By: Jeffrey M. Haber On October 8, 1971, ABC aired an episode of the Brady Bunch, titled “The Wheeler-Dealer”. In the episode, Greg gets his driver’s license and wants to buy a car of his own. He gets snookered by a friend into buying a lemon for $100. When Greg complains to Mike about how he was conned into the deal, Mike expresses little sympathy, and instead gives Greg a lesson on salesmen and the caveat emptor doctrine. The common law doctrine of caveat emptor is a well-accepted rule of law in New York. Under the doctrine, the courts will not impose liability on a seller of property for failing to disclose information material to the transaction when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.[1] “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.”[2] “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.”[3] “Where the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him or her of knowing, by the exercise or ordinary intelligence, the truth or the real quality of the subject of the representation, he or she must make use of those means, or he or she will not be heard to complain that he or she was induced to enter into the transaction by misrepresentations.”[4] Today we examine Striplin v. AC&E Home Inspection Corp., 2023 N.Y. Slip Op. 03720 (2d Dept. July 5, 2023) (here). Striplin arose from the purchase of real property. Among other things, defendants claimed that plaintiffs purchased the premises “as is” and failed to investigate the condition of the premises at or about the time of purchase. They claimed, inter alia, that under the doctrine of caveat emptor plaintiffs’ fraudulent concealment claim should be dismissed. As discussed below, the Appellate Division, Second Department disagreed and reversed the dismissal of plaintiffs’ fraudulent concealment claim. In 2012, plaintiffs purchased a home from defendants. Prior to signing the contract of sale, plaintiffs had the home inspected by AC&E Home Inspection Corp. (“AC&E”). Thereafter, on July 13, 2012, plaintiffs and defendants entered into a contract of sale (the “Contract”). The closing was held on September 21, 2012. In 2015, plaintiffs allegedly became aware of the damage to the home when they listed the property for sale and the proposed buyer “expressed misgivings” as a result of the damage. Plaintiffs claimed that the Acrylic Stucco Overframe or Exterior Insulation and Finish System known as “EIFS” on the home was damaged and allowed for water infiltration. Plaintiffs claimed that defendants had concealed the damage from them by making cosmetic repairs, such as placing new wood on top of rotten wood, in an effort to hide the water damage which the property had suffered. Plaintiff sued, alleging, among other things, fraudulent inducement/fraudulent concealment. Defendants moved to dismiss the fraud cause of action; they also moved for summary judgment as to the same cause of action. The motion court granted the motion to dismiss. The motion court found that even if plaintiffs’ argument were true that the water damage was peculiarly within defendants’ knowledge and concealed by them, they, nonetheless, had the means available to them of knowing by the exercise of ordinary intelligence the condition of the property. In this regard, the motion court noted that plaintiffs utilized those means by having a home inspection performed by AC&E. Notably, the motion court held that plaintiffs failed to allege that defendants thwarted their efforts to discover the condition of the property prior to signing the Contract. On appeal, the Second Department reversed to deny the motion. The Court held that “the amended complaint sufficiently state[d] a cause of action to recover damages for fraud on the theory that … defendants actively concealed extensive water damage to the property.”[5] The Court found that the “amended complaint, as amplified by an affidavit of one of the plaintiffs …, allege[d], among other things, that … defendants took measures to actively conceal the existence of leaks and water damage to the property, including placing new wood on top of rotten wood to hide the extent of the damage.”[6] Thus, if true, said the Court, plaintiffs demonstrated that defendants “might have thwarted the plaintiffs’ efforts to fulfill their responsibilities imposed by the doctrine of caveat emptor with respect to the property.”[7] [Eds. Note: this Blog examined the caveat emptor doctrine and fraudulent concealment, here.] Takeaway Under the doctrine of caveat emptor, the purchaser of real property has a duty to inspect the property and satisfy himself/herself as to the bona fides the transaction. The courts in New York will not hesitate to dismiss a fraud claim by a purchaser of real property where a defective condition exists and was reasonably discovered through an inspection or another form of due diligence. Since the seller has no duty to disclose the pre-existing condition, the seller will be liable only when he/she thwarts or prevents the purchaser from discovering the condition through the exercise of due diligence. As shown in Striplin, the caveat emptor doctrine will not apply where a purchaser can show that the seller engaged in acts that constituted active concealment of the condition that were intended to thwart the purchaser’s ability to fulfill his responsibility to inspect the property and prevent the discovery of the defective condition. ______________________________ 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] Simone v. Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, 520 (2d Dept. 2007); Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018); Radushinsky v. Itskovich, 127 A.D.3d 838, 839 (2d Dept. 2015). [2] Hecker v. Paschke, 133 A.D.3d 713, 716 (2d Dept. 2015) (internal quotation marks omitted); see also Daly v. Kochanowicz, 67 A.D.3d 78, 92 (2d Dept. 2009). [3] Jablonski v. Rapalje, 14 A.D.3d 484, 485 (2d Dept. 2005); Razdolskaya, 160 A.D.3d at 996. [4] Rojas v. Paine, 101 A.D.3d 843, 845 (2d Dept. 2012). [5] Slip Op. at *2. [6] Id. (citation omitted). [7] Id. (citations omitted).

