLR 2102(b), “[a] paper filed in accordance with the rules of the chief administrator or any local rule or practice established by the court shall be deemed filed.” [14] Slip Op. at *4. [15] Id. [16] Id. [17] Id. at 4-5.

By: Jeffrey M. Haber In Finkelstein v. U.S. Bank, N.A., 2025 N.Y. Slip Op 32882(U) (Sup. Ct., July 30, 2025) (here), plaintiff alleged that he was underpaid on his investment in a residential mortgage-backed securities (“RMBS”) trust due to the improper exercise of termination rights by the trust’s servicers. Plaintiff claimed they excluded deferred principal and interest balances from the termination price, repackaged the remaining loans, and profited from new trusts. The servicers argued that the governing agreement – the Pooling and Servicing Agreement (“PSA”) – barred the action because it included a “no action” clause requiring certificate holders, such as plaintiff, to first demand that the trustee (“Trustee”) take action before suing. Plaintiff argued that demand was futile due to conflicts of interest, citing a “web of business dealings” and industry entanglements. The motion court, relying on Commerzbank AG v. U.S. Bank, N.A., found plaintiff’s allegations too vague and conclusory. The motion court noted that owning equity or providing services to servicers did not inherently create a conflict sufficient to excuse the no action clause. The motion court also rejected plaintiff’s claims that the Trustee’s role in other trusts or its acquisition of servicer roles implied a conflict. Further, the court reaffirmed that the no action clause survived the termination of the trust. Consequently, the motion court granted defendants’ motions to dismiss the second amended complaint. Governing Principles A no-action clause is a contractual provision commonly found in trust indentures and pooling and servicing agreements. They are most often found in the context of securities and structured finance. The primary purpose of a no-action clause is to limit the ability of individual investors or certificate holders to bring legal action related to the trust or agreement unless certain procedural requirements are met. There are a number of key features of a no-action clause, including: · Pre-suit Requirements: Typically, a no-action clause requires the investor or certificate holder (a) provide written notice of default to the trustee; (b) request the trustee to take action; (c) offer reasonable indemnity to the trustee; and (d) wait a specified period (e.g., 60 days) for the trustee to act. · Majority Support: Often, a no-action clause requires that a certain percentage (e.g., 25% or 50%) of the holders must support the action before it can proceed. A no-action clause is designed to (a) prevent frivolous or duplicative lawsuits by minority holders; (b) centralize enforcement of the indenture documents and pooling and servicing agreements through the trustee; and (c) protect the integrity and efficiency of trust administration. One way to avoid a no action clause is to demonstrate that the trustee is so conflicted that it could not be expected to bring suit. In that circumstance, any demand on the trustee would be futile because in effect, the certificate holder or beneficiary would be asking the trustee to sue itself.[1] Recently, the Court of Appeals for the Second Circuit addressed the issue of demand futility in the context of alleged conflicts of interest. In Commerzbank AG v. US. Bank, N.A., nine of the trusts at issue required notice to the trustee and the trust administrator (i.e., the party that was allegedly at fault).[2] One provided for notice to the trust administrator, but the trust administrator was also a breaching servicer. Six other trusts required notice to the securities administrator, two of whom were breaching servicers, and one was a trustee accused of similar wrongdoing in other cases.[3] The Second Circuit remanded to the district court to examine the relationships, cautioning that: (1) “some deal parties may be directly implicated in the wrongdoing such that it would be futile to demand that these parties bring claims involving their own misconduct”; while (2) “[o]ther deal parties may not be directly involved in the misconduct but could labor under other conflicts of interest, for example, close relationships with the breaching entities, such that requiring pre-suit demands would be futile and cause unnecessary delay since it would be improbable that they would take any action.”[4] In doing so, the Second Circuit instructed “courts determining whether a No Action Clause requires pre-suit demands on other deal parties” to “consider whether such requirements would entail potential conflicts of interest on the demanded party, and if so, whether the nature and extent of the conflicts would indicate that these parties would be sufficiently unlikely to bring claims if asked to do so, such that the demand would be futile.”[5] Upon remand, the district court excused demand for two sets of trusts. In the first, the demand party was both the trustee and the trust administrator. However, the trust administrator was Citibank, who was an alleged breaching party and also the custodian. Plus, its affiliate was an alleged breaching sponsor.[6] In the second set of trusts, the demand party was the securities administrator, who likewise was implicated in the wrongdoing, because it had a duty to act to enforce the obligations of the mortgage loan purchase agreement for loans that were missing information.[7] Finkelstein v. U.S. Bank, N.A. Plaintiff claimed he was underpaid on his investment because the defendant servicers allegedly exercised termination rights improperly. Specifically, Plaintiff claimed that the servicers should have included unpaid deferred principal and interest balances in the termination price. Instead, according to plaintiff, the servicers exercised their “call rights” (to purchase the Trust’s assets) without including the deferred payments in the valuation. Then, they repackaged the remaining loans into new trusts and sold them to new investors at a profit for themselves. Plaintiff brought suit. However, the PSA governing the Trust at issue had a no-action clause. Under Section 11.03 of the PSA, entitled “Limitation of Rights of Certificate Holders”, certificate holders were not allowed to bring suit unless they first demanded that the Trustee take action. To avoid the no action clause, plaintiff alleged a purported “web of business dealings” that pervaded the industry such that the Trustee was too conflicted to bring suit. Therefore, according to plaintiff, demand on the Trustee would be futile. The motion court rejected plaintiff’s argument. The motion court held that the allegations alleged by plaintiff were “insufficient to show a conflict of interest on the part of [the Trustee].”