By: Jeffrey M. Haber Under the Federal Arbitration Act (“FAA”) and Article 75 of New York’s Civil Practice Law and Rules (“CPLR”), an action should be dismissed or stayed, and the claims referred to arbitration when they are subject to a broad, mandatory arbitration provision in the parties’ governing agreement. The FAA provides that written agreements to arbitrate are “valid, irrevocable, and enforceable” and “places arbitration agreements ‘upon the same footing as other contracts’”.[1] “The FAA leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”[2] Thus, a court “must stay proceedings once it is ‘satisfied that the parties have agreed in writing to arbitrate an issue or issues underlying the district court proceeding.’”[3] In New York, the result is the same under the CPLR. New York has a long and strong public policy favoring arbitration, and any doubts as to whether an issue is arbitrable will be resolved in favor of arbitration.[4] The threshold question in assessing a motion to compel arbitration is whether there is a valid and binding agreement to arbitrate.[5] The court decides that question.[6] If the Court finds that a valid arbitration agreement exists, the next question is whether the dispute comes within the scope of that agreement. The parties can, if they choose, delegate to the arbitrator (rather than the court) the job of making that determination.[7] “Where the parties ‘explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator’”.[8] Incorporating the rules of the American Arbitration Association, which provide that an arbitrator shall have the power to determine the arbitrability of any claim without any need to refer such matters to a court in the first instance, evidences such intent.[9] Therefore, “[a]lthough the question of arbitrability is generally an issue for judicial determination, when the parties’ agreement specifically incorporates by reference the AAA rules, which provide that ‘[t]he tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement,’ and employs language referring ‘all disputes’ to arbitration, courts will ‘leave the question of arbitrability to the arbitrators.’”[10] “‘When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.’”[11] Moreover, where “it appears that the subject matter of the agreement containing the arbitration clause and the dispute between its signatories are reasonably related,” arbitration should be compelled.[12] Further, “a nonsignatory to an arbitration clause may, in certain situations, compel a signatory to the clause to arbitrate the signatory’s claims against the nonsignatory despite the fact that the signatory and nonsignatory lack an agreement to arbitrate.”[13] For this reason, “[a] signatory to an arbitration agreement is estopped from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed.”[14] In Posillico v. Posillico, 2025 N.Y. Slip Op. 33273(U) (Sup. Ct., N.Y. County Sept. 3, 2025) (here), the foregoing principles were considered by the motion court in staying the action in favor of arbitration. In Posillico, plaintiff alleged that defendants violated his rights under a shareholder agreement (“Shareholder Agreement”) by removing him for “cause” (within the meaning of the Shareholder Agreement) as an employee and officer of Posillico, Inc. (“Posillico” or the “Company”), “thereby triggering [his] right, under the Shareholder Agreement, to compel him to sell them his shares at a fraction of their true value.” The Shareholder Agreement contained a broad, mandatory arbitration clause, which provided, in pertinent part, that “[a]ny controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration.” The Shareholder Agreement also provided that any arbitration would be governed by “the rules then obtaining of the American Arbitration Association.” Pursuant to the Shareholder Agreement, defendants commenced an arbitration against plaintiff. The issue before the motion court concerned which of plaintiff’s claims were subject to mandatory arbitration. As an initial matter, the motion court held that there was “plainly a valid agreement to arbitrate (at least among the signatories to the agreement).”[15] Therefore, said the motion court, “it [was] for the arbitrator (not the Court) to determine in the first instance which, if any, of Plaintiff’s claims against Defendants Joseph K. and Michael J. are subject to mandatory arbitration under the agreement.”[16] Having decided that there was a valid agreement to arbitrate, the motion court turned its attention to the question of which claims were arbitrable and against whom such claims could be arbitrated. The motion court framed the issue as follows: However, Plaintiff includes non-signatories to the Shareholder Agreement (Boren and Horton) as Defendants in some of his claims. That raises the question whether there is a valid agreement that binds Plaintiff to arbitrate his claims against those non-signatories . . . .[17] That issue, said the motion court, was “a question for the Court”.[18] The Court found that plaintiff was “estopped from contesting [defendants’] ability to compel arbitration of Plaintiff’s fourth claim for breach of fiduciary duty and fifth claim for conspiracy to breach fiduciary duty,” assuming those claims could be arbitrated by the signatory defendants.[19] The motion court concluded that “[i]f the arbitrator determines that the relevant claims are arbitrable against [plaintiffs], the claims against [the non-signatory defendants] should be adjudicated in the same arbitration rather than in a separate litigation.”[20] Finally, the motion court stayed the action with respect to the issue of whether plaintiff had standing (e.g., whether he was a shareholder) to bring his derivative claims for an accounting and access to the company’s books and records, “because determination of that issue in arbitration [could] dispose of those claims”.[21] The motion court held, therefore, that since it could not “determine … whether all claims in the complaint [were] subject to mandatory arbitration, it [was] proper to stay the action pending a determination of arbitrability rather than dismiss it entirely”.[22] __________________________________ 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] Wu v. Uber Techs., Inc., 43 N.Y.3d 288, 297 (2024). [2] Badinelli v. Tuxedo Club, 183 F. Supp.3d 450, 453 (S.D.N.Y. 2016) (quoting Jung v. Skadden, Arps, Slate, Meagher & Flom, LLP, 434 F. Supp. 2d 211, 214–15 (S.D.N.Y.2006)) (emphasis in original). See also 9 U.S.C. § 3. [3] Nicosia v. Amazon.com, Inc., 834 F.3d 220, 229 (2d Cir. 2016) (quoting WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997)); see also CPLR 7503(a); Katz v. Cellco P’ship, 794 F.3d 341, 345 (2d Cir. 2015). [4] CPLR 7501; see also Matter of Smith Barney Shearson v. Sacharow, 91 N.Y.2d 39, 49 (1997); Sisters of Saint John the Baptist v. Phillips R. Geraghty Constructor, Inc., 67 N.Y.2d 997 (1986); State of New York v. Philip Morris, Inc., 30 A.D.3d 26 (1st Dept. 2006), aff’d, 8 N.Y.3d 574 (2007). [5] Matter of Belzberg v. Verus Invs. Holdings Inc., 21 N.Y.3d 626, 630 (2013). [6] Henry Schein, Inc. v. Archer and White Sales, Inc., 586 U.S. 63, 69 (2019). [7] Zachariou v. Manios, 68 A.D.3d 539, 539 (1st Dept. 2009) (“Whether a dispute is arbitrable is generally an issue for the court to decide unless the parties clearly and unmistakably provide otherwise.”); see also Henry Schein, 586 US at 69 (“[i]f a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue”]). [8] Fritschler v. Draper Mgt., LLC, 203 A.D.3d 623 (1st Dept. 2022) (quoting Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005)). [9] Id.. See also Life Receivables Tr. v. Goshawk Syndicate 102 at Lloyd’s, 14 N.Y.3d 850, 851 (2010). [10] Life Receivables, 66 A.D.3d 495, 496 (1st Dept. 2009), aff’d, 14 N.Y.3d 850 (2010) (quoting Smith Barney, 91 N.Y.2d at 47). [11] WN Partner, LLC v. Baltimore Orioles Ltd. P’ship, 179 A.D.3d 14, 17 (1st Dept. 2019) (quoting Henry Schein, 586 U.S. at 68). [12] Maresca v. La Certosa, 172 A.D.2d 725, 726 (2d Dept. 1991); see also Ehrlich v. Stein, 143 A.D.2d 908, 910 (2d Dept. 1988) (“If the parties have broadly agreed to settle any dispute arising out of a contract between them by arbitration,” claims having a “reasonable relationship” with the agreement containing the broad arbitration clause are arbitrable). [13] Degraw Const. Grp., Inc. v. McGowan Builders, Inc., 152 A.D.3d 567, 569–70 (2d Dept. 2017). [14] Contec, 398 F.3d at 209; see also Merrill Lynch Int'l Fin., Inc. v. Donaldson, 27 Misc. 3d 391, 396 (Sup. Ct., N.Y. County 2010); Hoffman v. Finger Lakes Instrumentation, LLC, 7 Misc. 3d 179, 185 (Sup. Ct., Monroe County 2005). [15] Slip Op. at *3. [16] Id. (citing WN Partner, 179 A.D.3d at 17). [17] Id. [18] Id. [19] Id. (citing Contec, 398 F.3d at 209 ( “A signatory to an arbitration agreement is estopped from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed”), Merrill Lynch, 27 Misc. 3d at 396 (“One circumstance that warrants estoppel is when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted conduct by both the non-signatory and the other signatory to the contract”)). [20] Id. at *4. [21] Id. (citing O’Sullivan v. Jacaranda Club, 224 A.D.3d 629, 630 (1st Dept. 2024)). [22] Id. Kanner v. Westchester Med. Grp., P.L.L.C., 80 Misc. 3d 1201 (A), *12 (Sup. Ct., Bronx County 2023), aff’d, 233 A.D.3d 410 (1st Dept. 2024).

By: Jeffrey M. Haber In CJS Indus. Inc. v. Dolce, 2025 N.Y. Slip Op. 05037 (1st Dept. Sept. 23, 2025 (here), plaintiff sued RS Custom Woodworking and its representatives for fraud after winning an arbitration award. Plaintiff alleged that defendants conspired to avoid payment by incorporating a new entity with a similar name between the initial and final arbitration awards. Plaintiff claimed the incorporation was part of a deliberate scheme to mislead and evade enforcement of the arbitration awards. However, both the motion court and the Appellate Division, First Department, found that plaintiff failed to plead fraud with the required particularity in compliance with CPLR 3016(b).[1] The courts held that the complaint lacked factual allegations showing a material misrepresentation, scienter, intent to induce reliance, justifiable reliance, and proximate causation. The only alleged misrepresentation cited was the entry of the new entity in the New York Secretary of State’s database, which showed the new entity was not involved in the original agreement or arbitration. As a result, the fraud claims were dismissed. Background On July 18, 2018, Plaintiff, CJS Industries, Inc., signed a Master Subcontractor Agreement (“Agreement”) with RS Custom Woodworking (“RS”). The Agreement contained an arbitration provision for the resolution of disputes arising between plaintiff and RS. At some point, a dispute arose between the parties. Plaintiff commenced an arbitration against defendants before the American Arbitration Association in accordance with the Agreement (“Arbitration”). Defendants participated in the Arbitration with no objection and asserted counterclaims against plaintiff. On or about September 2, 2020, the arbitrator issued an initial award in plaintiff’s favor. On October 29, 2020, the arbitrator modified the award to increase the total amount due plaintiff. In the interim, on October 5, 2020, defendants incorporated a new entity known as RS Custom Woodworking, Inc. (“RS Inc.”). The incorporation was done between the initial arbitration award and the final award on October 29, 2020. On or about December 22, 2020, plaintiff filed an Article 75 proceeding to confirm the arbitration award. The motion court confirmed the award and entered judgment against RS Inc., the newly formed entity. RS Inc. appealed the decision and order. The First Department reversed and vacated the judgment because it was unable to confirm an award against an entity that did not exist at the time the award was issued. Plaintiff brought suit against defendants, asserting, inter alia, that defendants defrauded it by creating RS Inc. to avoid paying the initial award and subsequently the final award. Defendants moved to, inter alia, dismiss pursuant to CPLR 3211(a)(1), (5), and (7). Plaintiff opposed the motion. Defendants argued that the fraud-based claims should be dismissed because there were no facts supporting the alleged scheme to defraud, and that plaintiff named not only the wrong party in its action to confirm the arbitration award, but also pursued confirmation and judgment against a company that did not exist when the Agreement was made and the arbitration conducted. Plaintiff opposed the motion, contending that the complaint provided factual details establishing the elements of a fraud claim. Plaintiff maintained that the complaint described defendants’ plan to defraud it and to avoid paying the initial award soon after losing the arbitration, that RS Inc. was incorporated between the initial and final arbitration award, that defendants knew there would be confusion between the two entities, that defendants intended for plaintiff to rely on the incorporation at the precise time plaintiff was working to confirm, and defendants induced plaintiff’s reliance on the incorporation as a means to avoid payment. The Motion Court’s Decision The motion court granted the motion to dismiss, holding that the complaint did not allege with factual specificity defendants’ purported improper actions/conduct. The motion court found that, among other things, “[p]laintiff merely allege[d] in conclusory terms that defendants ‘acted in furtherance of and took steps to effectuate their common plan, agreement and scheme to defraud...’, [and] that the alleged actions by defendants were fraudulent.” The motion court concluded that “[b]ased on plaintiff’s allegations, the court [could not] reasonably infer the fraudulent conduct that allegedly occurred between the various defendants.” Plaintiff appealed. The First Department’s Decision and Order On appeal, the First Department unanimously affirmed. The Court held that “[a]lthough the complaint [laid] out the alleged scheme sufficiently to put the parties on notice of the precise conduct of which they [were] accused, the complaint nonetheless fail[ed] to state the elements of a fraud claim.”[2] In New York, the elements of a fraud cause of action are: “[1] a material misrepresentation of a fact, [2] knowledge of its falsity, [3] an intent to induce reliance, [4] justifiable reliance by the plaintiff and damages”.[3] Additionally, the plaintiff must plead that the fraud was the proximate cause of the claimed losses.[4] The Court found that “[t]he only misrepresentation to which plaintiff points [was] the entry [of incorporation] in the Secretary of State’s database.”[5] “However,” noted the Court, “as defendants point[ed] out, that entry lists the date of RS Custom Woodworking, Inc.’s incorporation, October 5, 2020, indicating that it was not the same entity that entered into an agreement with plaintiff in 2018 or participated in an arbitration hearing in August 2020.”[6] The Court also held that “[p]laintiff’s allegations of scienter [were] … lacking.”[7] The Court reasoned that plaintiff could not show an intent to deceive because “RS Custom Woodworking, Inc. immediately and expressly stated in its answer in the confirmation proceeding that it was not the entity against which the arbitration award had been granted.”[8] Moreover, the Court held that “[b]ecause plaintiff knew it had sued the wrong party almost immediately, but continued with the confirmation proceeding, it failed to plead proximate or loss causation.”[9] Takeaway CJS Indus. reinforces the principle that fraud claims must be pled with particularity. General allegations or conclusory statements about a scheme are insufficient. Plaintiffs must clearly articulate each element of fraud—misrepresentation, knowledge of falsity, intent, reliance, and damages—with specific facts. ______________________________ 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 CPLR 3016(b) and the failure to plead fraud with particularity. To find such articles, please see the BLOG tile on our website and search for “CPLR 3016(b)”, “failure to plead fraud with particularity”, “fraud”, “elements of fraud”, or any other commercial litigation issue that may be of interest to you. [2] Slip Op. at *1. [3] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009). [4] Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 151 A.D.3d 83, 86 (1st Dept. 2017). [5] Slip Op. at *1. [6] Id. [7] Id. [8] Id. [9] Id.