By: Jeffrey M. Haber When parties negotiate an agreement, the terms of which are clear and unambiguous, their writing will be enforced according to its terms. In the event of a dispute, evidence outside the four corners of the document as to what the parties really intended is generally inadmissible.[1] Among the reasons for this rule is to give “stability to commercial transactions,” and other types of commercial interactions.[2] As the New York Court of Appeals observed, such a rule can safeguard “against fraudulent claims, perjury, death of witnesses … [and] infirmity of memory.…”[3] Notwithstanding, questions arise about the enforceability of promises, commitments and agreements made alongside a commercial transaction. These questions tend to play out in disagreements over the meaning and effect of a contract, where one party attempts to rely on the extra-contractual statements of the other (e.g., in emails, telephone calls, or meetings) to support an argument, claim or defense. One way to address such disputes before they happen is to include a “merger clause” or “integration clause,” in the contract or agreement. A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. Merger clauses typically are found at the end of a contract or agreement, among the other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. Boilerplate merger clauses are generally given little weight by the courts. However, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent. In New York, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement.[4] Without such specificity, the courts have allowed extra-contractual evidence to be used to explain the parties’ intent, especially in cases involving claims of fraudulent inducement.[5] Another way to address disputes before they happen is to include a disclaimer clause. A disclaimer clause does what it sounds like: it 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. A party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party.[6] “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.”[7] There is, however, an exception to the enforceability of an anti-reliance provision – where the defendant has unique or peculiar knowledge of an allegedly misrepresented fact. Under such circumstances, even a specific contractual disclaimer will not defeat a plaintiff’s contention that it reasonably relied on the misrepresentation.[8] Sometimes disputes arise between the parties to an agreement where one party claims that the other party failed to disclose material information during negotiations of the agreement. This scenario often invokes the common law doctrine of caveat emptor. Under the doctrine, the courts will not impose liability on a seller of property or assets for failing to disclose information material to the transaction when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.[9] “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 [transaction].”[10] “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.”[11] “Where the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him or her of knowing, by the exercise or ordinary intelligence, the truth or the real quality of the subject of the representation, he or she must make use of those means, or he or she will not be heard to complain that he or she was induced to enter into the transaction by misrepresentations.”[12] With the foregoing principles in mind, we examine Suber v. Churchill Owners Corp., 2024 N.Y. Slip Op. 03020 (1st Dept. June 4, 2024) (here). Suber involved the purchase of shares and a lease in a cooperative apartment located in New York City. The contract of sale (the “Contract of Sale”) included, among others, the following provisions: an “as is” clause stating that plaintiff was purchasing the unit in “as is” condition; a disclaimer clause stating that plaintiff was not relying on any representations or warranties of the sellers as to the condition of the premises; and a merger clause. Plaintiff claimed that asbestos samplings were taken in the building and the lab results showed that