[8] The motion court found “[p]laintiffs allegations concerning the so called ‘web of business dealings’ … too conclusory to set aside the no action clause.”[9] For example, said the motion court, plaintiff failed to allege any facts showing that the “web of business dealings” would cause the Trustee not to bring suit if a demand were made by plaintiff.[10] The motion court also said that plaintiff failed to allege any facts showing that the Trustee was affiliated with large banks that provided banking services to other businesses and related to “repurchase rights holders” under the PSAs.[11] In addition, the motion court found that plaintiff failed to allege any facts showing that the Trustee’s acquisition of Bank of America’s trust business included the servicers under the PSA.[12] Further, the motion court said that plaintiff failed to allege facts showing a conflict of interest because it owned equity and debt in Wells Fargo, one of the alleged breaching parties. Finally, the motion court rejected plaintiff’s allegation that the Trustee became the trustee for some of the new resecuritization trusts and, therefore, was a participant in the alleged scheme.[13] “Plaintiff does not allege which ones or even that some of the deferred principal loans from the trust at issue here wound up in a new trust,” said the motion court.[14] The motion court found “[p]laintiffs’ allegations that the Trustee participated in a scheme to terminate the trusts to secure roles as trustee for resecuritized trusts [were] vague and conclusory” and “certainly [did] not excuse [the] failure to comply with the no action clause.”[15] The motion court concluded that “the hope of new business would swallow whole the no action clause if that were a sufficient basis to excuse it.”[16] In conclusion, the motion court held: plaintiff does not plead any facts to show a conflict such that it would be asking the Trustee to sue itself. There are no allegations showing: (1) the Trustee’s involvement in terminating the trusts, (2) the Trustee's obligation to ensure the correct calculation of the Termination Price, (3) the Trustee’s receipt of any “windfall” from the Termination Price, (4) the Trustee’s alleged dual role as servicers in other actions, (5) lawsuits against the Trustees in their alleged capacity as servicers, or (6) how the Trustees knew the Termination Price had been calculated incorrectly but refused to take action because of their conflicts of interest. Without more, the no action clause stands. _________________________________________ 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] Deer Park Rd. Mgmt. Co., LP v. Nationstar Mortg., LLC, 233 A.D.3d 564, 565 (1st Dept. 2024). [2] 100 F4th 362 (2d Cir.), cert. denied, 145 S. Ct. 279 (2024). [3] Id. at 375. [4] Id. [5] Id. [6] Commerzbank AG v. US. Bank, N.A., 2024 WL 5089017, at *4 (S.D.N.Y. Dec. 12, 2024). [7] Id. at *6-7. [8] Slip Op. at *3. [9] Id. [10] Id. at *4. [11] Id. [12] Id. [13] Id. at *5. [14] Id. at *5. [15] Id. [16] Id. (citing Rimrock High Income v. Avanti, 157 A.D. 3d 543 (1st Dept. 2018).

By: Jeffrey M. Haber In BLDG 44 Developers LLC v. Pace Companies N.Y., LLC, 2025 N.Y. Slip Op 32881(U) (Sup. Ct., N.Y. County July 25, 2025) (here), BLDG 44 Developers LLC sued Pace Companies New York, LLC for breach of contract, seeking approximately $16 million in consequential damages related to delays in a construction project on E. 44th Street, New York, N.Y. BLDG, the project owner, was a third-party beneficiary to a subcontract between Pace and Noble Construction Group, which was later replaced by a joint venture. The subcontract required Pace to perform HVAC work and included indemnification provisions for damages caused by delays. Pace moved for partial summary judgment to dismiss BLDG’s claim for consequential damages. The motion court granted the motion, finding that the subcontract did not explicitly provide for consequential damages, such as lost rents or revenues. The motion court noted that while the subcontract mentioned indemnification for damages, it did not specify consequential damages, and the inclusion of liquidated damages suggested intentional exclusion of other types of damages. The court emphasized that consequential damages must be foreseeable and contemplated by the parties at the time of contracting. The motion court held that BLDG failed to present evidence that such damages were discussed or anticipated during negotiations. The motion court also rejected BLDG’s reliance on industry standards and external documents, stating that the clear and unambiguous language of the subcontract governed. Consequently, the motion court ruled that the absence of express language regarding consequential damages barred BLDG’s claim, and granted Pace’s motion for partial summary judgment, dismissing the consequential damages claim. Background BLDG owns a 43-story mixed-use building located on E. 44th Street, New York, N.Y. (the “Building”). On May 29, 2015, BLDG and former third-party defendant Noble Construction Group, LLC (“Noble”) entered into an agreement (“Prime Agreement”) in which Noble was to serve as the general construction manager on the construction of the Building (the “Project”) in exchange for $175,982,009. On February 1, 2016, Noble and defendant entered into a subcontract in which defendant was to perform heating, ventilation, and air conditioning trade work for the Project in exchange for $12,200,000 (“Subcontract”). Section 7.2 (e) of the Subcontract provided, in pertinent part, that if there were delays in the progress of the work on the Project or a failure to coordinate with other contractors by defendant then BLDG was entitled to recover its damages (including liquidated damages if applicable) in connection with such delays. On June 1, 2016, BLDG and Noble amended the Prime Agreement (“Amendment No. 2”), replacing Noble with Noble/Suffolk, a joint venture LLC (“JV”). In Amendment No. 2, BLDG and JV agreed to “waive Claims against each other for consequential damages arising out of or relating to the [Prime] Agreement except as set forth in the last sentence of this Item No. 2.” The waiver provision explained that “[t]his mutual waiver include[d], without limitation, damages incurred by [BLDG] for losses of use, income (including, but not limited to rental income), profit, financing, business and reputation, and for loss of management or employee productivity or of the services of such persons.” “Notwithstanding the foregoing,” the parties agreed that the JV would “be liable for consequential damages arising out of [the] Agreement to the extent caused by its breach or negligence or the breach or negligence of anyone for whom [JV] [was] responsible in an aggregate amount not to exceed fifty percent (50%) of [JV]’s Fee as set forth in the most updated schedule of values.” On August 23, 2018, JV provided