By: Jeffrey M. Haber Today, we consider Tahari v. 860 Fifth Ave. Corp., 2025 N.Y. Slip Op. 05584 (1st Dept. Oct. 9, 2025) (here), an apparent case of first impression in the Appellate Division, First Department, involving the suability of a board of directors under New York law. Our discussion of Tahari v. 860 Fifth Ave. Corp. can be found by clicking the following link: In New York, “the business of a corporation [is] managed under the direction of its board of directors…”[1] Notwithstanding, a corporation’s board of directors is neither empowered to commence an action in its own capacity nor susceptible to being sued as such. In fact, no provision of New York law describes a corporation’s board as a distinct, suable entity. The Business Corporation Law (“BCL”) makes this point clear, providing that only a corporation can “sue and be sued in all courts and … participate in [all] actions and proceedings, whether judicial, administrative, arbitrative or otherwise, in like cases as natural persons.”[2] Thus, while the individual directors of a corporation may vote for their corporation to commence litigation, it is the corporation that actually serves as the party to that litigation, not the board that voted to institute the action. The BCL underscores this point by identifying the circumstances under which the directors of a corporation in their individual capacity may be subject to suit from its shareholders.[3] Significantly, the BCL does not contain a provision authorizing a corporation’s board of directors to commence suit in its own capacity, separate from the corporation. Nor does the BCL contain any provision permitting suit directly against a board of directors. New York trial courts are in accord, holding that a board of directors is not an entity that may be sued separately from the corporation.[4] In Stromberg v. East Riv. Hous. Corp., the plaintiffs – owner of shares appurtenant to an apartment in a residential cooperative – sued the corporation, its management company, an individual board member, and the board of directors, in connection with the board’s refusal to consent to the sale of the apartment. Among other motions, the plaintiffs moved for additional time to serve the board with their amended complaint. The motion court denied the relief, holding that, since the board of directors was not a distinct entity, it was not subject to suit. The motion court concluded that, “based on its review of statutory and decisional law, … no basis exists to treat the board of a cooperative corporation as a juridical entity distinct from the cooperative itself.” The motion court explained that it had “found no cases expressly approving—or even expressly discussing—a suit brought against both a co-op and also the co-op’s board as an entity (as opposed to claims against the co-op and some or all of the board’s members).” “At most,” said the motion court, “courts have decided claims brought against co-op boards without considering, or having occasion to consider whether the board was a proper defendant.” The motion court “conclude[d, therefore,] that a plaintiff claiming to be aggrieved by decisions of a co-op board may not sue the board itself as an entity.” The Stromberg court noted, however, that its conclusion “would not leave a plaintiff in this scenario without means of obtaining redress.” “A plaintiff[,]” said the motion court, “could sue the co-op directly, seeking to hold it liable for the actions of its board—as plaintiffs are already doing here. A plaintiff could also sue the board members individually, in appropriate cases.” “But a co-op board, as a board, is not amenable to suit[,]” said the motion court. Courts outside of New York (both federal and state) have reached a similar conclusion as the Stromberg court.[5] In Flarey v. Youngstown Osteopathic Hosp., highlighted by the First Department in Tahari, held that a board of directors is incapable of owning property and cannot sue in its own name.” The reason, said the Flarey court, is because “a board of directors is the collection of individuals with the ultimate responsibility of making decisions on behalf of the corporation. . . .” After all, noted the court, “a corporation may only act through the acts of its agents, such as its directors, officers, or employees.” For this reason, said the court, “any action of the board of directors is an action of the corporation.” Thus, “[a]lthough the board of directors is the body with the ultimate responsibility of making decisions on behalf of the corporation,” “the individual members of the board are [not] liable for corporate torts merely by reason of their relation to the corporation.” The Flarey court went on to note: As a practical matter, it would be nonsensical to hold a board of directors liable as a collective entity. A board of directors may not own property in its own name. Thus, any judgment against it could not be recovered from the collective group. Furthermore, a judgment against the collective entity cannot apply to the individuals as the individuals are only liable if they participated in the tortious conduct. Thus, such a suit would be, for all practical purposes, pointless. Against the foregoing analysis, the First Department decided Tahari. Tahri concerned a long-running dispute between a shareholder of a residential cooperative corporation and the cooperative corporation regarding the shareholder’s combination and renovation of two penthouse apartments. Plaintiff commenced the action in 2018 and asserted a variety of contract and tort causes of action against the cooperative corporation and individual board members in his complaint and amended complaint. In an earlier appeal, Tahari v. 860 Fifth Ave. Corp., 214 A.D.3d 491 (1st Dept. 2023), the First Department, among other things, dismissed plaintiff’s breach of fiduciary duty causes of action against the cooperative corporation and most of the individual board members for failure to state a cause of action. Thereafter, plaintiff filed a second amended complaint in which he asserted a breach of fiduciary duty cause of action against the board of directors of the cooperative corporation, as distinct from the dismissed breach of fiduciary duty causes of action against the cooperative corporation and the individual board members. Defendants moved to dismiss the cause of action against the board of directors on the ground, among others, that the board was not amenable to suit. In response, plaintiff cross-moved to serve a third amended complaint, naming the current board president as a representative of the board. The motion court denied defendants’ motion to dismiss and granted plaintiff’s cross-motion to amend the complaint to add the board president as a representative of the board of directors. In doing so, the motion court relied on the First Department’s decision in 2023 and held that the board of directors of a cooperative corporation was directly amenable to suit, as opposed to the cooperative corporation and/or individual board members. The First Department unanimously reversed, holding that the motion court “misinterpret[ed] our precedent.”[6] In doing so, the Court “clarify[ied] that the board of directors of a corporation is not amenable to suit, separate and apart from being sued in its representative capacity for the corporation.”[7] The Court explained that the “motion court’s reliance upon Dau v. 16 Sutton Place Apt. Corp. (205 AD3d 533 [1st Dept 2022]) to find otherwise was misplaced.”[8] In Dau, the plaintiff commenced an action against both a residential cooperative corporation and its board of directors.[9] The issue in Dau, with respect to the breach of fiduciary duty claims against the board of directors, was whether those claims were sufficiently and timely pled.[10] “Whether the board of directors could be sued separately from the corporation itself was never raised.”[11] “Thus,” said the Court, “Dau should not be read to hold that a claim for breach of fiduciary duty may be brought directly against a board of directors.”[12] Therefore, “[a]pplying the Business Corporation Law and consistent with the … cases [discussed above],” the Court held that “the residential cooperative board of defendant 860 Fifth Avenue Corporation [was] not an entity with the capacity to sue and be sued separate and apart from the corporation on whose behalf it acts.”[13] Takeaway In Tahari, the First Department held that a board of directors cannot be sued as a collective entity under New York law. The Court grounded its holding on the BCL and case authority from New York lower courts and state and federal courts around the country. Although the Court deemed its decision to be a clarification of its prior jurisprudence, the decision reads more like a case of first impression. Regardless, Tahari makes clear that under the BCL, only corporations—not their boards—may sue or be sued. Individual directors may be sued in their personal capacity for misconduct, but not the board as a whole. ______________________________________ 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] BCL §701 (“[T]he business of a corporation shall be managed under the direction of its board of directors…”). [2] BCL § 202(a). [3] See BCL § 720(a) (providing that “[a]n action may be brought against one or more directors or officers of a corporation . . .” for certain types of misconduct); BCL § 719(a) (providing that “Directors of a corporation who vote for or concur in any of the [enumerated] … corporate actions shall be jointly and severally liable to the corporation for the benefit of its creditors or shareholders, to the extent of any injury suffered by such persons respectively, as a result of such action . . .”). [4] Stromberg v. East Riv. Hous. Corp., 82 Misc. 3d 871, 883-884 (Sup. Ct., N.Y. County 2023) (concluding that “no basis exists to treat the board of a cooperative corporation as a juridical entity distinct from the cooperative itself” following its review of statutory and decisional law); Biales v. 10 E. End Ave. Owners, Inc., 85 Misc. 3d 1202(A), 2025 N.Y. Slip Op. 50074(U) (Sup. Ct., N.Y. County 2025)). [5] See e.g. Siegler v. Sorrento Therapeutics, Inc., 2021 WL 3046590, 10 (Fed. Cir. 2021) (noting that “California’s Corporation Code only identifies a corporation or association as entities that may be sued”); Heslep v. Americans for African Adoptions, Inc., 890 F. Supp. 2d 671, 678-679 (N.D. W.Va. 2012); Team Sys. Int’l, LLC v. Haozous, 2015 WL 2131479, 2 (W.D. Okla. May 7, 2015); Lopez-Rosario v. Programa Seasonal Head Start/Early Head Start de la Diocesis de Mayaguez, 245 F. Supp. 3d 360, 370 (D.P.R. 2017), aff’d, 847 Fed. Appx. 9 (1st Cir. 2021) (holding that “[a] board of directors is not a legal entity separate and apart from the corporation it directs . . . and, thus, lacks capacity to be sued”); Flarey v. Youngstown Osteopathic Hosp., 151 Ohio App. 3d 92, 96, 783 N.E.2d 582, 585 (7th Dist. 2002). [6] Slip Op. at *1. [7] Id. [8] Id. at *2. [9] Dau, 205 A.D.3d at 534. [10] Id. at 535-536. [11] Slip Op. at *2. [12] Id. [13] Id. Consequently, said the Court, “[w]hile a shareholder cannot assert allegations of breach of fiduciary duty against a board of directors, a shareholder may assert the claim against the individual directors.” Id. (citing Weinreb v. 37 Apts. Corp., 97 A.D.3d 54, 57 (1st Dept. 2012); Peacock v. Herald Sq. Loft Corp., 67 A.D.3d 442-443 (1st Dept. 2009)). The Court noted that plaintiff had “originally brought breach of fiduciary duty causes of action against fourteen of the individual board members and the corporation (see Tahari, 214 AD3d at 492).” Id. The Court made clear that since “[t]hose causes of action were largely dismissed, … plaintiff [could] not simply replace those parties with ‘the board’ to revive those now dismissed claims.” Id.