the building had asbestos-containing materials. Plaintiff claimed that this information was known to defendants and not disclosed to her. Plaintiff sued defendants for various causes of action, including fraud and breach of contract. Defendants moved to dismiss the amended complaint. The motion court granted the motions. On appeal, the Appellate Division, First Department affirmed. The Court held that the “motion court properly dismissed the amended complaint against the sellers of the shares and proprietary lease for the cooperative apartment at issue.” The Court further held that “the sellers [had] no duty to disclose the discovery of asbestos in the building or the related documents under the parties’ contract of sale.”[13] The Court explained that the presence of the “as is” and merger clauses in the Contract of Sale “bar[red] plaintiff’s breach of contract claim.[14] “Moreover,” said the Court, “the specific disclaimers and a merger clause bar[red] claims arising out of reliance on purported representations, such as the fraud, fraud in the inducement, fraudulent concealment, and negligent misrepresentation claims ….”[15] The Court rejected plaintiff’s contention that the claims were subject to the special facts doctrine because “the sellers did not owe plaintiff a duty outside the arm’s [-] length transaction.”[16] The Court also found that plaintiff “failed to plead facts that would support a finding of active concealment, as the ‘bare allegation that defendants knew of a latent defect in the conveyed premises [was] insufficient to make out a prima facie claim for fraud based on active concealment.’”[17] Finally, the Court held that plaintiff’s “fraud claims were also properly dismissed” because plaintiff failed “to allege any material misrepresentation.”[18] The Court explained that plaintiff learned of the asbestos condition in the building from a board memorandum three weeks after purchase – fact which plaintiff acknowledged. Armed with such information, the Court held that plaintiff could not complain “that the cooperative defendants somehow concealed or omitted its disclosure.”[19] ____________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] Golden Gate Yacht Club v. Societe Nautique De Geneve, 12 N.Y.3d 248 (2009). [2] W.W.W. Assoc. v Giancontieri, 77 N.Y.2d 157, 162 (1990). [3] Id. [4] See Hobart v. Schuler, 55 N.Y.2d 1023, 1024 (1982); LibertyPointe Bank v. 75 E. 125th St., LLC, 95 A.D.3d 706, 706 (1st Dept. 2012). [5] Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21 (1959); Laduzinski v. Alvarez & Marsal Taxand LLC, 132 A.D.3d 164, 169 (1st Dept. 2015). [6] Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty, 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011). [7] Basis Yield, 115 A.D.3d at 137. [8] Danann Realty, 5 N.Y.2d at 322. [9] Simone v. Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, 520 (2d Dept. 2007); Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018); Radushinsky v. Itskovich, 127 A.D.3d 838, 839 (2d Dept. 2015). [10] Hecker v. Paschke, 133 A.D.3d 713, 716 (2d Dept. 2015) (internal quotation marks omitted); see also Daly v. Kochanowicz, 67 A.D.3d 78, 92 (2d Dept. 2009). [11] Jablonski v. Rapalje, 14 A.D.3d 484, 485 (2d Dept. 2005); Razdolskaya, 160 A.D.3d at 996. [12] Rojas v. Paine, 101 A.D.3d 843, 845 (2d Dept. 2012). [13] Slip Op. at *1 (citing Stambovsky v. Ackley, 169 A.D.2d 254, 257 (1st Dept. 1991)). [14] Id. (citing TIAA Global Invs., LLC v. One Astoria Sq. LLC, 127 A.D.3d 75, 85 (1st Dept. 2015) (“an ‘as is’ clause in a contract to sell real property will ordinarily bar a claim for breach of contract”); Jarecki v. Shung Moo Louie, 95 N.Y.2d 665, 669 (2001)). [15] Id. (citing Von Ancken v. 7 E. 14 L.L.C., 171 A.D.3d 440, 441 (1st Dept. 2019), lv. denied, 33 N.Y.3d 912 (2019)). [16] Id. (citing Basis Pac-Rim Opportunity Fund [Master] v. TCW Asset Mgt. Co., 124 A.D.3d 538, 539 (1st Dept. 2015)). [17] Id. (quoting Jee Foo Realty Corp. v. Lemle, 259 A.D.2d 401, 402 (1st Dept. 1999)). [18] Id. at *2. [19] Id. (citations omitted).