defendant with a delay notice regarding the Project after the JV received a notice of delay from BLDG regarding defendant’s work (“Delay Notice”). The Delay Notice stated that BLDG would “be seeking reimbursement for damages and consequential damages resulting from such delay”. On January 16, 2020, BLDG commenced the action against defendant as a third-party beneficiary alleging that defendant breached the Subcontract. Defendant moved for partial summary judgment seeking to exclude $16 million in consequential damages from any potential award in BLDG’s favor. The Motion Court’s Decision BLDG argued that defendant explicitly agreed to indemnify BLDG for consequential damages incurred resulting from defendant’s delay. Specifically, BLDG argued that the language in Section 7.2(e) of the Subcontract included consequential damages. Under New York law, “[i]n claims for breach of contract, a party’s recovery is ordinarily limited to general damages which are the natural and probable consequence of the breach; any additional recovery must be premised upon a showing that the unusual or extraordinary damages sought were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.”[1] A party may seek consequential damages if they were foreseeable and contemplated by the contracting parties at the time the contract was made.[2] Applying the foregoing principles, the motion court held that “the evidence fail[ed] to demonstrate that consequential damages of lost rents and revenues were contemplated by the parties to the Subcontract.”[3] The motion court found that “the plain language of the Subcontract, itself, [did] not specifically provide for indemnification of consequential damages.”[4] “Consequential damages in a breach of contract case are not allowable where the contract contains no provision or language indicating that recovery of consequential damages was within the contemplation of the parties[,]” said the motion court.[5] The motion court noted that the “terms of the Subcontract [did] not suggest that consequential damages would be covered.”[6] Moreover, noted the motion court, “BLDG ha[d] not identified … any other term in the Subcontract that would support such damages.”[7] “Absent a contractual provision providing for such coverage,” said the motion court, “in order ‘[t]o determine whether consequential damages were reasonably contemplated by the parties, courts must look to the nature, purpose and particular circumstances of the contract known by the parties . . . as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made.”[8] Thus, explained the motion court, “the question is whether [defendant] and Noble reasonably foresaw or contemplated [defendant] being held liable for BLDG’s consequential damages of lost rents and revenues … due to [defendant]’s alleged delays at the time they entered the Subcontract.”[9] The motion court held that “[t]here [was] no evidence of such contemplation.”[10] “For example,” said the motion court, “there [was] no evidence that establishe[d], or at a minimum raise[d] an issue of fact, that the issue of liability for lost revenue and rents was contemplated by the parties at the time of contract negotiations.”[11] Finally, the motion court rejected BLDG’s attempt to use extrinsic evidence to support its claim for consequential damages. BLDG argued that consequential damages are common in the construction industry and that the motion court could take judicial notice of the American Institute of Architects form agreement, which includes a provision waiving consequential damages.[12] The motion court explained that there was “no need to turn to extrinsic evidence” because Amendment No. 2 was clear and unambiguous.[13] In that regard, the motion court found that “the agreement itself suggest[ed] the omission was purposeful. Amendment No. 2 to the Prime Agreement contain[ed] a provision limiting JV’s liability for consequential damages. If the parties intended to include consequential damages as part of the Subcontract, they would have specifically so stated.”[14] The motion court concluded that “[t]he best and only evidence that the court has [was] the Subcontract itself, which [made] no mention of consequential damages, unlike liquidated damages, which are specifically referenced.”[15] Accordingly, the motion court granted defendant’s motion for summary judgment and dismissed any claim for consequential damages.[16] Takeaway As discussed, consequential damages are recoverable only if they were foreseeable and contemplated by both parties at the time they entered the contract. Courts look to the language in the parties’ contract to make that determination. Thus, as shown in BLDG, even if a party believes consequential damages are implied or customary, courts will rely on the language of the agreement if it is clear and unambiguous. In BLDG, the motion court determined that the agreements at issue were clear and unambiguous. Lending support to that finding was the presence of a liquidated damages clause in the Subcontract, which suggested to the motion court that the parties intentionally excluded other types of damages, such as consequential damages, as recoverable damages.[17] ____________________________________ 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] Brody Truck Rental, Inc. v. Country Wide Ins. Co., 277 A.D.2d 125, 125-126 (1st Dept. 2000) (internal quotation marks and citations omitted), lv. dismissed, 96 N.Y.2d 854 (2001). [2] Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 192-193 (2008). [3] Slip Op. at *5. [4] Id. [5] Id. at 6 (quoting BSF W. 175th St. Holding LLC v. New Founders Constr. LLC, 2022 N.Y.L.J. LEXIS 191, 9-10 (Sup. Ct., N.Y. County 2022)) (internal citations and quotation marks omitted). [6] Id. [7] Id. [8] Id. (quoting Bi-Economy Mkt., 10 N.Y.3d at 193 (internal quotation marks and citation omitted)). [9] Id. [10] Id. [11] Id. at 6-7 (citing Ashland Mgt. v. Janien, 82 N.Y.2d 395, 405 (1993) (finding that “the issue of future earnings was not only contemplated but also fully debated and analyzed by sophisticated business professionals at the time of these extended contract negotiations”); Awards.com v Kinko’s, Inc., 42 A.D.3d 178, 183 (1st Dept. 2007) (finding that “[t]he agreement fails to reflect that the parties contemplated lost profits as a potential basis for damages in the event of a breach. Nor, even if admissible, is there any extrinsic evidence that lost profits were within the parties’ contemplation”)). [12] Id. at *7. [13] Id. [14] Id. [15] Id. (citations omitted). [16] Id. at *8. [17] This BLOG has written numerous articles addressing consequential damages. To find such articles, please click on the BLOG tile on our website and type “consequential damages” into the “search” bar, or any other commercial litigation or contract related issue that may be of interest to you.