By: Jeffrey M. Haber In today’s Fraud Notes, we examine two cases involving principles familiar to readers of this Blog: the duplication doctrine and the requirement that plaintiffs plead sufficient facts to satisfy each element of a fraud claim. In Emissions Reduction Corp. v. mCloud Tech. (USA) Inc., 2025 N.Y. Slip Op. 05457 (1st Dept. Oct. 7, 2025) (here), the Appellate Division, First Department affirmed the dismissal of plaintiff’s fraud claim on the grounds of duplication with plaintiff’s breach of contract claims. Emissions Reduction is notable because the Court held that the alleged fraud damages were not distinct from those sought by the breach of contract claim. As noted in previous articles (e.g., here), this focus on overlapping damages is common in the First Department. In Brooklyn Tabernacle v. Thor 180 Livingston, LLC, 2025 N.Y. Slip Op. 05492 (2d Dept. Oct. 8, 2025) (here), the Appellate Division, Second Department affirmed the denial of defendants’ motion to dismiss, inter alia, plaintiff’s fraud claim, holding that plaintiff adequately satisfied the elements required to state a cause of action for fraud. Emissions Reduction Corp. v. mCloud Tech. (USA) Inc. Emissions Reduction arose from a $15 million loan by plaintiff to defendant, mCloud Tech. (USA) Inc. (“mCloud”), which plaintiff alleged was made due to fraudulent misrepresentations. As alleged in the amended complaint, on March 11, 2022, one of the individual defendants sent plaintiff a draft press release stating that defendant mCloud Technologies Corp., the parent company of mCloud (Parent), “had signed an agreement to deliver its AssetCare for Connected Buildings solution to manage the energy efficiency of the Vail Buick Dealership in Bedford Hills, New York, the first of 15 planned installations for auto dealerships in New York state to help control rising energy costs in the electric vehicle (“EV”) era” and had “[s]igned LOIs [Letters of Intent] in place to connect 15 additional dealerships in New York with total expected value of more than $14 million.” Defendant allegedly told plaintiff that mCloud needed $15 million to deploy the first phase of its EV projects at those dealerships. On March 28, 2022, in reliance on the draft press release, plaintiff claimed that it and mCloud executed a note, under which plaintiff loaned mCloud $5 million on or about the March 28 execution date, with the option for mCloud to request additional advances of up to $10 million. Shortly after the first advance, the individual defendants each allegedly represented that mCloud had used $4,926,199 of its $5 million advance from plaintiff to order equipment for EV dealership projects, and that it required the additional $10 million to further support the projects. Plaintiff advanced a further $10 million to mCloud upon those representations. Plaintiff alleged that it subsequently discovered defendants’ representations to be false, and that the funds were used to pay another of mCloud’s lenders, compensate its executives, and inject funds into mCloud’s sister entities, as opposed to the purposes agreed upon in the note. Plaintiff brought suit, asserting claims of fraudulent inducement against the individual defendants, mCloud, and Parent, and a breach of contract claim against mCloud. As relevant here, for each cause of action plaintiff sought the $15 million in principal, together with interest and certain costs associated with drafting and enforcing the note. In its fraud claims, plaintiff sought additional unspecified reputational, valuational, and auditing costs. Defendants moved, inter alia, to dismiss plaintiff’s fraud claims. The motion court granted the motion. The First Department affirmed. The Court held that “Plaintiff’s fraud claims against the individual defendants, … were correctly dismissed by the court below, as they sought damages duplicative of those recoverable on the breach of contract claim against mCloud.”[1] “It has long been the rule [in New York] that parties may not assert fraud claims seeking damages that are duplicative of those recoverable on a cause of action for breach of contract.”[2] “Where all of the damages are remedied through the contract claim, the fraud claim is duplicative and must be dismissed.”[3] Requesting the same damages for fraud and breach of contract claims is a basis to dismiss the fraud claim as duplicative, including at the pleadings stage.[4] The Court also rejected plaintiff’s argument that its fraud claim included reputational and valuational damages, finding that such allegations were “vague[ ]” and did “not constitute the ascertainable out-of-pocket pecuniary damages required to sustain the fraud claim.”[5] In New York, a plaintiff alleging fraud can recover only the actual pecuniary loss sustained as a result of the misrepresentation or omission, i.e., the plaintiff’s out-of-pocket damages.[6] The rule prohibits the recovery of lost profits or lost business or investment opportunities,[7] as well as pain and suffering damages that are often sought in other tort actions.[8] Brooklyn Tabernacle v. Thor 180 Livingston, LLC Brooklyn Tabernacle involved the purchase of a condominium unit owned by plaintiff. In March 2015, plaintiff, Brooklyn Tabernacle (hereinafter, the “church”), entered into a sale purchase agreement (hereinafter, the “SPA”) with defendant, Thor 180 Livingston, LLC (hereinafter, “Thor Livingston”), wherein Thor Livingston agreed to purchase a condominium unit owned by the church for $51 million. As part of the transaction, Thor Livingston agreed to obtain all governmental approvals to create, by subdivision, a new condominium unit (hereinafter, the “church unit”), consisting of a subterranean space and a portion of the first floor, and to reconvey the church unit to the church for no consideration within one year following the closing or, if the subdivision was not accomplished within one year, to enter into a long-term ground lease granting the church the same rights and benefits to which it would be entitled as the owner of the church unit. The sale closed in October 2015 (hereinafter, the “2015 closing”). Following the 2015 closing, Thor Livingston allegedly waived its rights to perform shoring and footing work in the basement, and, relying on the waiver, the church expended millions of dollars renovating the church unit. In July 2019, Thor Livingston delivered the deed to the church unit to the church (hereinafter, the “2019 closing”). Simultaneously, the parties executed a separate agreement defining Thor Livingston’s development rights in the condominium building wherein the church unit was located (hereinafter, the “development agreement”). In August 2019, the church commenced the action against, among others, Thor Livingston and defendant, Thor Management Co., LLC (hereinafter together, the “Thor defendants”), inter alia, to recover damages for breach of contract and rescission of the development agreement due to fraud and duress. The church alleged that, after the 2015 closing, Thor Livingston delayed delivering the deed to the church unit to the church in order to extract concessions and payments that Thor Livingston was not entitled to under the SPA, including, among other things, the execution of the development agreement and the payment of Thor Livingston’s title insurance costs. The Thor defendants moved, inter alia, pursuant to CPLR 3211(a) to dismiss the first, second, and sixth causes of action and so much of the third cause of action alleging fraud. The Thor Defendants maintained that, among other things, plaintiff failed to identify a misrepresentation and, therefore, did not satisfy all the elements of its fraud claim. 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.”[9] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[10] The Supreme Court, among other things, denied those branches of the motion. The Thor defendants appealed. The Second Department affirmed. Regarding the fraud claims, the Court held that the motion court “properly denied” the motion.[11] The Court found that “the allegations in the amended complaint were sufficient to allege a material misrepresentation of fact, as the amended complaint alleged that (1), in the SPA, Thor Livingston falsely promised that it would imminently complete the subdivision and thereafter, would immediately reconvey the church unit to the church, (2) that Thor Livingston falsely represented that it waived its rights to perform shoring and footing work in the basement and thereafter, coerced the church into entering the development agreement, and (3) that Thor Livingston demanded certain concessions including, among other things, the payment of its title insurance costs.”[12] Takeaway Fraud claims must be based on damages that are distinct from those recoverable under a breach of contract. Emissions Reduction demonstrates that courts, especially in the First Department, will dismiss fraud claims that merely restate contractual damages. Brooklyn Tabernacle reinforces the principle that to survive dismissal, each element of the cause of action must be alleged. At issue in Brooklyn Tabernacle was the first element—the making of a misrepresentation or omission. _____________________________________ 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] Slip Op. at *1 (citing MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 165 A.D.3d 108, 114–15 (1st Dept. 2018) (citing Chowaiki & Co. Fine Art Ltd. v. Lacher, 115 A.D.3d 600, 600-601 (1st Dept. 2014) (dismissing fraud claim seeking duplicative damages even where the plaintiff sufficiently alleged breach of an independent duty owed them independent of the contract)). [2] MBIA Ins., 165 A.D.3d at 114-115 (citing Mañas v. VMS Assoc., LLC, 53 A.D.3d 451, 454 (1st Dept. 2008)). [3] Id. [4] Mañas, 53 A.D.3d at 454; see also Triad Int’l Corp. v. Cameron Industries, Inc., 122 A.D.3d 531, 532 (1st Dept. 2014) (affirming dismissal of fraud claim because “plaintiff seeks the same compensatory damages for both [its fraud and contract] claims” and denying leave to amend because plaintiff’s new, “purported fraud damages are actually contract damages”). [5] Id. (citing CKR Law LLP v. DiPaola, 209 A.D.3d 427, 428 (1st Dept. 2022) (unspecified reputational damages and lost revenue or profits are not sufficient to sustain a cause of action based on fraud) (citing Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996)). [6] Reno v. Bull, 226 N.Y. 546 (1919); see also Continental Cas. Co. v. PricewaterhouseCoopers, LLP, 15 N.Y.3d 264 (2010). The damages recoverable under the out-of-pocket rule are intended to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained. Lama, 88 N.Y.2d at 421; see also Clearview Corp. v. Gherardi, 88 A.D.2d 461, 468 (2d Dept. 1982) (“the defrauded party is entitled solely to recovery of the sum necessary for restoration to the position occupied before the commission of the fraud”) (citations omitted). [7] Foster v. Di Paolo, 236 N.Y. 132, 134 (1923). [8] Williams v. Mann, 143 A.D.3d 813 (2d Dept. 2016). [9] Lama, 88 N.Y.2d at 421. [10] 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). [11] Slip Op. at *2. [12] Id. (citing Vision Accomplished, Inc. v. Lowe Props., LLC, 131 A.D.3d 1163, 1164 (2d Dept. 2015)).

By: Jeffrey M. Haber In Macklowe Inv. Props. LLC v. MIP 57th Dev. Acquisition LLC, 2025 N.Y. Slip Op. 05192 (1st Dept. Sept. 30, 2025) (here), the plaintiff, a real estate brokerage, sued pursuant to a letter agreement for a leasing commission after securing a tenant for defendants’ property. The letter agreement required satisfaction of a condition precedent before payment of the commission: execution of a leasing commission agreement. Plaintiff never fulfilled this condition. The motion court held that without satisfying this requirement, plaintiff’s breach of contract claim had not yet ripened. Plaintiff argued futility and waiver, but the motion court rejected these claims, noting that defendants had offered a draft agreement and never refused to negotiate. The First Department affirmed the motion court’s ruling, emphasizing that the condition precedent was never met and defendants did not act in bad faith to prevent its fulfillment. Thus, no commission was owed. Background Plaintiff, a licensed real estate brokerage office, and defendants entered into a development management agreement and a property management agreement. Defendant, MIP 57th Development Acquisition, LLC (“MIP Acquisition”), is the owner of the retail and garage portions of certain real property located on Park Avenue in New York City. Defendant, MIP Acquisition is also the owner of the adjoining real property located on East 57th Street in New York City, as successor by merger to defendant NY Medical Investors, LLC. Defendant, 432 Park Properties Inc., together with defendants MIP Acquisition and NY Medical, hold an ownership interest in MIP 57th Development Holding, LLC, which owns MIP Acquisition. On April 7, 2017, the parties entered into a letter agreement (the “Agreement”) that, among other things, set forth the terms and conditions under which plaintiff, acting as a real estate broker, would be entitled to a leasing commission in connection with the lease of commercial space at real property owned by MIP Acquisition. Relevant to the Court’s decision, Section 5 of the Agreement contained a condition precedent specifying when plaintiff would be entitled to a commission: “[Plaintiff] shall be entitled to receive a standard New York City commission rate with respect to any final lease agreement executed by Phillips [de Pury / Mercury Group] … [when plaintiff] has executed an industry-standard leasing commission agreement in form and substance reasonably satisfactory to [MIP Acquisition] pursuant to which [plaintiff] shall provide customary representations and warranties and, solely with respect to Phillips ….” On December 7, 2018, an affiliate of Phillips de Pury / Mercury Group, Phillips Auctioneers LLC (“Phillips”), entered into a lease agreement (“Lease”) with MIP Acquisition to lease certain retail space located at the subject property. Pursuant to the Lease, Phillips agreed to pay MIP Acquisition $121,642,500 in rent over the course of a 15-year term. On January 16, 2019, plaintiff sent defendants an invoice for the leasing commission that it calculated at $3,282,622.00. Defendants disagreed with plaintiff’s calculation; thus, no commission was paid. In December 2021, plaintiff brought suit alleging that it was entitled to a leasing commission under the Agreement. In that regard, Plaintiff asserted three causes of action: breach of contract; breach of the implied covenant of good faith and fair dealing; and in the alternative, unjust enrichment. Motion Court’s Decision and Order Both parties filed motions for summary judgment. Plaintiff sought summary judgment as to both liability and damages for its breach of contract cause of action. In support of its motion, plaintiff contended that defendants refused to pay the standard New York City commission rate for the tenant it procured for the property. In opposition and in support of its own motion for summary judgment, defendants contended that plaintiff failed to satisfy the condition precedent in the Agreement, thus plaintiff’s claims were not yet ripe. Both parties relied on Section 5 of the Agreement. During oral argument, plaintiff claimed that providing defendants with the industry-standard leasing commission agreement, as set forth in Section 5 of the Agreement, was futile because defendant argued that plaintiff was not entitled to the amount it sought. The motion court held that it was not futile to comply with the terms of the Agreement and that defendants did not waive their right to the executed leasing commission agreement identified in the underlying agreement. Consequently, the motion court denied plaintiff’s motion and granted defendant’s cross-motion for summary judgment. Plaintiff appealed. The First Department affirmed. The First Department’s Decision The Court held that “[d]efendants met their prima facie burden of establishing that their obligation to pay plaintiff a commission pursuant to the letter agreement was never triggered and thus that defendants did not breach the agreement.”[1] Noting that “it [was] undisputed that the parties never entered into a leasing commission agreement,” the Court explained that the failure to enter into such an agreement was “a condition precedent to defendants’ obligation to pay plaintiff a commission pursuant to the parties’ April 7, 2017 letter agreement.”[2] The Court also held that “[p]laintiff failed to raise a triable issue of fact as to whether defendants waived the condition precedent.”[3] “Defendants were not required to repeatedly remind plaintiff of its obligations under the agreement,” said the Court.[4] Finally, the Court rejected plaintiff’s argument that defendants prevented the condition precedent from occurring.[5] Under New York’s prevention doctrine, “[i]f a promisor himself is the cause of the failure of performance of a condition upon which his own liability depends, he cannot take advantage of the failure.”[6] The prevention doctrine applies where a party takes steps in bad faith to cause the condition precedent’s failure.[7] The Court found that “[w]hile the record indicate[ed] that there was disagreement as to the amount of the commission to which plaintiff was entitled, defendants never indicated that they would not enter into ‘an industry-standard leasing commission agreement in form and substance reasonably satisfactory to’ them, as set forth in the letter agreement.”[8] The Court noted that “[d]efendants offered plaintiff a proposed leasing commission agreement in October 2019, and there [was] no evidence indicating that plaintiff ever countered with another proposed commission agreement, or that defendants declined to enter into a commission agreement or would have done so.”[9] “Thus,” concluded the Court, “plaintiff ha[d] not … raised an issue of fact as to prevention”.[10] Takeaway As shown in Macklowe, courts will not enforce a party’s contractual rights unless all agreed-upon terms have been satisfied, such as conditions precedent. In Macklowe, plaintiff’s right to a commission was contingent upon executing a separate leasing commission agreement. Because that condition never occurred, the obligation to pay never arose. Macklowe also demonstrates that a waiver of rights requires clear intent. A party’s failure to enforce a contractual term does not automatically constitute waiver. In Macklowe, the Court emphasized that waiver must be intentional and clearly demonstrated. Silence or inaction, even over time, is insufficient to establish a waiver. Macklowe further shows that the prevention doctrine is narrowly applied. In Macklowe, plaintiff argued that compliance was futile and that defendants prevented performance. The Court rejected both arguments, stating that futility must be based on clear evidence that performance would have been refused, and prevention requires bad faith conduct. Mere disagreement over payment terms does not meet these requirements. _____________________________________ 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] Slip Op. at *1. [2] Id. “A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises.” Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995) (internal quotation marks omitted). [3] Id. “Contractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned. Such abandonment may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage.” Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgt., L.P., 7 N.Y.3d 96, 104 (2006) (internal quotation marks and citation omitted). “[W]aiver should not be lightly presumed” and must be based on a clear manifestation of intent to relinquish a contractual protection.” Id. [4] Id. Courts may not infer waiver from “mere silence”. Homapour v. Harounian, 200 A.D.3d 575, 576 (1st Dept 2021) (internal quotation marks omitted). [5] Id. [6] Vector Media, LLC v. Golden Touch Transp. of N.Y., Inc., 189 A.D.3d 654, 655 (1st Dept. 2020) (internal quotation marks omitted). [7] See Ellenberg Morgan Corp. v. Hard Rock Cafe Assoc., 116 A.D.2d 266, 271 (1st Dept. 1986). [8] Slip Op. at *1. [9] Id. [10] Id.