By Jonathan H. Freiberger Today’s BLOG article relates to fraudulent concealment, caveat emptor and justifiable reliance when purchasing real property.[1] As readers of this BLOG know, 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.” R. Vig Props. V. Rahimzada, 213 A.D.3d 871, 872 (2nd Dep’t 2023) (citations and internal quotation marks omitted). To sustain a cause of action for fraudulent concealment, in addition to the elements of fraudulent misrepresentation, a plaintiff must allege “that the defendant had a duty to disclose material information and that it failed to do so.” P.T. Bank Cent. Asia, N.Y. Branch v. ABN AMRO Bank N.V., 301 A.D.2d 373, 376 (1st Dep’t 2003) (citation omitted). When addressing the element of justifiable reliance, the “general rule” is that “if the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.” Danann Realty v. Harris, 5 N.Y.2d 317, 322 (1959) (citations and internal quotation marks omitted). Where, however, matters are within the “peculiar knowledge” of the seller, “as is” and “no reliance” clauses in real estate contracts will not save a seller from claims of fraudulent misrepresentations. TIAA Global Investments, LLC v. One Astoria Square LLC, 127 A.D.3d 75, 87 (1st Dep’t 2015) (citing Danann 5 N.Y.2d at 322). For example, the Third Department, in Schooley v. Mannion, 241 A.D.2d 677 (1997), noted that “general merger or ‘as is’ clauses in contracts do not serve to exclude parol evidence of fraud in the inducement.” Schooley, 241 A.D.2d at 678. In Schooley, the plaintiff purchased an apartment building in Saratoga County. The contract of sale contained an “as is” clause. After the plaintiff took possession, the building’s tenants complained of freezing pipes and high energy bills. “In the course of performing routine maintenance and adding gas heating to certain units in an attempt to lower bills, plaintiffs discovered that the property was not insulated according to alleged representations made by defendant.” Id. Plaintiff, buyer, sued the defendant, seller, for fraud. The Appellate Division reversed the motion court’s order granting the defendant’s motion to dismiss. The Court found “a clear question of fact exists regarding whether defendants misrepresented the existence of insulation throughout the premises and, if so, whether plaintiffs reasonably relied on such statements.” Id. at 678. In so doing, the Court stated: Moreover, general merger or "as is" clauses in contracts do not serve to exclude parol evidence of fraud in the inducement. Notably, specific disclaimers contained within an agreement can provide an effective defense against allegations in a complaint which assert that the agreement was executed in reliance upon oral misrepresentations. Here, although the contract in question indicated that plaintiffs were taking the property “as is”, it did not indicate that plaintiffs had inspected the property; nor did it specify that they were not relying upon any representations as to the physical condition of the property, let alone any representations made regarding the installation of insulation. Furthermore, even if the contract had contained specific disclaimers, the fact that the alleged defect regarding insulation was peculiarly within [seller]'s knowledge would be sufficient to salvage plaintiffs' cause of action. It is significant that [seller] is alleged to have recently gutted and renovated the entire property and that insulation is a nonvisible component, not easily verified without destructive testing. Id. (citations omitted and internal quotation marks omitted). When dealing with real estate transactions, fraudulent misrepresentation claims “must be analyzed within the doctrine of caveat emptor.” 98 Gates Avenue Corp. v. Bryan, 225 A.D.3d 647, 649 (2nd Dep’t 2024) (citation omitted). “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.” Id. (citations and internal quotation marks omitted). However, where affirmative conduct “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,” but the conduct must be “more than mere silence.” Id. at 649-50 (citations and internal quotation marks omitted). “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 responsibilities fixed by the doctrine of caveat emptor.” Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2nd Dep’t 2018). On October 2, 2024, the Appellate Division, Second Department, decided Gordon v. Connie Profaci Realty, LLC, an action in which the plaintiff commenced an action against a real estate brokerage firm for fraud in conjunction with its purchase of residential real property and, in the complaint, alleged that the defendant “misrepresented the number of bedrooms in a home in Staten Island … in order to induce the plaintiff to purchase it.” The plaintiff appealed the motion court’s grant of the defendant’s motion to dismiss. The Court noted that “proof of active concealment will not suffice when the plaintiff should have known of the information which the defendant allegedly concealed.” In affirming the motion court’s dismissal of the complaint, the Court stated: Here, the plaintiff alleged that, after inspecting only four bedrooms, he executed the contract of sale in reliance upon the defendants' purported misrepresentations that the home contained six bedrooms. According to the plaintiff, during his visits to the home, the defendant Andrew S. Porazzo made certain statements indicating that two of the bedrooms were not available for inspection. Contrary to the plaintiff's contention, however, these allegations were insufficient under the circumstances to establish that the defendants thwarted his efforts to satisfy his obligations under the doctrine of caveat emptor. The plaintiff failed to allege facts demonstrating that the purported misrepresentations concerned matters peculiarly within the defendants’ knowledge which he could not have discovered by the exercise of ordinary intelligence. Since the plaintiff failed to adequately allege justifiable reliance, the Supreme Court properly granted the defendants' motion pursuant to CPLR 3211(a) to dismiss the complaint. [Citations, internal quotation marks, brackets and ellipses 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] Eds. Note: to find our BLOG articles related to any of these topics, visit the “Blog” tile on our website and enter your relevant search terms in the “search” box. Specifically as to “caveat emptor,” see, e.g., [here], [here], [here], [here] and [here].