By: Jeffrey M. Haber Ponzi schemes and affinity fraud frequently overlap because both exploit trust and social interactions to operate effectively.[1] A Ponzi scheme relies on a continuous stream of new investors to pay returns to earlier participants, creating the illusion of a profitable enterprise. To maintain the flow of funds, fraudsters often target affinity groups—close-knit communities connected by shared identity, such as religious organizations, cultural associations, or professional circles. These groups provide an environment where trust is already established, making it easier for Ponzi scheme promoters to recruit participants quickly. When an investment opportunity is endorsed by someone familiar, skepticism tends to diminish. This sense of security often discourages individuals from conducting independent research or due diligence, as they assume that a trusted member’s involvement and/or endorsement of the investment opportunity guarantees legitimacy. In other words, social proof becomes a powerful tool for deception. Ponzi schemes and affinity fraud also thrive in settings where doubts can be suppressed. If concerns arise, the promoter can dismiss them as misunderstandings or pressure the group to maintain harmony, discouraging dissent. Victims themselves may avoid reporting the fraud out of fear of damaging the group’s reputation or relationships within it. Finally, affinity fraud capitalizes on emotional bonds. People feel a sense of loyalty and belonging, which makes them more inclined to invest and less likely to question warning signs and red flags. This emotional leverage, combined with the urgency and trust that Ponzi schemes exploit, creates an ideal environment for fraud to flourish. On September 8, 2025, the Securities and Exchange Commission (“SEC”) announced (here) that it filed charges against Arsalan A. Rawjani (“Defendant”) and the business enterprise he operated, Trade with Ayasa, LLC (“TWA”), which operated through various corporate forms, for allegedly conducing an affinity fraud and Ponzi scheme centered in the North Texas Ismaili Muslim community, where Defendant was an active member and community leader. According to the SEC, since at least 2021, Defendants perpetrated an investment fraud and Ponzi scheme targeting members of the Ismaili Muslim community in Texas, among other victims. Touting himself as an experienced and skilled options trader and investor, Defendant allegedly represented to investors and potential investors that he operated a successful pooled-investment program that offered guaranteed monthly dividend payments as well as principal protection that would be paid from Defendant’s options trading and asset management. The SEC alleged that Defendant claimed to have raised approximately $18 million from investors between 2021 and 2024. Although Defendant represented to these investors that his successful options trading enabled him to pay a fixed, monthly return of (usually) three to five percent of principal (i.e., a 60-percent annual return), he actually paid most “returns” by using new investor money and derived insignificant or no profits from his touted options-trading expertise, alleged the SEC. Additionally, said the SEC, Defendant diverted millions of dollars of investors’ money to himself, his spouse, and others through undisclosed withdrawals, commissions, and loans, all of which contributed to the collapse of his Ponzi scheme and millions of dollars of investor losses. To carry out the Ponzi scheme and recruit new investors to support it, the SEC alleged that Defendant directly and through TWA made numerous false and misleading statements to investors, including promising that his clients’ investments would be used for his profitable options trading and that investors’ principal was guaranteed from his trading profits and other secure investments. For example, said the SEC, Defendant claimed he would use investors’ funds in his trading program, but he sent only approximately $1 million of investor funds from TWA’s primary bank account to a broker dealer for trading in the options market. Thereafter, claimed the SEC, Defendant transferred back to the bank account less than $166,000 in presumed trading profits and thus had no meaningful trading revenues to pay the millions of dollars promised to investors. Defendant also claimed that a large reserve was maintained to pay dividends and offered his personal “guarantee” to some investors, said the SEC, despite maintaining neither reserves nor personal assets sufficient to repay the millions of dollars raised from investors. The SEC alleged that by late-2023, Defendant’s “lackluster or losing trades” and his inability to attract new investors caused his Ponzi scheme to collapse, resulting in Defendant ceasing to make promised dividend payments. Nevertheless, said the SEC, even after he was unable to make divided payments to earlier investors, Defendant continued to solicit new investors using the same promises and guarantees of monthly payments and principal protection. According to the SEC, bank records showed that Defendant raised more than $2 million from investors between in or about December 2023 and June 2024, during the period he was unable to make promised payments to earlier investors. The SEC filed its complaint (here) in federal district court in Dallas, Texas. The SEC charged Defendants with violating the antifraud provisions of 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 complaint further charged Defendants with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The SEC seeks injunctive relief, disgorgement plus pre-judgment interest on a joint and several basis, and civil penalties. _____________________________ 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 the settlement of enforcement actions involving Ponzi schemes and affinity frauds. To find such articles, please visit the Blog tile on our website and search for “Ponzi schemes”, “Affinity Fraud” or any SEC enforcement action issue that may be of interest to you.

By: Jeffrey M. Haber Is it a breach of contract to bypass an agreed-upon, independent alternative dispute resolution (“ADR”) process and commence an arbitration proceeding elsewhere? When two companies enter into a contract, it’s common to include language wherein both parties consent to having any disputes related to the contract decided by an agreed-upon, neutral third party, rather than by a judge in a lengthy, formal court proceeding. The process of ADR-- which may be by arbitration or mediation-- is generally a faster, less formal, and less expensive way to resolve a contractual dispute than commencing a lawsuit for breach of contract. In mediation, an independent facilitator merely assists the parties in an attempt to resolve their dispute without the need for a formal arbitration or court proceeding. A mediator does not render a decision and the parties are free to resolve their dispute as they choose. Conversely, an arbitrator hears both sides of the dispute, reviews evidence, and renders a decision--much like a judge. The parties may or may not be bound by the arbitrator’s decision, depending on the terms of the ADR language in the agreement. But what happens when one of the parties bypasses the agreed-upon independent firm chosen for dispute resolution and commences an arbitration proceeding elsewhere? This issue is at the heart of a dispute between American industrial giant General Electric Co. (“GE”) and Alstom, a French rail transport company, regarding a contract under which Alstom purchased GE’s rail-switching system. The rail-switching system transaction occurred simultaneously with GE’s acquisition of Alstom’s energy business. Rather than submitting the $800 million purchase price adjustment dispute