By: Jeffrey M. Haber On numerous occasions, this Blog has examined the attorney-client privilege, the common interest doctrine, and the attorney work product doctrine.[1] Today, we take another opportunity to explore the contours of these privileges. In Simpson v. Chassen, the New York Supreme Court compelled the production of a joint defense agreement (“JDA”), rejecting claims that it was protected under the attorney-client privilege or the attorney work product doctrine. The motion court found that the JDA did not establish an attorney-client relationship or facilitate legal advice, and thus was not privileged. It also ruled that the JDA lacked legal analysis or strategy, rendering it unprotected as attorney work product. Disclosure and The Attorney-Client Privilege The Civil Practice Law and Rules (“CPLR”) directs that there shall be “full disclosure of all matter material and necessary in the prosecution or defense of an action.”[2] Notwithstanding, the CPLR establishes three categories of materials protected from disclosure: privileged matter, which is afforded absolute immunity from discovery[3]; attorney work product, which is also afforded absolute immunity[4]; and trial preparation material, which is subject to disclosure only on a showing of substantial need and undue hardship in obtaining substantially equivalent material by other means.[5] As the New York Court of Appeals noted, there exists an obvious tension between the policy favoring full disclosure and the policy permitting parties to withhold relevant information.[6] Consequently, the burden of establishing any right to protection is on the party asserting it; the protection claimed must be narrowly construed; and its application must be consistent with the purposes underlying immunity.[7] The burden cannot be satisfied by conclusory assertions of privilege. Rather, the proponent of the privilege must set forth competent evidence establishing the elements of the privilege.[8] The attorney-client privilege is the oldest among common-law evidentiary privileges.[9] It is intended to foster open and candid dialogue between lawyer and client and is deemed essential to effective representation.[10] In order for the privilege to apply, the communication from attorney to client must be made for “the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship.”[11] The communication itself must be primarily or predominantly of legal character.[12] Communications Protected From Disclosure The attorney-client privilege insulates from disclosure a discreet category of communications between attorney, client, and, in some instances, third parties that assist the attorney to formulate and render legal advice.[13] The privilege does not apply merely because a statement was uttered by or to an attorney (or an attorney’s agent). Nor does it attach simply because a statement conveys advice that is legal in nature.[14] The privilege is not limited, however, to communications directly between the client and counsel. It also encompasses communications between an attorney and a client’s agent or representative, provided that the communications are intended to facilitate the provision of legal services by the attorney to the client.[15] It does not, however, protect communications between a non-lawyer and a client that involve the conveyance of legal advice offered by the non-lawyer, except when the non-lawyer is acting under the supervision or the direction of an attorney.[16] Moreover, the privilege protects from disclosure communications among corporate employees that reflect advice rendered by counsel to the corporation.[17] “A privileged communication should not lose its protection if an executive relays legal advice to another who shares responsibility for the subject matter underlying the consultation.”[18] This follows from the recognition that since the decision-making power of the corporate client may be diffused among several employees, the dissemination of confidential information to such persons does not defeat the privilege.[19] The Common Interest Protection Under the common interest doctrine, the presence of a third party will not destroy a claim of privilege where two or more clients separately retain counsel to advise them on matters of common legal interest. The doctrine originated in the context of criminal cases, where the courts “allowed the attorneys of criminal co-defendants to share confidential information about defense strategies without waiving the privilege as against third parties.”[20] In New York, the Court of Appeals first recognized the common interest doctrine in People v Osorio, 75 N.Y.2d 80 (1989). Thereafter, New York courts have applied the common interest doctrine to both criminal and civil matters, to communications of both co-plaintiffs and co-defendants, but always in the context of pending or reasonably anticipated litigation.[21] Although federal courts have extended the exception regardless of whether litigation is pending or threatened,[22] the Court of Appeals has declined to do so.[23] In declining to extend the doctrine, the Court noted that limiting the doctrine “to situations where the benefit and the necessity of shared communications are at their highest” – i.e., during litigation or when there is the threat of litigation – reduces the risk of misuse.[24] The Court reasoned that “the common interest doctrine promotes candor that may otherwise have been inhibited” between co-litigants.[25] Otherwise, “the threat of mandatory disclosure may chill the parties’ exchange of privileged information and therefore thwart any desire to coordinate legal strategy.”[26] The Court rejected the notion that there is a shared common legal interest in a commercial transaction or other common situation “outside the context of litigation” or the threat of litigation.[27] The Court further rejected the argument that limiting the exception to litigation “will create an anomalous result: clients who retain separate attorneys … cannot protect their shared communications absent pending litigation but the same communications made in the absence of litigation would be privileged if [they] had simply hired a single attorney to represent them” in a non-litigation context.[28] The Court reasoned that “[i]n the joint client or co-client setting … the clients indisputably share a complete alignment of interests in order for the attorney, ethically, to represent both parties. Accordingly, there is no question that the clients share a common identity and all joint communications will be in furtherance of that joint representation.”[29] But when clients retain separate attorneys to represent them on a matter of common legal interest, that is not so. “It is less likely that the positions of separately-represented clients will be aligned such that the attorney for one acts as the attorney for all, and the difficulty of determining whether separately-represented clients share a sufficiently common legal interest becomes even more obtuse outside the context of pending or anticipated litigation.”[30] “Consequently,” held the Court, “although a litigation limitation may not be necessary in a co-client setting where the fact of joint representation alone is often enough to establish a congruity of interests, it serves as a valuable safeguard against separately-represented parties who seek to shield exchanged communications from disclosure based on an alleged commonality of legal interests but who have only commercial or business interests to protect.”[31] The Attorney Work Product Doctrine The attorney work product doctrine protects those materials prepared by an attorney, acting as an attorney, which contain the attorney’s analysis and trial strategy.[32] The work product of an attorney consists of interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and other tangible and intangible things.[33] As with the attorney-client privilege, the burden of showing that material is protected under the doctrine is on the party asserting the protection.[34] Conclusory assertions that documents constitute attorney work product or material prepared for litigation will not suffice.[35] In Simpson v. Chassen, 2025 N.Y. Slip Op. 33702(U) (Sup. Ct., N.Y. County Sept. 29, 2025), the foregoing principles were considered by the Supreme Court in a case involving a motion to compel the production of a joint defense agreement. Simpson v. Chassen Plaintiffs brought the action to reverse “a coup d’état” allegedly executed by defendant Jared Chassen (“Chassen”) in which defendant sought to seize control over certain entities controlled by plaintiff Jeffrey Simpson (“Simpson”) (e.g., Arch Real Estate Holdings LLC (“Arch”) and JJ Arch LLC (“JJ Arch”) (collectively, Arch and JJ Arch are the “Arch Entities”)).[36] In addition, Plaintiffs sought to redress defendant’s alleged conduct that left Simpson unable to exercise control over bank accounts maintained by the Arch Entities and their affiliates and subsidiaries at defendant First Republic Bank (“First Republic”), which allegedly left the Arch Entities unable to use such accounts to pay for such necessities as payroll, subcontractors, materialmen, and insurance. Plaintiff moved pursuant to CPLR 3101 and 3124 to compel Chassen to produce a joint defense agreement between Chassen, 608941 NJ, Inc. (“Oak”),[37] and related parties in August 2023.[38] Simpson contended that the JDA was “material and necessary” to the litigation because it would reveal “collusion” between Chassen and Oak to “oust Mr. Simpson” from management, circumvent corporate governance controls, and relieve Oak from guaranty liabilities to the detriment of non-Oak investors. Defendants opposed the motion, arguing, inter alia, that the JDA is protected by the common interest and attorney-work-product privileges and that Simpson failed to show that its disclosure was material to any pending claims or defenses. The motion court held “that the JDA [was] not a privileged communication exempt from discovery.”[39] The motion court explained that “the JDA merely state[d] the parties’ intention that all information they share[d] with each other remain[ed] subject to the attorney-client privilege, despite their disclosure to each other.”[40] Significantly, noted the motion court, the JDA “expressly state[d] that it create[d] no attorney-client relationship … and … [was] not a communication from an attorney to a client made for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship.”[41] The motion court also found “Chassen’s contention that the JDA qualifie[d] as attorney work-product” to be “unavailing”.[42] The motion court said that “[a]lthough the JDA was prepared by counsel, … , it nevertheless “contain[ed] only standard language not uniquely reflecting a lawyer’s learning and professional skills, including legal research, analysis, conclusions, legal theory or strategy.”[43] The motion court concluded, therefore, “[i]t [was] essentially a standard form agreement.”[44] Accordingly, the motion court granted the motion. Takeaway Simpson reinforces the principle that the common interest doctrine is limited to situations involving pending or reasonably anticipated litigation. This means that parties who share legal interests—but are not involved in litigation—may not be able to rely on the doctrine to shield their communications from disclosure. The ruling, therefore, makes clear that joint defense agreements or common interest agreements are not automatically privileged and may be subject to disclosure—even if prepared by counsel. _______________________________ 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 examined these privileges in the following articles: “Revisiting The Attorney-Client Privilege, The Common Interest Doctrine and The Work Product Doctrine”; “Reliance on Counsel Found to Waive Attorney-Client Privilege”; “Subject-Matter Waiver of the Attorney-Client Privilege”; “Attorney-Client Privilege and The Functional-Equivalent Doctrine”; “Court Holds That A Common Interest Agreement Bars Disclosure of Material Protected by The Attorney-Client Privilege”; and “Court Holds Common Interest Agreement Covers Privileged Documents Predating the Litigation”. [2] CPLR 3101(a). [3] CPLR 3101(b). [4] CPLR 3101(c). [5] CPLR 3101(d)(2); see also Spectrum Sys. Intl. Corp. v. Chemical Bank, 78 N.Y.2d 371 (1991). [6] Spectrum Sys., 78 N.Y.2d at 377. [7] Id.; Matter of Priest v. Hennessy, 51 N.Y.2d 62, 69 (1980); Matter of Jacqueline F., 47 N.Y.2d 215 (1979). [8] Delta Fin. Corp. v. Morrison, 15 Misc. 3d 308, 316-17 (Sup. Ct., Nassau County 2007); see also Martino v. Kalbacher, 225 A.D.2d 862 (3d Dept. 1996). [9] 8 Wigmore, Evidence § 2290 (McNaughton rev. 1961). [10] See Matter of Vanderbilt (Rosner—Hickey), 57 N.Y.2d 66 (1982). [11] Rossi v. Blue Cross & Blue Shield of Greater N.Y., 73 N.Y.2d 588, 593 (1989). [12] Id. at 594. [13] See United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961); see also Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1424 (3d Cir. 1991). [14] See HPD Labs., Inc. v. Clorox Co., 202 F.R.D 410 (D.N.J. 2001). [15] Delta Fin., 15 Misc. 3d at 316-17 (citations omitted). [16] Id. (citations omitted). [17] Id. (citations omitted). [18] See SCM Corp. v. Xerox Corp., 70 F.R.D 508, 518 (D. Conn. 1976). [19] Id. (citation omitted). [20] In re Teleglobe Communications Corp., 493 F.3d 345, 364 (3d Cir. 2007). [21] See, e.g., Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186 (2d Dept. 2013). [22] E.g., Teleglobe, 493 F.3d at 364; United States v. BDO Seidman, LLP, 492 F.3d 806, 816 (7th Cir 2007); In re Regents of Univ. of Cal., 101 F.3d 1386, 1390-1391 (Fed. Cir. 1996)) [23] Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616, 628 (2016). [24] Id. at 628. [25] Id. [26] Id. [27] Id. at 629-30. [28] Id. at 630-31. [29] Id. at 631(citation omitted). [30] Id. [31] Id. (citations omitted). [32] See Weinstein-Korn-Miller, N.Y. Civ. Prac. ¶ 3101.44 (2d ed.); see also Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s, 263 A.D.2d 367 (1st Dept. 1999). [33] Hickman v. Taylor, 329 U.S. 495 (1947). [34] See generally Koump v. Smith, 25 N.Y.2d 287 (1969). [35] See Salzer v. Farm Family Life Ins. Co., 280 A.D.2d 844 (3d Dept. 2001); Zimmerman v. Nassau Hosp., 76 A.D.2d 921 (2d Dept. 1980). [36] The summary of the action is taken from the pleadings filed in the action. [37] Plaintiff maintained that Chassen and Oak colluded to relieve Oak of hundreds of millions of dollars in property loan guarantee obligations related to numerous Arch property investments to the detriment of non-Oak investors. [38] On August 18, 2025, the motion court ordered Chassen to submit the JDA for in-camera inspection. On August 22, 2025, Chassen submitted the JDA to the Court for its review. [39] Slip Op. at *3 (citing Fewer v. GFI Group, Inc., 78 A.D.3d 412, 413 (1st Dept. 2010)). [40] Id. (quoting id. (internal quotation marks omitted)). [41] Id. (quoting id. (internal quotation marks omitted)). [42] Id. [43] Id. (citing id.). [44] Id.