By: Jeffrey M. Haber As readers of this Blog know, 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] When addressing the element of justifiable reliance,[2] the “general rule” is that “if the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.”[3] Where, however, matters are within the “peculiar knowledge” of the seller, “as is” and “no reliance” clauses in the parties’ agreement will not save a defendant from claims of fraudulent misrepresentations.[4] When dealing with real estate transactions, fraudulent misrepresentation claims “must be analyzed within the doctrine of caveat emptor.”[5] “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.”[6] However, where affirmative conduct “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,” but the conduct must be “more than mere silence.”[7] “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 responsibilities fixed by the doctrine of caveat emptor.”[8] In the Bartlett Plaza, LLC v. Jose, 2025 N.Y. Slip Op. 05662 (2d Dept. Oct. 15, 2025) (here), the Appellate Division, Second Department, affirmed the dismissal of a fraud claim where the buyer of real property sued the sellers and their agent, alleging misrepresentations about a tenant’s occupancy. The Court dismissed the claim, ruling the buyer failed to exercise due diligence and could not prove justifiable reliance. Plaintiff commenced the action seeking damages for fraud and breach of contract relating to its purchase of defendants’ commercial property on Bartlett Street in Brooklyn (the “Property”). The Property was advertised for sale by the sellers through a listing by defendant, The Corcoran Group Inc., a/k/a The Corcoran Group (“Corcoran”), their real estate agent. The listing indicated that the Property housed an active two-bay auto mechanic garage, but that the premises could be “delivered vacant” or that the “tenants [were] willing to sign [a] short term lease with [the] new owners”. On February 5, 2020, the sellers entered into a Contract of Sale with plaintiff, wherein the sellers agreed to sell the property to plaintiff for $4,000,000. The parties also executed a Rider to the Contract of Sale (the “Rider”) and a “Post-Closing Possession Agreement (“PCPA”), which set forth additional terms relating to delivery of the property following the closing. At the time the parties executed the Contract of Sale, Rider and PCPA, the Property was occupied by an auto repair shop doing business as Robel & Sons Auto Repair, Corp. (“Robel”), of which plaintiff was aware. The sellers did not own or control the business. It was owned by a third-party named Robel De La Cruz, Jr. (“De La Cruz”). Plaintiff and defendants closed title on January 21, 2021. Robel remained in possession of the auto repair shop throughout the Holdover Period as defined in the PCPA (e.g., January 21, 2021 through April 21, 2021) and through the Outside Date, also defined in the PCPA (e.g., May 21, 2021), resulting in the escrow funds being released to plaintiff in accordance with the PCPA. The Property remained occupied by Robel at the time plaintiff started the action on October 27, 2021. Plaintiff commenced the action, inter alia, to recover damages for fraud, breach of contract, and negligence, alleging that, despite the terms of the contract and the assurances of the sellers and their listing agent, that (a) the sellers were the sole occupants of the Property, (b) the Property was not occupied by any third-party tenant, and (c) the Property would be delivered vacant, the Property was occupied at the time of closing by Robel pursuant to a multiyear lease. With respect to the fraud claim, plaintiff alleged that “[s]hortly after Closing, contrary to the representations made by Defendants, Plaintiff discovered that Defendants were not actually in possession of the Premises;” that “Defendant represented on numerous occasions that no tenants occupied the Premises and that Defendants were in sole possession of the space;” that “Defendants’ representations were knowingly false, as [De La Cruz] was in possession and operating a business from the garage space in the Premises;” that “[a]s a result of Plaintiffs reliance of Defendants’ intentional misrepresentations, Plaintiff was forced to negotiate with [De La Cruz] to gain possession of the Premises” and that “[i]n order to remove [De La Cruz], Plaintiff was forced to pay $350,000.00 for his move”. In their answer, the sellers interposed various affirmative defenses in addition to counterclaims for a judgment declaring that they fully performed under the agreements and for an award of contractual attorneys’ fees as a prevailing party. Additionally, the sellers asserted a crossclaim against Corcoran and the