to the agreed-upon independent Deloitte accounting firm, GE instead filed an arbitration proceeding with the International Chamber of Commerce business group. In response and claiming unspecified damages, Alstom filed suit in U.S. District Court in Manhattan in May, 2016 to have the proceeding dismissed and the matter remanded to Deloitte for review and a decision. The case is titled Alstom et al. v. General Electric Co., U.S. District Court, Southern District of New York, No. 16-03568. There are many factors to consider in determining whether alternative dispute resolution is beneficial in a business contract, and if so, whether mediation or arbitration is the better option for your business’ needs and goals. Consulting a business law and litigation attorney with ADR experience is advisable for all your business transactions. Freiberger Haber LLP in New York City is experienced in business law and litigation and handles all aspects of business transactions, including contract negotiations and preparation, asset purchase agreements, mergers, and acquisitions. In addition, the practice handles dispute resolution through ADR as well as complex business litigation. This article was written by Jeffrey M. Haber, a partner at 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 How do anti-money laundering programs detect suspicious activity? The Financial Industry Regulatory Authority ("FINRA") announced in May that it fined two Raymond James entities for systemic flaws in their anti-money laundering programs. The units, Raymond James & Associates (RJA) and Raymond James Financial Service ("RJFS") were fined $8 million and $9 million, respectively. FINRA cited these units for not establishing and implementing adequate procedures over the course of several years. An investigation by the self-regulatory agency revealed that the firms did not conduct required due diligence and periodic risk reviews for foreign financial institutions and that RJFS also failed to establish and maintain an adequate Customer Identification Program. In addition, a former AML compliance officer was fined $25,000 and suspended for three months, which highlights the growing trend of regulators holding compliance officers personally accountable for compliance breaches. Enhanced Regulatory Scrutiny At the same time, Raymond James' success may have made the firm a target of enhanced regulatory scrutiny. In its press release, FINRA noted that the firms achieved significant growth over a ten-year period from 2006 to 2014, but that they failed to establish comprehensive AML programs during this time. Because of this, Raymond James was unable to detect, prevent, and report suspicious activity, according to FINRA. FINRA also found that the compliance officer did not establish AML programs that were suited for each business unit and that "red flags" for suspicious activity were missed. This is not the first time Raymond James was cited for its failure to adhere to AML requirements. RJFS was previously sanctioned in 2012 and agreed to beef up its policies and procedures. Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, stated that Raymond James had significant systemic AML failures over an extended period of time, made even more egregious by the fact the firm was previously sanctioned in this area. For their part, RJA and RJFS neither admitted nor denied the charges, but consented to the terms of the settlement. In short, this settlement highlights the importance for financial firms to establish and implement sufficient AML measures as part of a comprehensive compliance program. Given the growing attention that is being paid to money laundering, the consequences of failing to weed out suspicious activity can be drastic. If your firm needs assistance on any compliance or FINRA-related matters, you should engage the services of an experienced attorney. This article was written by Jeffrey M. Haber, a partner at 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 Catastrophic events often bring out the best in people. Sometimes, however, such events bring out the worst in people. The events that followed Hurricane Katrina stand as reminders of the latter, at least according to Cori and Kerri Rigsby, two sisters who filed a False Claims Act ("FCA") complaint against State Farm Fire and Casualty Co. ("State Farm"), among others. The Rigsby sisters, two experienced claims adjusters, alleged that State Farm and other insurance companies were falsely billing the federal government for flood insurance claims when, in fact, the claims were based on wind damage. According to the sisters, the insurance companies fraudulently changed the classification of a claim without sending an inspector to the affected site in order to collect reimbursement from the federal government. A few weeks after Hurricane Katrina, the Rigsby sisters inspected the home of Thomas and Pamela McIntosh in Biloxi, Mississippi. The McIntoshes held two insurance policies with State Farm: (1) a Standard Flood Insurance Policy ("SFIP"), which excluded payment for wind damage; and (2) a homeowners' policy, which excluded payment for flood damage. In September 2005, a State Farm supervisor approved the payment of $350,000 ($250,000 for the home and $100,000 for personal property) under the SFIP. Three days later, State Farm sent checks to the McIntoshes. In April 2006, the Rigsby sisters filed a qui tam complaint against the insurance companies, alleging that the insurers wrongfully sought to maximize their policyholders' flood claims (which were paid with government funds) in order to minimize wind claims (which are paid by the insurer). Following motion practice, a trial was held on a single, bellwether false claim the McIntosh claim. The jury concluded, among other things, that the McIntosh property sustained no compensable flood damage and that the government therefore suffered damages of $250,000 as a result of State Farm's submission of false flood claims for payment on the McIntosh home. The district court denied State Farm's motions for a new trial and judgment notwithstanding the verdict, and ordered State Farm to pay more than $3 million in damages and attorneys' fees. After the ruling, State Farm moved to dismiss the action due to alleged violations of the FCA's seal requirement. State Farm argued that the Rigsby sisters and their attorneys had disclosed the existence of the qui tam action to a variety of news outlets while the case was under seal. State Farm charged that the Rigsby sisters and their then-lawyer, Dickie Scruggs, violated the statutory seal by engaging in a media campaign in which they discussed the allegations in the qui tam complaint in order to demonize and put pressure on State Farm to settle the action. The district court declined to dismiss the complaint on the basis of the seal violations, and the U.S. Court of Appeals for the Fifth Circuit affirmed that decision, holding that the seal violations did not warrant dismissal. Thereafter, State Farm filed a writ of certiorari to the Supreme Court. In filing the writ of certiorari, State Farm asked the Supreme Court to review the Fifth Circuit's affirmance of the district court's decision, especially since there were three separate circuit court (Ninth, Second and Fourth, and Sixth) standards governing the dismissal of a qui tam complaint following a violation of the FCA's seal requirement. The Fifth Circuit adopted the Ninth Circuit's approach, which requires dismissal only if the seal violation caused actual harm to the government - in essence, a no harm, no foul approach. The Second and Fourth Circuits, by contrast, require dismissal only when a seal violation incurably frustrates the congressional goals underlying the seal requirement, including the ability of the