By: Jonathan H. Freiberger Today’s article addresses M & T Bank v. Givens, a case decided on October 15, 2025, by the Appellate Division, Second Department. Givens addresses three issues encountered in mortgage foreclosure actions:[1] motions for extensions of time pursuant to CPLR 2004, the 90-day requirement to conduct foreclosure sales pursuant to RPAPL 1351(1), and the tolling of interest due to a lender’s delays in prosecuting its foreclosure action. CPLR 2004 CPLR 2004 provides that “[e]xcept where otherwise expressly prescribed by law, the court may extend the time fixed by any statute, rule or order for doing any act, upon such terms as may be just and upon good cause shown, whether the application for extension is made before or after the expiration of the time fixed.” “CPLR 2004 vests the trial court with discretion to extend the time to perform any act” and, when considering a motion made pursuant to that provision, “the court may properly consider factors such as the length of the delay, whether the opposing party has been prejudiced by the delay, the reason given for the delay, whether the moving party was in default before seeking the extension, and, if so, the presence or absence of an affidavit of merit.” Tewari v. Tsoutsouras, 75 N.Y.2d 1, 11-12 (1989) (citations omitted); see also Nationstar Mortgage, LLC v. Dunn, 230 A.D.3d 1327, 1330 (2nd Dep’t 2024). RPAPL 1351(1)[2] In this BLOG’s article “RPAPL 1351(1) Requires a Foreclosure Sale to Occur Within Ninety Days of the Date of the Judgment of Foreclosure and Sale,” we, for the first time, discussed RPAPL 1351(1)’s requirement that judgments of foreclosure and sale direct that foreclosure sales occur within ninety days of the judgment. As discussed in the article, in order to vacate a judgment of foreclosure and sale and/or set aside a sale because a sale did not occur within 90 days pursuant to RPAPL 1351(1), a borrower would have to show that “the delay of the foreclosure sale prejudiced a substantial right.” Wells Fargo Bank, N.A. v. Singh, 204 A.D.3d 732, 734 (2nd Dep’t 2022); see also Bank of New York Mellon v. Adam P10tch, LLC, 226 A.D.3d 497, 498 (1st Dep’t 2024). The same is true if the statutorily required “ninety day” language is omitted from a judgment of foreclosure and sale. Wells Fargo Bank, N.A. v. Malik, 203 A.D.3d 1110, 1112 (2nd Dep’t 2022) (“since the defendant does not allege that any substantial right of his was prejudiced by the omission of the statutory language from the judgment of foreclosure and sale, the Supreme Court properly declined to vacate the notice of sale on that ground”). Tolling of Interest In prior BLOG articles, we discussed the court’s power to toll the accrual of interest in mortgage foreclosure actions.[3] We noted that the calculation of interest is an important component of the of the sums due to the lender. CPLR 5001(a) provides, in relevant part, that “in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion.” See also U.S. Bank, N.A. v. Peralta, 191 A.D.3d 924, 925-26 (2nd Dep’t 2021);.Wells Fargo Bank, N.A. v. Daniel, 231 A.D.3d 899, 901 (2nd Dep’t 2024) (citations omitted). In that regard, a “foreclosure action is equitable in nature and triggers the equitable powers of the court.” U.S. Bank Nat. Ass’n v. Williams, 121 A.D.3d 1098, 1101-02 (2nd Dep’t 2014) (numerous citations and internal quotation marks omitted); see also Wells Fargo, 231 A.D.3d at 901. Once invoked, the Court’s equity powers are “as broad as equity and justice require.” Deutsche Bank National Trust Co. v. Armstrong, 218 A.D.3d 738, 739 (2nd Dep’t 2023) (citations and internal quotation marks omitted). The court, in exercising its discretion, “is governed by the particular facts in each case.” U.S. Bank, 191 A.D.3d at 926 (citations omitted). A court’s authority can be used to toll interest in, inter alia, foreclosure actions, where the lender’s conduct “is deemed wrongful” or where there has been “unexplained delay” in the prosecution of the action. Wells Fargo, 231 A.D.3d at 901 (citations and internal quotation marks omitted); see also Deutsche Bank Trust Company Americas v. Knights, 231 A.D.3d 1016, 1018 (2nd Dep’t 2024). M & T Bank v. Givens In 2016, lender commenced a foreclosure action against borrower. A judgment of foreclosure and sale was issued in November of 2019, directing, inter alia, the sale of the subject property within 90 days. While the sale was scheduled to occur within the requisite timeframe, it was postponed at the lender’s request. In June of 2022, the lender moved pursuant to CPLR 2004 to extend the time to conduct the sale. The borrower opposed the motion and cross-moved to toll the accrual of interest from the end of the 90-day period to the sale date. The motion court extended lender’s time to conduct a foreclosure sale and denied the borrower’s cross-motion. The borrower appealed. The Second Department modified the motion court’s order by tolling the accrual of interest. The Court let stand that portion of the motion court’s order extending the lender’s time to conduct a foreclosure sale. As to the latter, the Court found that that the motion court “providently exercised its discretion” in granting the lender’s motion pursuant to CPLR 2004 as the lender “demonstrated that the delay was largely attributable to, among other things, the COVID-19 pandemic.” (Citations, internal quotation marks, brackets and ellipses omitted.) the Court also found that the borrower failed to demonstrate and prejudice from the delay. (Citations omitted). As to the tolling of the accrual of interest, after discussing authorities like those cited supra, the Court stated: Here, contrary to the [lender]'s contention, the Supreme Court improvidently exercised its discretion in denying the [borrower]'s cross-motion to toll the accrual of interest on the subject mortgage loan. The [lender] asserted that the COVID-19 pandemic impacted its ability to proceed with the sale of the property. However, the pandemic-related stays on foreclosure sales did not go into effect until after the expiration of the 90-day deadline to conduct the sale of the property and the [lender] failed to adequately explain its failure to conduct the sale within that 90-day period. Under the circumstances presented, the court should have granted the [borrower]'s cross-motion to the extent of tolling the accrual of interest on the subject mortgage loan after February 17, 2020 [the expiration of the ninety-day period following the issuance of the judgment of foreclosure and sale]. [Citations omitted.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you. [2] This BLOG has previously addressed RPAPL 1351(1). See, e.g., [here] and [here]. [3] This BLOG has previously addressed the issue of the Court’s discretion to toll the accrual of interest due to a lender in foreclosure actions. See, e.g., [here] and [here].

By: Jeffrey M. Haber In New York, the doctrine of caveat emptor — “let the buyer beware” — remains an important principle in residential real estate transactions. Unlike many other states that require extensive seller disclosures, New York adheres to a more traditional approach: absent fraud, active concealment, or a special relationship, a seller has no general duty to volunteer information about defective conditions in the property. The burden rests on the buyer to discover any issues through inspection and due diligence prior to closing. Under the doctrine, buyers are expected to investigate all aspects of a property’s condition, such as structural integrity, environmental concerns, mechanical systems, and legal compliance. The failure to do so may leave the buyer without recourse after the transaction is complete, even where significant defective conditions are later found. However, the doctrine is not absolute. New York courts recognize exceptions to the doctrine. For example, a seller may not engage in active concealment of defective conditions, such as deliberately hiding structural damage, masking water intrusion, or otherwise preventing a buyer from discovering a condition that could have been revealed through reasonable diligence. Similarly, if a seller chooses to speak on a subject, they must do so truthfully; partial disclosures or misleading statements can give rise to liability for misrepresentation. In Serba v. Cook, 2026 N.Y. Slip Op. 03464 (2d Dept. June 3, 2026), the Appellate Division, Second Department, affirmed the dismissal of a complaint alleging, inter alia, fraud in connection with the sale of real property on the grounds that, inter alia, the defendants were not obligated to disclose the alleged omitted condition under the caveat emptor doctrine and certain provisions of the contract of sale barred plaintiff’s reliance-based claims. Applicable Principles A cause of action to recover damages for fraudulent misrepresentation requires “‘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.’”[1] “A cause of action to recover damages for fraudulent concealment requires, in addition to the elements of a cause of action to recover damages for fraudulent misrepresentation, an allegation that the defendant had a duty to disclose material information and that it failed to do so.”[2] “[I]n the context of real estate transactions, a claim of fraudulent misrepresentation must be analyzed within the doctrine of caveat emptor.”[3] “New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.”[4] “If however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property.”[5] “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor.”[6] Moreover, a cause of action alleging fraudulent inducement may not be maintained if specific disclaimer provisions in the contract of sale disavow reliance upon oral representations[7] or when the parties insert into their contract a provision “that the buyers had inspected the premises, agreed to accept it ‘as is’, and understood that no representations were made as to its condition.”[8] Serba v. Cook In November 2021, plaintiff, as purchaser, entered into a contract with the defendant, as seller (the “seller”), to purchase residential property located in Westchester County, New York. In January 2022, plaintiff commenced the action, inter alia, to recover damages for fraud against, among others, seller, defendants Spano Abstract Service Corp. (“Spano”), which prepared a title report/certificate for title insurance for the property, J Philip Real Estate, LLC (“J Philip”), a licensed real estate broker (“broker”), the broker’s managing member, and the listing real estate agent for the property. Plaintiff alleged, among other things, that, after the closing in December 2021, she discovered the property was not connected to the public sewer system and that J Philip, the broker, the listing agent (collectively, the “Real Estate defendants”), and the seller had concealed this fact from plaintiff. Additionally, the plaintiff alleged that Spano breached its duty to conduct a diligent search regarding the property’s connection to the public sewer system. Spano and seller separately moved, inter alia, pursuant to CPLR 3211(a) to dismiss the complaint insofar as asserted against each of them. The Real Estate defendants also moved pursuant to CPLR 3211(a) to dismiss the complaint insofar as asserted against them. In an order dated June 20, 2022, Supreme Court, among other things, granted the motion of the Real Estate defendants and those branches of the separate motions of Spano and the seller. Plaintiff appealed. The Second Department affirmed. The Court held that the caveat emptor doctrine barred plaintiff’s fraud claims.[9] In so holding, the Court found that “the complaint failed to adequately allege facts that would support a finding that the seller and the Real Estate defendants thwarted the plaintiff’s efforts to satisfy the plaintiff’s obligations under the doctrine of caveat emptor.”[10] The Court also held that the “as is” and disclaimer clauses in the contract of sale barred the fraud claims: “the causes of action alleging fraudulent misrepresentation and fraudulent inducement are barred by the ‘as is’ clause in the contract and the specific disclaimer regarding the condition of the property.”[11] A disclaimer clause disclaims reliance on extra-contractual representations. For a disclaimer clause to be enforceable, it must contain language that makes it clear that the parties are not relying on such representations. In other words, a party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party.[12] Thus, “only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.”[13] Accordingly, the Court concluded that “the Supreme Court properly granted those branches of the separate motions of the seller and the Real Estate defendants …to dismiss the causes of action alleging fraud insofar as asserted against each of them.”[14] Takeaway As discussed, New York adheres to a traditional, buyer-focused approach in residential real estate transactions through the doctrine of caveat emptor. In practice, this means the primary responsibility for uncovering defects and other conditions in real property rests on the buyer. Purchasers are expected to conduct inspections and due diligence, including assessments of structural conditions, environmental and legal issues, before closing. If they fail to do so, they may have little or no recourse after closing, even if serious problems emerge. At the same time, the doctrine is not without limits. Sellers cannot actively conceal defects or interfere with a buyer’s ability to discover them. Nor can they make partial or misleading statements; once a seller chooses to speak about a condition, they must do so truthfully. Liability may arise if a seller’s conduct goes beyond mere silence and crosses into active concealment or misrepresentation. The caveat emptor doctrine’s strength is further reinforced through contractual protections. “As is” clauses and specific disclaimers, especially those stating that the buyer has inspected the property and is not relying on representations about its condition, can significantly limit or bar claims for fraudulent inducement or misrepresentation. These provisions reflect and reinforce the expectation that buyers protect themselves through their own investigation. Serba illustrates how New York courts apply these principles. There, as discussed, plaintiff alleged fraud after discovering post-closing that the property was not connected to a public sewer system. However, the Court affirmed the dismissal of the claims, finding no adequate allegation that the seller or the Real Estate defendants actively concealed the condition or prevented plaintiff from discovering it through reasonable diligence. The Court also emphasized that the contract’s “as is” and disclaimer provisions undermined plaintiff’s claims of reliance. Taken together, the key takeaway of Serba is that New York courts remain committed to the caveat emptor doctrine: buyers must be proactive and vigilant, while sellers are generally protected from liability for nondisclosure unless they engage in deceptive conduct or violate specific disclosure obligations. __________________________________ 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] Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178 (2011), quoting Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996); see also 98 Gates Ave. Corp. v. Bryan, 225 A.D.3d 647, 649 (2d Dept. 2024). [2] 98 Gates Ave., 225 A.D.3d at 649 (internal quotation marks omitted); see also Mandarin Trading, 16 N.Y.3d at 179. [3] Hecker v. Paschke, 133 A.D.3d 713, 716 (2d Dept. 2015); see 98 Gates Ave., 225 A.D.3d at 649. [4] Simone v. Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, 520 (2d Dept. 2007); see also Hecker, 133 A.D.3d at 716. [5] Daly v. Kochanowicz, 67 A.D.3d 78, 91-92 (2d Dept. 2009) (internal quotation marks omitted); see also Gordon v. Connie Profaci Realty, LLC, 231 A.D.3d 712, 714 (2d Dept. 2024). [6] Jablonski v. Rapalje, 14 A.D.3d 484, 485 (2d Dept. 2005); see Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018). [7] Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (1959); Roland v. McGraime, 22 A.D.3d 824, 825 (2d Dept. 2005); Fabozzi v. Coppa, 5 A.D.3d 722, 723-724 (2d Dept. 2004); Platzman v. Morris, 283 A.D.2d 561, 562-563 (2d Dept. 2001); Masters v. Visual Bldg. Inspections, 227 A.D.2d 597, 597-598 (2d Dept. 1996). [8] Venezia v. Coldwell Banker Sammis Realty, 210 A.D.2d 480, 481 (2d Dept 2001). [9] Slip Op. at *3. [10] Id., citing Gordon, 231 A.D.3d at 714; Hecker, 133 A.D.3d at 717. [11] Id., citing J. Carey Smith 2019 Irrevocable Trust v. 11 W. 12 Realty LLC, 240 A.D.3d 432, 434 (1st Dept. 2025); Comora v. Franklin, 171 A.D.3d 851, 853 (2d Dept. 2019); Laxer v. Edelman, 75 A.D.3d 584, 586 (2d Dept. 2010); Hecker, 133 A.D.3d at 717. [12] Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty, 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011). [13] Basis Yield, 115 A.D.3d at 137. [14] Id.