government to fully evaluate the propriety of an enforcement suit and determine whether the suit involves matters already under investigation. Finally, the Sixth Circuit requires dismissal when there is a violation of the seal requirement no matter the circumstance, thereby rejecting any form of balancing test. On May 31, 2016, the Supreme Court granted certiorari in State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby. IMPLICATIONS Resolution of the circuit split will materially impact the rights of whistleblowers and defendants to whistleblower claims. If the Sixth Circuit's approach prevails, then defendants would have a greater ability to seek dismissal of FCA claims when relators violate the seal requirement. By contrast, a ruling in favor of the approach advanced by the Ninth Circuit or the Second and Fourth Circuits would be relator friendly because even when there is a violation of the seal requirement, as long as there is no harm to the government or the government's ability to investigate is not frustrated in any way, then there would be no dismissal. Of course, there is no way to know how the Supreme Court will rule. However, it is important to note that seal violations occur under many circumstances, including, but not limited to, failing to file the complaint under seal and inadvertently disclosing the allegations. Balancing the violation, the reason for the violation and the impact of the violation on the government's investigative interests seems to be the most reasonable way to ensure that meritorious cases are not dismissed over a technicality. The Supreme Court is expected to address the case in the next term. For the Court's ultimate decision, see our follow-up post, State Farm Fire & Casualty Co. v. United States ex rel. Rigsby: The Supreme Court Rules That a Violation of the FCA's Seal Provision Does Not Require Dismissal. This article was written by Jeffrey M. Haber, a partner at 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 Damages Or Rescission . . . It Makes A Difference. Most people think that they are entitled only to monetary relief when they are the victim of fraud. That, however, is not always the case. Sometimes rescission – that is, returning to the status quo ante – is the appropriate form of relief. Indeed, there are times when a victim of fraud would rather be in the position he/she was in before the fraud occurred. When that happens, can the victim of fraud assert a claim for equitable rescission? In Board of Managers of The Soundings Condominium v. Foerster, Index No. 153150/14 (1st Dept. Feb. 23, 2016), the Appellate Division, First Department said yes. Foerster arose from the purchase of a condominium. Under the condominium’s by-laws, the sale of any unit was subject to the condominium’s right of first refusal, giving the managers the right to acquire the unit for the contract price. In the application to purchase the unit submitted by the defendant, the defendant lied about her intended use of the apartment. She told management that she intended to use the apartment for her nanny/nurse; the defendant lived in a nearby building. In reality, she intended to use, and did use, the apartment as a day care center. The condo managers sued the buyer, seeking both rescission and monetary damages. The managers claimed that had they known the truth about the defendant’s intention to operate a business in the apartment, they would have rejected the defendant’s application and exercised the condo’s right of first refusal. The defendant moved for summary judgment, contending, among other things, that the managers’ fraud claim should be dismissed because the condo did not incur any monetary damages. The trial court denied the defendant’s motion, finding, among other things, that a triable issue was raised with respect to whether the defendant made any misrepresentation that might have impacted the validity of the purchase agreement. On appeal, the defendant again argued that the managers could not claim fraud because “an essential element [of the claim], injury, does not exist.” The First Department rejected that argument, holding that pecuniary damages are unnecessary in an action for equitable rescission: Fraud sufficient to support the rescission requires only a misrepresentation that induces a party to enter into a contract resulting in some detriment, and “unlike a cause of action in damages on the same ground, proof of scienter and pecuniary loss is not needed” (D’Angelo v Bob Hastings Oldsmobile, Inc., 89 AD2d 785, 785 <4th dept 1982>, aff’d, 59 NY2d 773 <1983>). Even an innocent misrepresentation will support rescission (see Seneca Wire & Mfg. Co. v Leach & Co., 247 NY 1, 8 <1928>). Foerster is important because it reminds practitioners and litigants that equitable fraud can be a powerful claim. Unlike a fraud claim for money damages, equitable fraud is unencumbered by the limitations of pleading and proving scienter (i.e., intent to deceive) and damages. In fact, the only limitation on a claim of equitable fraud is that the remedy being sought is equitable, like rescission. The managers in Foerster understood the power and breadth of the claim, basing their complaint on extra-contractual representations (e.g., the purchase application), rather than the contract of sale itself. Parties to a contract can try to avoid the situation in Foerster. For example, they can try to negotiate a limit on the scope of any fraud claim to only the representations and warranties set forth in the contract (thereby excluding extra-contractual fraud claims), and requiring the claim to be based on conduct that was knowingly and deliberately taken with the intention of harming the other party. To be sure, there are other available options. An experienced business lawyer and litigator can help explore the options. Choosing the Relief that Matters Most Is the Best Course of Action Too often litigants seek relief that is duplicative and unrelated to what they really want. This was the case with the managers of the condominium in Foerster. Indeed, the First Department understood this point, distilling the multiple claims alleged in the action to just one – a claim “to rescind the conveyance of a condominium apartment ….” In addition to the rescission claim, the managers sought damages for breach of contract and fraud, as well as other declaratory and equitable relief. Those claims, however, arose from the same facts as the equitable fraud claim. As such, under New York law, those claims were duplicative. Consequently, as noted by the First Department, those claims should have been dismissed: [P]laintiff’s first cause of action for fraud is virtually identical to its fourth cause of action for rescission, and is founded upon the same facts. A tort claim based upon the same facts underlying a contract claim is properly dismissed as merely a duplication of the contract cause of action (see Richbell Info. Servs. v Jupiter Partners, 309 AD2d 288, 305 <1st dept 2003>). The remainder of the complaint seeks various forms of injunctive, declaratory and monetary relief that a court of equity would provide in restoring the parties to status quo ante and duplicates the claim for rescission. The practical litigation takeaway from Foerster, therefore, is to seek the relief that a litigant really wants when asserting a claim against another. An experienced business litigator can work with a litigant to ensure that the relief sought is consistent with the litigant’s objectives. Jeffrey M. Haber is a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