By: Jeffrey M. Haber On June 5, 2026, the Securities and Exchange Commission (“SEC”) announced that it charged an investment adviser and his related companies with allegedly engaging in a multi-year fraud. The enforcement action arose out of the alleged misuse of a pooled investment vehicle – an investment structure in which multiple investors combine capital into a single fund managed by an adviser.[1] According to the SEC, defendants operated one of the companies (the “Fund”) as a purportedly “exclusive” investment pool, soliciting funds from investors based on representations of strong performance and a disciplined trading strategy. The SEC’s complaint focuses on how defendants allegedly undermined the benefits of an investment pool. Rather than managing pooled assets for the collective benefit of investors, defendant is alleged to have exercised unilateral control over the Fund in a manner that involved misappropriating assets, commingling funds, and concealing the Fund’s true financial condition. Investment Pools: A Primer Investment pools, often referred to as pooled investment vehicles, are arrangements in which multiple investors combine their financial resources into a single fund that is managed collectively by a professional investment manager. Rather than each investor making independent investment decisions, participants contribute capital to a common pool, and the manager directs how those funds are invested in accordance with a defined strategy. In return, each investor holds a proportional interest in the overall fund, meaning that gains and losses are shared based on the size of each investor’s contribution. At the core of an investment pool is the principle of collective investing. By aggregating capital, investors can access a broader range of opportunities than they might individually, including diversified portfolios and more complex financial instruments. This structure also allows for greater efficiency, as transaction costs and management expenses are spread across all participants. The pooled nature of the fund therefore offers both scale and flexibility, making it an attractive vehicle for a wide range of investment strategies. An important feature of investment pools is the role of the investment manager. The manager exercises control over the pooled assets and makes all decisions regarding asset allocation, trading, and risk management. Investors relinquish direct control over their funds, relying instead on the manager’s expertise and judgment. This dynamic creates a fiduciary relationship, meaning the manager is obligated to act in the best interests of the investors, provide accurate information, and avoid conflicts of interest. Investment pools operate under a unified investment strategy, which is disclosed to investors in advance of their investment. Whether the strategy involves equities, derivatives, real estate, or private companies, all participants are subject to the same investment approach and to the same performance outcomes. As a result, the success of the investment pool depends heavily on the skill and integrity of the manager or adviser, as well as the accuracy and transparency of the information provided to investors. Because investors entrust their money to an investment manager and lack direct oversight, investment pools are subject to significant legal and regulatory requirements. These include obligations to provide full and fair disclosure, maintain accurate financial records, and report performance truthfully. Managers must also properly safeguard investor funds and ensure they are used only for their intended investment purposes. These protections are critical because the pooled structure concentrates both control and risk in the manager’s hands. Investment pools are regulated through a combination of the federal securities laws, regulatory oversight, and fiduciary obligations imposed on the managers or advisers who control them. For example, investment pools are regulated under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). These laws require, among other things, that offerings of pooled investment interests must either be registered with the SEC or qualify for an exemption. Even when exempt from registration (as many private funds are), the anti-fraud provisions of the federal securities laws still apply. This means fund managers or advisers are prohibited from making material misstatements, omitting material information, or engaging in deceptive practices in connection with the offer or sale of pooled interests. In addition, investment pools are subject to the Investment Advisers Act of 1940 (“Advisers Act”), which governs the conduct of investment advisers who manage these funds. Under the Advisers Act, managers owe fiduciary duties to investors, including duties of loyalty and care. These duties require advisers to act in the best interests of investors, avoid conflicts of interest or fully disclose them, and provide full and fair disclosure of all material facts. The Advisers Act also prohibits advisers from engaging in fraudulent, deceptive, or manipulative practices, including the misuse of client funds or the misleading reporting of performance. Regulation focuses on disclosure and transparency. Investment pool managers must provide investors with offering documents, such as private placement memoranda, that describe the investment strategy, risks, fees, and structure of the fund. Ongoing disclosures are also important. Investors are typically entitled to periodic account statements, accurate valuation of their investments, and tax reporting (such as Schedule K‑1 forms in partnership-style funds). Another key aspect of regulation involves the custody and safeguarding of assets. Investment Managers must maintain client funds separately from their own and are generally required to use qualified custodians (such as banks or brokerage firms) to hold assets. These rules are designed to prevent commingling and misappropriation. Finally, enforcement is a central component of regulation. The SEC has broad authority to investigate and bring civil enforcement actions against fund managers, advisers, and entities that violate the law. Remedies can include injunctions, disgorgement of ill-gotten gains, monetary penalties, and bars from serving as an investment adviser. In some cases, the Department of Justice may also bring parallel criminal actions. Securities and Exchange Commission v. Myers, et al. According to the SEC, beginning in or about January 2022 and continuing through at least July 2025, defendants acted as investment advisers in connection with the Fund. The Fund operated as an investment pool, whereby multiple investors contributed capital that was combined into a single fund and managed collectively by defendant through his entities.[2] Investors in the Fund purchased limited liability interests and, in doing so, relinquished control over investment decisions in reliance on defendant’s expertise and representations regarding the Fund’s strategy and performance. Through this pooled structure, defendants allegedly raised approximately $4 million from at least 28 investors located in several states. As is typical of investment pools, investor funds were to be aggregated and deployed according to a centralized investment strategy, with each investor sharing proportionally in the Fund’s gains and losses. The Fund’s offering documents allegedly represented that investor capital would be used for trading and investment purposes, and that returns would depend on defendant’s skill in managing the portfolio. The SEC alleged that defendant engaged in a multi-year fraudulent scheme that undermined the structure and purpose of the investment pool. Rather than managing pooled assets for investors’ benefit, defendant allegedly misappropriated investor funds, commingled assets, and diverted substantial sums into personal accounts under his control. Defendant used these funds for speculative trading and personal expenses, including credit card debt and rent, without disclosing them to investors, the SEC said. The SEC further alleged that defendant routinely incurred significant trading losses, often dissipating investor contributions within days. As a result, alleged the SEC, the value of the pooled investment vehicle declined dramatically, with more than $3.6 million of investor funds allegedly lost or unaccounted for. To conceal these losses and maintain investor confidence in the pooled fund, defendant allegedly provided investors with false account statements. These statements portrayed positive returns and steady growth in investor capital, often reporting annual gains of approximately 16% to 54% and claiming that the Fund outperformed the S&P 500. The SEC alleged that the reported performance figures were based on manipulated net asset value (“NAV”) calculations that included assets not actually owned by the Fund, such as property and retirement accounts belonging to defendant’s father-in-law, as well as speculative estimates of future income. In addition, defendant allegedly failed to provide investors with required tax documentation reflecting their share of the Fund’s income or losses, thereby concealing the Fund’s true financial condition. Instead, defendant reported trading losses on his personal tax returns without disclosing this information to investors, the SEC said. The SEC also alleged that defendant refused or delayed investor redemption requests under false pretenses, including misrepresenting that assets were unavailable due to regulatory action. In reality, said the SEC, the Fund allegedly lacked sufficient assets to satisfy redemption requests because investor funds had been depleted through trading losses and misappropriation. As of the end of 2025, defendants had repaid approximately $398,000 to investors, while the vast majority of the pooled funds remained lost. Based on the alleged wrongful conduct, the SEC claimed that defendants violated the anti-fraud provisions of the federal securities laws, including Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b‑5 promulgated thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder. The SEC further alleged that defendant is liable as a control person under Section 20(a) of the Exchange Act. The SEC seeks injunctive relief, disgorgement, and civil penalties against all defendants. Takeaway First, the SEC’s enforcement action underscores the application of the federal securities laws’ anti-fraud provisions to private investment funds and their advisers. The SEC alleged that defendant and his companies engaged in a continuous scheme to defraud investors through material misrepresentations and omissions, including false claims about investment performance and the misuse of investor funds. Those allegations implicated multiple statutory provisions demonstrating that a single course of deceptive conduct can give rise to liability under several distinct, but complementary, anti-fraud frameworks. The SEC’s complaint reinforces the principle that advisers to pooled investment vehicles owe fiduciary duties of full and fair disclosure and that knowingly or recklessly misleading investors regarding performance, risks, or the use of funds constitutes actionable securities fraud. Second, the enforcement action highlights the SEC’s approach to misappropriation and misuse of investor assets, particularly when funds are commingled and diverted for personal gain. The SEC alleged that defendant transferred investor money into personal accounts, used it for speculative trading and personal expenses, and concealed these activities from clients. This conduct, combined with the failure to maintain separation between the entity's and the personal finances, supports claims not only of fraud but also of breach of fiduciary duty under the Advisers Act. Third, the enforcement action demonstrates that falsified performance reporting and manipulation of valuation metrics, such as net asset value, are important enforcement priorities for the SEC. Defendant allegedly fabricated account statements showing consistent gains and outperformance of the S&P 500 and inflated the Fund’s NAV by including assets not owned by the Fund and hypothetical future income. Those acts were significant because they directly affected investors’ understanding of their investments and decision-making. The SEC’s allegations make clear that inaccurate or intentionally manipulated reporting, especially when used to induce additional investments or prevent redemptions, will be treated as material misstatements under federal securities laws. __________________________________ 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] Throughout this article, we use the term “manager” to mean an investment manager or investment adviser. [2] According to the SEC, defendant exercised complete control over the Fund and the entities through which it operated, directing all aspects of its management, investment decisions, and reporting functions.

By: Jeffrey M. Haber Under Section 706(a) of the New York Business Corporation Law (“BCL”), a director may be removed for cause either by shareholder vote or, where authorized by shareholder-adopted bylaws, by action of the board. In addition, where a corporation’s governing bylaws leave “cause” undefined, the board retains broad discretion to determine whether sufficient grounds for removal exist, subject to the business judgment rule, which requires judicial deference absent well-pleaded allegations of bad faith, self-dealing, or other tortious conduct. Where a shareholder believes that management or the board engages in wrongful conduct, he or she has the right to inspect the corporation’s books and records under BCL § 624. That right, however, is limited in scope and does not extend to expansive or unsupported document demands. Applying these principles, we examine Kaye v. Merchant Factors Corp., 2026 N.Y. Slip Op. 03732 (1st Dept. June 11, 2026), a case arising from plaintiff’s removal from the board of directors of Merchant Factors Corp. and his subsequent claims for declaratory and inspection relief. In Faye, the Appellate Division, First Department, affirmed the dismissal of plaintiff’s amended complaint, concluding that although the board referenced unapproved amended bylaws for its action, under the original bylaws in force and effect, the board was authorized to remove plaintiff for cause by board action. The Court further found that the notice of the special meeting adequately set forth grounds constituting cause and that the board’s determination was entitled to deference under the business judgment rule in the absence of allegations of bad faith or misconduct. Finally, the Court held that plaintiff’s demand for corporate books and records exceeded the scope of rights afforded to shareholders under BCL § 624 and could not be sustained based on his former status as a director. Kaye v. Merchant Factors Corp. Plaintiff is an 11.8% shareholder of defendant Merchant Factors Corp. and served as a member of its board of directors from 2007 until March 2024. By notice of a special meeting of the board of directors dated March 13, 2024, the board sought to remove plaintiff as a director pursuant to Article III, Section 4 of the corporation’s amended bylaws, citing alleged “inappropriate, abusive and destructive behavior.” At that special meeting, the board voted to remove plaintiff from his position as a director. Plaintiff remained a shareholder of the corporation. Separately, in or about May 2023, prior to his removal as a director, plaintiff sought to inspect certain corporate books and records, including correspondence from 2016 onward among stockholders, directors, insiders, and the corporation’s advisors relating to indebtedness involving insiders or their affiliates. Plaintiff commenced the action seeking, among other relief, a judgment declaring that the notice of the special meeting and Article III, Section 4 of the amended bylaws were ultra vires and void and requesting reinstatement to the board. Plaintiff also asserted a claim seeking access to the corporation’s books and records. Plaintiff did not allege that the board’s actions were taken in bad faith or constituted tortious conduct. Defendants moved to dismiss the amended complaint pursuant to CPLR 3211(a)(1) and (a)(7). Supreme Court granted the motion and the First Department unanimously affirmed. The Court held that Supreme Court properly concluded that plaintiff’s removal was authorized under the corporation’s original bylaws, which remained in effect notwithstanding the board’s reliance on unapproved amended bylaws.[1] The Court pointed to Article III, Section 5 of the original bylaws, which expressly permitted the removal of directors for cause “by vote of the shareholders or by action of the board.”[2] That provision, noted the Court, was “consistent with Business Corporation Law § 706(a), which likewise authorizes removal for cause by either shareholders or, where provided by a shareholder-adopted bylaw, by the board.”[3] Although defendants purported to act under amended bylaws, those provisions never became effective because their text expressly conditioned effectiveness on shareholder approval, and no such vote occurred.[4] Accordingly, as Supreme Court concluded, the failure to obtain shareholder approval rendered the amended bylaws inoperative and left the original bylaws controlling, thereby permitting plaintiff’s removal for cause by board action.[5] The Court also held, as did Supreme Court, that the reference in the notice of special meeting to the amended bylaws, rather than the original bylaws, did not render plaintiff’s removal improper.[6] Although the notice cited the amended bylaws, it set forth multiple specific examples of plaintiff’s alleged objectionable conduct forming the basis for removal for “cause.”[7] Under the original bylaws, “cause” was not defined, leaving its scope broad and encompassing a wider range of conduct than the more narrowly defined standard contained in the unapproved amended bylaws.[8] Because the notice articulated the grounds for removal, said the Court, those stated reasons satisfied the more expansive “for cause” standard under Article III, Section 5 of the original bylaws.[9] “Thus,” concluded the Court, “because the cause for plaintiff’s removal [was] clearly stated in the notice of special meeting, Supreme Court correctly found that removal under the original by-laws was proper.”[10] “Furthermore,” said the Court, “the gravity of the ‘cause’ here [fell] within the corporation’s business judgment, requiring judicial deference in the absence of bad faith or tortious conduct by the board.”[11] The Court found that “the notice of special meeting provide[d] ample allegations, supported by emails, reflecting the reasons justifying plaintiff’s removal.”[12] Significantly, observed the Court, “[p]laintiff did not specifically plead any bad faith acts or tortious conduct by defendants, and there [was] no basis to infer bad faith on defendants’ part based on plaintiff’s documented conduct.”[13] Further, the Court held that “Supreme Court … properly dismissed plaintiff’s cause of action for examination of the corporate books and records.”[14] Shareholders “have a qualified right to examine the books and records” of corporations[15] under BCL § 624(b), which allows examination of “minutes of the proceedings of its shareholders and record of shareholders,” and BCL § 624(e), which allows examination of “an annual balance sheet and profit and loss statement for the preceding fiscal year, and, if any interim balance sheet or profit and loss statement has been distributed to its shareholders or otherwise made available to the public, the most recent such interim balance sheet or profit and loss statement.” The Court noted that “before he was removed as director, plaintiff sought to review correspondence from 2016 onward ‘between or among any of the stockholders, directors or other insiders and the Company’s counsel, accountants and/or any member of management regarding the creation or repayment of any indebtedness of the Company with stockholders, directors or other insiders and/or their affiliates.’”[16] When the amended complaint was filed in May 2024, however, plaintiff had been removed as a director of the corporation but remained a shareholder. “Although as a shareholder his right to examine books and records is ‘to be liberally construed’,[17] said the Court, “the eight years of correspondence sought by plaintiff [fell] outside of the parameters of the Business Corporation Law.”[18] Finally, the Court held that “plaintiff’s request to review the books and records in the capacity of a director fail[ed] because his claim for reinstatement as a director was properly dismissed.”[19] Takeaway The decision in Kaye v. Merchant Factors Corp. underscores several core principles of New York corporate law governing director removal and shareholder rights. At its foundation, Kaye reaffirms that a board’s authority to remove a director for cause derives from both statute and the corporation’s governing bylaws. Under BCL § 706(a), that authority may be exercised by the board itself where, as in Kaye, valid, shareholder-adopted bylaws expressly permit such action. Even where a board mistakenly purports to act under amended bylaws, the failure of those amendments to become effective, due to the absence of required shareholder approval, does not invalidate the board’s action if the original bylaws remain operative and independently authorize the removal. Kaye also illustrates the flexibility afforded to boards when bylaws do not define removal for “cause.” In such circumstances, the concept of cause was construed broadly, allowing the board to assess a wide range of conduct in determining whether removal is justified. Consistent with this expansive approach, the Court declined to elevate form over substance in evaluating the notice of the special meeting. Although the notice referenced the wrong set of bylaws, it nevertheless detailed specific instances of alleged misconduct, which the Court found sufficient to support removal under the broader, undefined “for cause” standard of the original bylaws. Critically, the Court emphasized the role of the business judgment rule in insulating board determinations from judicial second-guessing. Where a board’s decision falls within its managerial authority, courts will defer to that judgment unless the plaintiff pleads particularized facts demonstrating bad faith, self-dealing, or other wrongful conduct. The absence of such allegations in Kaye proved dispositive, as the Court found no basis to infer improper motive or misconduct from the record. Finally, Kaye addresses the limits of shareholder inspection rights under BCL § 624. While those rights are to be construed liberally, they remain confined to specified categories of corporate records and do not permit sweeping demands for years of internal correspondence. Moreover, the Court made clear that a plaintiff cannot expand those statutory rights by invoking a former role as a director, particularly where, as in Kaye, claims to reinstatement have been dismissed. Taken together, Kaye reflects a judicial preference for upholding board authority, enforcing governing corporate documents as written, and limiting judicial intervention to cases involving clear evidence of wrongdoing. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Slip Op. at *1. [2] Id. [3] Id. [4] Id. [5] Id. [6] Id. at *2. [7] Id. [8] Id. [9] Id. [10] Id. [11] Id., citing Matter of In re Kenneth Cole Prods., Inc. Shareholder Litig., 27 N.Y.3d 268, 274 (2016). [12] Id. [13] Id., citing Barbour v. Knecht, 296 A.D.2d 218, 225 (1st Dept. 2002). [14] Id. [15] Derfner Mgt., Inc. v. Lenhill Realty Corp., 90 A.D.3d 434, 435 (1st Dept. 2011). [16] Slip Op. at *2. [17] Derfner Mgt., 90 A.D.3d at 435. [18] Slip Op. at *3. [19] Id.

By: Jeffrey M. Haber Implied‑in‑fact contracts under New York law arise from conduct rather than explicit agreement, requiring objective evidence of mutual assent, definite terms, and an intent to be bound. They are fully enforceable but subject to important limitations, including the preclusive effect of governing express contracts. The Fourth Department’s decision in University Hill Realty, Ltd. v Akl, 2026 N.Y. Slip Op. 03561 (4th Dept. June 5, 2026), illustrates the doctrine’s fact‑intensive nature. There, the Court held that post‑contract expiration communications and continued dealings between the parties raised triable issues as to whether an implied agreement existed, underscoring that ongoing conduct may support contractual liability even after a written agreement lapses. The Governing Rules An implied‑in‑fact contract arises where the parties’ agreement is not expressed in words but is inferred from their conduct, demonstrating mutual assent and an intent to be bound. To be enforceable, it must include the essential elements of an express contract – offer, acceptance, consideration, mutual assent (i.e., a meeting of the minds), legal capacity, lawful subject matter, and sufficiently definite terms.[1] Assent may be implied where a party’s conduct reasonably indicates agreement, such as the acceptance of services or benefits under circumstances giving rise to an expectation of compensation. Importantly, the manifestation of assent must be clear and unambiguous. The burden rests on the party asserting the contract to establish its existence, essential terms, and mutual intent based on objective manifestations—not the parties’ unexpressed, subjective beliefs.[2] Under New York law, express contracts and implied‑in‑fact contracts are mutually exclusive.[3] Although an implied‑in‑fact agreement is formed through conduct rather than explicit language, it is “just as binding as an express contract arising from declared intention.”[4] The existence and terms of such a contract are inferred from “the specific conduct of the parties, industry custom, and course of dealing.”[5] As the Second Circuit has explained, an implied‑in‑fact contract arises “when the agreement and promise have simply not been expressed in words,” but where “a court may justifiably infer that the promise would have been explicitly made, had attention been drawn to it.”[6] Accordingly, courts examine the totality of the parties’ conduct, their relationship, and their objectives to determine whether mutual assent exists.[7] Implied‑in‑fact contracts are distinct from contracts implied in law (quasi‑contracts), which are not true agreements but equitable remedies imposed to prevent unjust enrichment regardless of the parties’ intent. By contrast, implied‑in‑fact contracts impose ordinary contractual obligations grounded in consensual conduct. For example, the performance and acceptance of services under circumstances indicating an expectation of payment may support the inference of such a contract. These agreements carry a duty of good‑faith performance and may be subject to equitable defenses, applied within the framework of contract law. New York courts also recognize important limitations on implied‑in‑fact contract claims. First, the existence of a valid and enforceable express contract governing the same subject matter precludes recovery under an implied contract theory.[8] Thus, a party cannot be held liable on an implied contract theory where an express agreement covers the same subject matter. Second, a contract will not be implied in fact where the surrounding facts are inconsistent with its existence – for example, where it would contradict the express declarations of the party to be charged, the parties’ intent or understanding, or where recognizing such a promise would be unlawful.