Do mandatory arbitration clauses prevent class action lawsuits? The Consumer Financial Protection Bureau recently proposed a rule that would scale back mandatory arbitration clauses used by banks and other financial firms to limit their exposure to legal liabilities. While the new rule continues to allow arbitration in cases pursued by individual consumers, class actions would no longer be prevented. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them,” CFPB Director Richard Cordray said in a statement. The rule applies to a wide range of consumer financial products and services currently under the Bureau’s regulatory umbrella, including lending, storing and moving or exchanging money. The CFPB announced the highly anticipated rule after years of study required by the Dodd-Frank law. There is a 90 day comment period in play until August 5th, and a strong push back by industry groups is highly likely. “Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing,” said Cordray. While arbitration clauses could still be included in contracts, they would have to state that arbitration cannot be used to stop consumers from joining a class action. In this regard, the CFPB will require specific language to be used. The Bureau also intends to monitor the arbitration process by requiring firms to submit materials used in these proceedings. Some critics argue that lifting the ban will lead to a wave of litigation and that the only beneficiaries will be trial attorneys. Industry groups opposed to the proposed rule also note that a CFPB study found consumers using arbitration have more successful outcomes than members of a class-action. On the other hand, proponents of the rule contend low income families and students are frequently sold products with higher interest rates. Because they are more vulnerable these groups are forced to accept the restrictions of mandatory arbitration and forfeit their basic legal rights in the process. At this juncture, it is unclear if and when the new rule will be approved. Given the tenor of the times under the Dodd-Frank regime, however, it is likely that class action lawsuits will no longer be prevented by mandatory arbitration clauses. This will invariably pose risk management issues across the financial services sector. Moreover, banks and financial firms will be faced with increased compliance costs associated with revising contracts to contain the required language as well as providing documentation to the CFPB regarding arbitration proceedings. For these reasons, any business engaged in selling financial products to consumers is well advised to engage the services of an experienced arbitration attorney to prepare for the new rule. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

What does the Labor Department fiduciary standard mean for financial advisors? After telegraphing its punch for almost 6 years, the Department of Labor recently announced the highly anticipated fiduciary standard regulation that will require financial advisors who provide investment recommendations for retirement accounts, such as 401(k)s and IRAs, to meet a fiduciary standard. These advisors are now required to put their clients' interests before their own, rather than adhering to the previous standard requiring them to provide clients with suitable recommendations. The suitability standard, some have argued, allowed investment advisors to steer clients into products with higher fees as a means of padding commissions, regardless of whether or not the investments were well suited for the clients' retirement situation. The rule had strong backing from the Obama Administration as officials claimed inappropriate recommendations cost retirement investors $17 billion a year. While commissions and other fees are still permissible, financial firms must commit to charging "reasonable compensation" and cannot give financial incentives to advisors to make inappropriate recommendations. The new rule is limited to tax-advantaged retirement accounts, however, and does not apply to advisors who manage other types of investments. Why This Matters This action comes in the long wake of the financial crisis of 2008 and continued efforts by the government to rein in the excesses of financial services sector. While not as far reaching as the Dodd-Frank reform measure, the new fiduciary rule will pose compliance challenges to investment advisors, and there will be additional costs associated with establishing needed policies and procedures. Given the fact that the Labor Department has been working on this rule for years, the investment community has had plenty of time to prepare for the new regulatory regime. That being said, investment advisory firms have time to implement changes since the law becomes effective in 2017. Moreover, certain provisions do not become effective until 2018, such as the requirement that IRA investors enter into contracts with financial advisors in which they acknowledge their role as a fiduciary. At this juncture, it is unclear whether there will be legal challenges to the new rule. In the meantime, however, investment advisors should speak to an experienced business law attorney for guidance on their new responsibilities as fiduciaries. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In today’s Fraud Notes, we examine two recent appellate court decisions that highlight the role statutes of limitations play in fraud-based claims. Specifically, we explore how New York courts evaluate timeliness under CPLR 213(8), including the six-year limitations period and the two-year discovery rule, as well as the three-year limitations period governing General Business Law § 349 claims. Through Yakobson v. IGAL Ocean, LLC, 2026 N.Y. Slip Op. 03994 (2d Dept. June 24, 2026), and Shen v. Ferncliff Cemetery Association, 2026 N.Y. Slip Op. 04002 (2d Dept. June 24, 2026), the Appellate Division, Second Department, offers important insight on when fraud claims may survive dismissal on timeliness grounds, and when they will be barred as a matter of law, underscoring the fact-intensive nature of the discovery rule and the challenges plaintiffs face in falling within applicable limitations periods. Applicable Principles On a motion pursuant to CPLR 3211(a)(5) to dismiss a complaint as untimely, a defendant must establish, prima facie, that the time in which to commence the action has expired.[1] If the defendant meets this initial burden, “[t]he burden . . . shifts to the plaintiff to raise a question of fact as to whether the statute of limitations has been tolled or is otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period.”[2] “As a general principle, the statute of limitations begins to run when a cause of action accrues, that is, when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.”[3] “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.”[4] “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.”[5] “Generally, knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute. Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a [fraud-based cause of action] should not be dismissed on motion and the question should be left to the trier of the facts.”[6] “Ordinarily, an inquiry into when a plaintiff should have discovered an alleged fraud presents a mixed question of law and fact.”[7] A cause of action alleging a violation of General Business Law § 349 is governed by a three-year statute of limitations.[8] Yakobson v. IGAL Ocean, LLC On October 21, 2010, a personal injury judgment in the principal amount of $83,788.25 was entered in Supreme Court, Kings County, in favor of plaintiff and against defendant IGAL Ocean, LLC (“Judgment”). At the time, IGAL was uninsured but owned two properties in Brooklyn, N.Y. (collectively, the “Properties”). By deeds dated March 28, 2017, IGAL conveyed the Properties to defendant 2029 Ocean Ave., LLC for no consideration, allegedly leaving IGAL insolvent. On October 16, 2023, plaintiff commenced the action, inter alia, to set aside the conveyances of the properties. In the first cause of action, plaintiff alleged that the conveyances were void and ineffective pursuant to CPLR 5203(a). In the fifth cause of action, plaintiff alleged that the conveyances should be set aside as fraudulent conveyances under Debtor and Creditor Law former § 276. In the sixth cause of action, plaintiff sought an award of attorneys’ fees under Debtor and Creditor Law former § 276-a. Subsequently, plaintiff moved for a preliminary injunction enjoining defendants from selling or transferring any ownership interest in the properties, including as condominium units, while the action was pending. Defendants opposed the motion and moved, inter alia, pursuant to CPLR 3211(a)(5) to dismiss the first, fifth, and sixth causes of action as time barred. The motion court granted those portions of defendants’ motion and denied, as academic, plaintiff’s motion. On appeal, the Second Department found issues of fact concerning the discovery rule and, therefore, modified the motion court’s order. The Court found that “defendants demonstrated that the allegedly fraudulent conveyances occurred more than six years prior to the commencement of th[e] action and, thus, met their initial burden of establishing, prima facie, that the time in which to interpose the fifth and sixth causes of action expired prior to the commencement of th[e] action.”[9] “Nonetheless,” said the Court, “the plaintiff raised a question of fact as to whether she possessed knowledge of facts from which the fraud could have been discovered with reasonable diligence within two years prior to the commencement of this action.”[10] “Accordingly,” the Court concluded that the motion court “should have denied those branches of the defendants’ motion which were pursuant to CPLR 3211(a)(5) to dismiss the fifth and sixth causes of action as time-barred.”[11] Shen v. Ferncliff Cemetery Association In August of 2013, plaintiff purchased a grave, including a concrete liner and lid, for his brother’s remains. Decedent’s remains were interred on November 30, 2013. Plaintiff alleged that he discovered a water leakage problem and reported it to defendant in December 2013. Plaintiff further alleged that defendant examined the burial box in which the decedent’s remains were to be interred without adhering to established guidelines and that at the time plaintiff purchased the grave, defendant failed to provide plaintiff with certain product information concerning the grave which would have enabled plaintiff to make an informed decision, opting for a sealed vault in addition to the wooden burial box. In September 2023, plaintiff commenced the action against defendant, alleging, among other things, that defendant violated General Business Law § 349 with respect to the interment of his brother’s remains at defendant’s cemetery. In November 2023, defendant moved pursuant to CPLR 3211(a) to dismiss the complaint on the ground, inter alia, that the action was time-barred. By order dated March 5, 2024, the motion court granted the motion. The Second Department affirmed. The Court held that plaintiff’s claim sounding fraud was time barred. The Court explained that “to the extent that the plaintiff asserted a cause of action sounding in fraud, that cause of action accrued, at the latest, in December 2013, which is the date when the plaintiff alleged that he became aware of an alleged groundwater intrusion issue that he contended the defendant had concealed.”[12] “Since the action was commenced more than six years later in September 2023,” concluded the Court, “the defendant established that any cause of action sounding in fraud was time-barred.”[13] Takeaway The key takeaway from these decisions is that timeliness in fraud-based litigation is often dispositive, but rarely straightforward. Under CPLR 213(8), a fraud claim must be brought within six years of accrual or within two years from when the plaintiff discovered, or with reasonable diligence could have discovered, the fraud, whichever is later. Courts strictly apply this framework, but the inquiry frequently turns on fact-intensive questions about what the plaintiff knew or should have known and when. As illustrated in Yakobson v. IGAL Ocean, LLC, even where the alleged fraudulent conduct occurred outside the six-year period, dismissal is not automatic. Once a defendant meets its prima facie burden of showing that the claim is untimely, the burden shifts to the plaintiff to raise a question of fact as to whether the discovery rule applies. Importantly, the Second Department reiterated that the discovery rule hinges on whether the plaintiff possessed knowledge of facts from which the fraud could reasonably be inferred, not mere suspicion. Where such knowledge is not conclusively established, the issue is generally left to the trier of fact, making dismissal at the pleading stage inappropriate. Thus, Yakobson underscores that plaintiffs may survive a statute of limitations challenge by demonstrating a factual dispute as to when the fraud could have been discovered with reasonable diligence. By contrast, Shen v. Ferncliff Cemetery Association demonstrates the limits of the discovery rule. There, plaintiff’s own allegations established that he was aware of the operative facts underlying the alleged fraud as early as 2013, yet he did not commence the action until a decade later. In those circumstances, the Second Department had little difficulty concluding that the fraud claim was time-barred. The decision highlights that once a plaintiff has knowledge of facts sufficient to put them on notice of the alleged wrongdoing, the limitations period will begin to run, even if the plaintiff later develops additional evidence or a fuller understanding of the claim. Together, these cases emphasize two practical points. First, the viability of fraud-based claims can turn on a nuanced, fact-driven analysis of the plaintiff’s knowledge and diligence, making early dismissal difficult when the record is undeveloped. Second, plaintiffs cannot rely on vague assertions of delayed discovery to revive otherwise stale claims; courts will look closely at the pleadings to determine whether the plaintiff was on inquiry notice more than two years before suit was filed. __________________________________ 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] See Barbetta v. Facchini, 236 A.D.3d 623, 625 (2d Dept. 2025). [2] Id. (internal quotation marks omitted); see Cruz v. Guaba, 226 A.D.3d 964, 965 (2d Dept. 2024). [3] Okafor v. Okafor Bldg. Corp., 239 A.D.3d 875, 878 (2d Dept. 2025) (internal quotation marks omitted). [4] Vilsack v. Meyer, 96 A.D.3d 827, 828 (2d Dept. 2012) (alteration and internal quotation marks omitted; see CPLR 213(8); Weinberg Real Estate Affiliates, LLC v. Weinberg, 231 A.D.3d 775, 777 (2d Dept. 2024). [5] Lipszyc v. Lipszyc, 221 A.D.3d 992, 994 (2d Dept. 2023) (internal quotation marks omitted); see Sargiss v. Magarelli, 12 N.Y.3d 527, 532 (2009). [6] Sargiss, 12 N.Y.3d at 532 (citation and internal quotation marks omitted); see Lipszyc, 221 A.D.3d at 994. [7] Vilsack, 96 A.D.3d at 828; see House of Spices (India), Inc. v. SMJ Servs., Inc., 103 A.D.3d 848, 849 (2d Dept. 2013). [8] See CPLR 214(2); Williams-Guillaume v. Bank of Am., N.A., 130 A.D.3d 1016, 1017 (2d Dept. 2015). [9] Yakobson, Slip Op. at *2. [10] Id., citing Sargiss, 12 N.Y.3d at 532; Lipszyc, 221 A.D.3d at 994; Cammarato v. 16 Admiral Perry Plaza, LLC, 216 A.D.3d 903, 905 (2d Dept. 2023). [11] Id., citing Three C, LLC v. City Settlement Serv., Inc., 241 A.D.3d 739,740 (2d Dept. 2025); Lipszyc, 221 A.D.3d at 994. [12] Shen, Slip Op. at 1-2, citing Mostafa v. Pension Solutions, LLC, 221 A.D.3d 997, 998-999 (2d Dept. 2023). [13] Id. at *2, citing Williams-Guillaume, 130 A.D.3d at 1017.