[9] In University Hill Realty, Ltd. v. Akl, the Appellate Division, Fourth Department addressed the foregoing principles, holding that issues of fact precluded defendants’ motion for summary judgment dismissing plaintiff’s claim for breach of an implied contract. University Hill Realty, Ltd. v. Akl University Hill concerned an “Exclusive Right to Sell Agreement” regarding property in Syracuse. The contract granted plaintiff, a real estate broker, the sole and exclusive right to sell the property during a defined listing period, which ran from November 6, 2018 to May 6, 2019. According to the complaint, plaintiff was granted, pursuant to a written listing agreement on plaintiff’s letterhead, the exclusive right to market defendants’ property from November 6, 2018 through May 6, 2019. The agreement provided for a two percent commission in two circumstances: (1) if, before May 6, 2019, defendants entered into a written contract with a purchaser introduced to the property during the listing period; or (2) if, within the ensuing twelve‑month protection period (through May 6, 2020), defendants entered into a contract with a previously disclosed prospective purchaser identified in writing by plaintiff. It was undisputed that plaintiff acted as broker during the listing period and marketed the property to multiple prospects, including Syracuse University (“SU”), with whom plaintiff’s agent communicated extensively between November 2018 and early 2019. Those early efforts did not result in a sale. Although SU expressed preliminary interest, its initial indications, reportedly in the “high $2 million range,” were well below defendants’ expectations, and discussions ceased after plaintiff’s agent advised SU that defendants were pursuing another transaction. The listing period expired on May 6, 2019, without a sale, and the property remained unsold through the contractual protection period. Plaintiff continued to convey additional expressions of interest, including a June 2019 letter of intent from another prospective purchaser, but no agreement was reached. Separately, in December 2019, still within the contract’s one‑year protection period, SU submitted a $6.5 million letter of intent through a different broker. Defendants thereafter executed a commission agreement with the other broker recognizing him as the procuring cause and entitling him to a three percent commission upon a completed sale within twelve months. Around the same time, plaintiff sought to re‑engage defendants. On January 17, 2020, plaintiff’s agent transmitted a proposed “corrected” agreement that would have authorized plaintiff to present the property for an additional 180 days on a non‑exclusive basis and confirmed a two percent commission upon a consummated transaction. Defendants declined to execute the proposal, stating they would not sign anything until an actual offer was submitted, though they remained willing to meet and discuss marketing efforts. In response, plaintiff’s agent continued to pass along expressions of interest, to which defendants generally indicated they would consider solid offers. No offer conveyed by plaintiff was accepted. Plaintiff alleged that it continued marketing the property to SU and other buyers through September 2020, and that in August 2020, it presented defendants with an offer from a bona fide buyer for $6 million. Within days, defendants entered into a contract to sell the property to SU for the same price. Plaintiff asserted that it first learned of that agreement in December 2020 and promptly demanded a commission, which defendants refused. On the foregoing facts, plaintiff claimed that the parties, through their post‑contract expiration conduct – e.g., continued communications, plaintiff’s submission of prospective deals, and defendants’ willingness to entertain them – implicitly agreed to extend the expired brokerage agreement, thereby entitling plaintiff to a commission because it had originally introduced SU to the property. Defendants disputed that characterization, contending that the only operative agreement was the written contract, which expired by its terms, that plaintiff did not satisfy the contractual conditions precedent to a commission within the specified periods, and that no course of conduct gave rise to an implied‑in‑fact extension. Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7). In a decision and order entered on October 7, 2021, the motion court granted that motion. Plaintiff appealed, and the Fourth Department reversed, concluding that plaintiff had stated cognizable claims, including that there was “an implicit agreement to extend the brokerage contract.”[10] On remittal, defendants filed an answer, the parties engaged in discovery, and defendants moved for summary judgment. The motion court granted the motion, thereby dismissing plaintiff’s complaint. On appeal, the Fourth Department unanimously reversed, denied the motion, and reinstated the complaint. The Court held that “defendants failed to meet their initial burden of establishing that the parties did not have an implied-in-fact contract.”[11] The Court found that the communications between one of the defendants and plaintiff’s broker, which were submitted by plaintiff (e.g., text messages, among other communications), “show[ed] that the two continued to discuss offers coming in after the expiration of the 12-month grace period provided for in the brokerage contract, thereby creating a question of fact whether an implied-in-fact contract existed.”[12] As noted by the Court: “[i]n an action to recover a broker’s commission under a theory of an implied contract, ‘the contract may be established in some cases by the mere acceptance of the labors of a broker.’”[13] Takeaway University Hill illustrates several principles governing implied‑in‑fact contracts under New York law. First, University Hill underscores that an implied‑in‑fact contract may arise from the parties’ post‑contract conduct, even after a written agreement has expired. While New York law treats express and implied‑in‑fact contracts as mutually exclusive, the expiration of an express agreement does not foreclose the possibility that the parties, through their subsequent actions, formed a new, implied agreement. As discussed, the continued exchange of communications, especially text messages discussing prospective offers after the contractual protection period had lapsed, was sufficient to raise a factual question as to whether the parties impliedly agreed to continue their brokerage relationship. Second, University Hill reinforces that the existence of an implied‑in‑fact contract turns on objective manifestations of assent, not subjective intent. The Fourth Department focused on evidence showing that defendants continued to entertain and respond to plaintiff’s efforts, which could reasonably support an inference that they accepted those services under circumstances implying an obligation to pay. This reflects the broader rule that acceptance of a broker’s services, coupled with an expectation of compensation, can itself support the formation of an implied agreement. Third, University Hill must be read against the backdrop of well‑established limitations on implied‑in‑fact breach of contract claims. The Court did not disturb the general rule that a valid, enforceable express contract governing the same subject matter precludes recovery on an implied theory. Instead, the decision turned on the temporal gap after the express agreement and its protection period had expired, leaving open the possibility that a new, implied arrangement arose. Similarly, the decision does not relax the requirement that assent be clear and unambiguous; rather, it reflects that such clarity may be found in conduct, course of dealing, and ongoing interactions, even if no new written agreement is executed. Finally, University Hill confirms that a broker’s entitlement to a commission is not always confined strictly to the written terms of a listing agreement. Where the property owner continues to engage the broker’s services, considers the broker’s submissions, and benefits from those efforts, a fact finder may conclude that the parties effectively extended or renewed their relationship by implication. __________________________________ 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 Seren Fashion Art & Interiors, LLC v. B.S.D. Cap., Inc., No. 23‑CV‑2349 (JGLC), 2023 WL 7529768, at *4 (S.D.N.Y. Nov. 13, 2023), citing Maas v. Cornell Univ., 94 N.Y.2d 87 (1999). [2] See NYPRAC‑COMM § 89:14. [3] Watts v. Columbia Artists Mgmt. Inc., 188 A.D.2d 799 (3d Dept. 1992). [4] Jemzura v. Jemzura, 36 N.Y.2d 496, 504 (1975). [5] Greer v. Fox News Media, No. 22‑1970‑CV, 2023 WL 2671796, at *2 (2d Cir. Mar. 29, 2023) (quoting Nadel v. Play‑By‑Play Toys & Novelties, Inc., 208 F.3d 368, 377 n.5 (2d Cir. 2000)); Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 582 (2d Cir. 2006). [6] Nadel, 208 F.3d at 377 n.5. [7] Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89 (2d Cir. 2007); see also Arell's Fine Jewelers v Honeywell, Inc., 147 A.D.2d 922, 923 (4th Dept. 1989) (“Whether an implied-in-fact contract was formed and, if so, the extent of its terms, involves factual issues regarding the intent of the parties and the surrounding circumstances.”); Rocky Point Props. v. Sear-Brown Group, 295 A.D.2d 911, 912 (4th Dept. 2002). [8] See Clark‑Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 388 (1987). [9] Kapral’s Tire Serv., Inc. v. Aztek Tread Corp., 124 A.D.2d 1011, 1012 (3d Dept. 1986). [10] Univ. Hill Realty, Ltd. v. Akl, 214 A.D.3d 1467, 1468 (4th Dept. 2023) (citations omitted). [11] Slip Op. at *1. [12] Id., citing Joseph P. Day Realty Corp. v. Chera, 308 A.D.2d 148, 152 (1st Dept. 2003). [13] Id., quoting Joseph P. Day Realty, 308 A.D.2d at 152 (internal quotation marks omitted).

By Jeffrey M. Haber To state a claim for fraud, a plaintiff must satisfy each element of the claim; namely, “a material misrepresentation of fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.”[1] The failure to satisfy each element will result in dismissal of the claim. Such was the case in Dreamco Dev. Corp. v. Empire State Dev. Corp., 2021 N.Y. Slip Op. 04792 (4th Dept. Aug. 26, 2021) (here), where plaintiff failed to allege the first element of the claim (i.e., a material misrepresentation of fact). Dreamco involved a construction contract relating to a public works project (“Project”) in which Erie Canal Harbor Development Corporation (“Erie Canal”), the project owner and a public benefit corporation, terminated a contract with DiPizio Construction Company, Inc. (“DCC”), the general contractor for the Project and a non-party to the action. Plaintiff, Dreamco Development Corporation (“Dreamco”) served as a subcontractor for DCC during the Project. Plaintiff filed the action alleging that DCC was wrongfully terminated as the general contractor of the Project. Plaintiff alleged, among other things, causes of action for fraud, tortious interference with business relations, prima facie tort, intentional and/or negligent infliction of emotional distress, and injurious falsehood. Defendant, Maria Lehman, moved to dismiss the complaint on the grounds that the tort causes of action alleged against her were time-barred, and that they failed to state a cause of action. Relevant to the fraud claim, Defendant maintained that Plaintiff failed to identify any misstatement of material fact that she allegedly made. Plaintiff opposed the motion, arguing that there were issues of fact surrounding a communication Defendant had with another defendant concerning a payment (or lack thereof) by Erie Canal to DCC. Although the motion court dismissed all causes of action against Defendant, it sustained the fraud cause of action. Defendant appealed the portion of the motion court’s order which denied the motion to dismiss the fraud cause of action. The Appellate Division, Fourth Department unanimously reversed. In a pithy decision, the Court held that the motion court “should have granted that part of her motion seeking to dismiss the fraud cause of action against her on the ground that it failed to state a cause of action.”[2] The Court explained that “complaint [did] not set forth any material misrepresentations that defendant allegedly made to plaintiffs.”[3] The Court also found that Plaintiff failed to state a claim for fraud under the third-party reliance doctrine.[4] Under this doctrine, a plaintiff states a claim for fraud where he/she makes a misstatement of material fact to a third party “for the purpose of being communicated to the plaintiff in order to induce his[/her] reliance thereon or that these misrepresentations were relayed to the plaintiff, who then relied upon them.”[5] In Chapman v. Jacobs, 2021 N.Y. Slip Op. 04794 (4th Dept. Aug. 26, 2021) (here), the Fourth Department also examined the first element of a fraud claim – material misstatement of fact – as well as the justifiable reliance element of the claim. In Chapman, Plaintiff sought damages for, inter alia, fraud arising from his purchase of a home from defendants. Plaintiff claimed that Defendants represented that there was a certificate of occupancy for a pole barn situated on the property when, in fact, the Town voided the certificate of occupancy when it discovered that the barn encroached on the adjoining property. Although the record established that Plaintiff was aware of the encroachment prior to closing, Plaintiff alleged that he was unaware that the Town had voided the certificate of occupancy and believed that any issue regarding the barn had been resolved through a boundary line agreement between Defendants and the adjoining landowner. After Plaintiff purchased the home, however, the Town informed him that he would have to relocate or remove the barn. Plaintiff filed suit, alleging three causes of action: (1) fraud by not disclosing changes to information in the certificate of occupancy; (2) fraud by way of silence or active concealment of information related to the revocation of a certificate of occupancy, and (3) negligent infliction of emotional distress. Defendants moved for summary judgment on the fraud claim, claiming, among other things, that (1) the status of the certificate of occupancy was readily ascertainable from the public record and, therefore, Plaintiff’s ability to conduct his own investigation into the property was not thwarted, and (2) Plaintiff failed to plead justifiable reliance. The motion court granted the motion, holding that although Defendants failed to disclose that the pole barn’s certificate of occupancy had been revoked, Plaintiff knew about the issue – the encroachment of the barn on the neighbor’s property – before the closing due to his counsel’s title search of the property. Because of this knowledge, the motion court held that Plaintiff should have discovered the revocation of the certificate of occupancy. Plaintiff’s failure to discover the revocation, said the motion court, negated the justifiable reliance element of the fraud claim. Plaintiff appealed and the Fourth Department affirmed. The Court held that “defendants met their initial burden of establishing the absence of justifiable reliance on defendants’ alleged representations by submitting evidence that plaintiff was aware, prior to closing, that the barn encroached on the adjoining property.”[6] In opposition, “Plaintiff failed to raise a triable issue of fact,” said the Court.[7] The Court also held that even if Plaintiff could demonstrate that Defendants actively concealed the status of the certificate of occupancy, Plaintiff could not establish that such concealment “‘thwarted’ [his] ability to conduct his own investigation into the property” because “the status of the certificate of occupancy ‘was readily ascertainable from the public record.’”[8] Under New York law, “[t]o maintain a cause of action to recover damages for active concealment [in a real estate transaction], the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor.”[9] The Court’s decision addressed, without using the term of art, the doctrine of caveat emptor. Under the doctrine, the buyer of real property is required to inspect the property and satisfy himself/herself as to the quality of his/her bargain.[10] This means that where a buyer has the means available to discover, by the exercise of ordinary intelligence and diligence, the true nature of the transaction into which he/she is about to enter, he/she must make use of those means. The failure to do so will preclude him/her from arguing that he/she was fraudulently induced to enter into the transaction.[11] The doctrine of caveat emptor imposes no duty on the seller or the seller’s agent to disclose any information concerning the property when the parties deal at arm’s length, unless there is some conduct on the part of the seller or the seller’s agent that constitutes active concealment.[12] The mere silence of the seller, without some act or conduct which deceived the purchaser, does not amount to a concealment that is actionable as a fraud.[13] Takeaway Dreamco highlights the importance of pleading and proving every element of a fraud claim. In Dreamco, the element at issue was falsity. Chapman reinforces the application of the caveat emptor doctrine in New York real estate transactions. As noted, in such transactions, the law does not impose a duty on the seller or the seller’s agent to disclose information about the premises when the parties deal at arm’s length, unless the seller or the seller’s agent actively conceal material information. Instead, the buyer has a duty to satisfy himself/herself as to the quality of his/her bargain. And, even if the buyer successfully demonstrates active concealment, the buyer must satisfy the justifiable reliance element of a fraud claim – a task that, as we have noted on numerous occasions, is often difficult to achieve. _____________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009); see also Morrow v. MetLife Invs. Ins. Co., 177 A.D.3d 1288, 1289 (4th Dept. 2019). [2] Slip Op. at *1. [3] Id. at 1-2. [4] Id. at *2 [5] Robles v. Patel, 165 A.D.3d 858, 860 (2d Dept. 2018); see also New York Tile Wholesale Corp. v. Thomas Fatato Realty Corp., 153 A.D.3d 1351, 1353-1354 (2d Dept. 2017). [6] Slip Op. at 1-2 (citation omitted). [7] Id. at *2. [8] Id. at *1 (quoting Matos v. Crimmins, 40 A.D.3d 1053, 1055 (2d Dept. 2007)). [9] Jablonski v. Rapalje, 14 A.D.3d 484, 485 (2d Dept. 2005). [10] Glazer v. LoPreste, 278 A.D.2d 198, 198-99 (2d Dept. 2000) (“A buyer has the duty to satisfy himself as to the quality of his bargain.”). [11] Ittleson v. Lombardi, 193 A.D.2d 374, 376 (1st Dept. 1993). [12] Matos, 40 A.D.3d at 1055. [13] London v. Courduff, 141 A.D.2d 803, 804 (2d Dept. 1988).