other defendant for indemnification and contribution. The sellers subsequently brought a motion for summary judgment, maintaining that plaintiff was aware, or should have been aware using due diligence, that a tenant occupied the Property when plaintiff executed the Contract of Sale and PCPA and when it closed title, and that all of the sellers’ contractual payment obligations under the PCPA were satisfied either through direct payments or by reason of the release of the escrow funds as “liquidated damages” on the Outside Date. Corcoran cross-moved for summary judgment, claiming that it did not owe a duty to plaintiff. In support of its motion for summary judgment, the sellers submitted an affidavit in which it was averred, among other things, that between December 2019 and before the commencement of the Covid-19 pandemic, they met with plaintiff’s principal on multiple occasions at the Property; that during these meetings the parties walked through the Property, including in and out of the auto repair shop; that De La Cruz was present during many of those walk-throughs; that De La Cruz was the Property’s longstanding tenant; that the sellers planned to relocate De La Cruz when the sellers acquired a new property; and that the sellers needed weeks or months following a closing on the Properly to relocate De La Cruz in a new location. The sellers also submitted a copy of the listing, indicating that a “tenant” existed on the Property. The motion court held that the sellers’ submissions established that no misrepresentations were made to plaintiff with respect to De La Cruz. The motion court went on to say that plaintiff failed to allege reasonable reliance on any misrepresentation, holding that “[a]s a matter of law, a sophisticated plaintiff cannot establish that it entered into an arm’s length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it”. The motion court explained that “Plaintiff [did] not allege that it made an inquiry or took steps to ascertain who owned Robel, nor [did] it submit proof that the alleged misrepresentation as to possession was a matter peculiarly within the [sellers’] knowledge or that there were no means readily available by which plaintiff could have determined its truth.” “Thus,” concluded the motion court, “under the circumstances, even if there was a misrepresentation by the [sellers] as to possession or ownership of Robel, plaintiff failed to show that its reliance on the alleged misrepresentation was justifiable.” “As a result,’ concluded the motion court, “that part of the [sellers’] motion for dismissal of plaintiff’s first cause of action for fraud is granted.” On appeal, the Second Department affirmed. The Court held that “the sellers demonstrated their prima facie entitlement to judgment as a matter of law dismissing the first cause of action, alleging fraud, … against them by establishing that even if there was a material misrepresentation, any reliance thereon was unreasonable, since the plaintiff had the means available to it of knowing, by the exercise of ordinary intelligence, the existence and status of the third-party tenant.”[9] The Court also held that the motion court “properly granted that branch of Corcoran’s cross-motion which was for summary judgment dismissing the complaint … against it.”[10] The Court found that “Corcoran demonstrated, prima facie, that it did not actively conceal the third-party tenant’s existence and status and did not thwart the plaintiff’s efforts to fulfill its responsibilities fixed by the doctrine of caveat emptor.”[11] Takeaway A successful claim for fraudulent misrepresentation requires proof of a false statement or omission made knowingly to induce reliance, justifiable reliance by the plaintiff, and resulting injury. With regard to the reliance element, it must be justifiable. The courts have consistently held that if the facts are not exclusively within the defendant’s knowledge and the plaintiff had the means to uncover the truth through reasonable diligence, then the plaintiff cannot later claim to have been misled. This principle was central to the Court’s decision in Bartlett Plaza. As discussed, the buyer alleged fraud, claiming the sellers and their real estate agent misrepresented that the property would be delivered vacant, while in fact, it was occupied by a third-party tenant operating an auto repair shop. The Court found that plaintiff had ample opportunity to discover the tenant’s presence through site visits and contract documents, which referenced the tenant. Plaintiff’s failure to investigate undermined its claim of justifiable reliance. The decision also underscores the point that New York courts continue to adhere strictly to the doctrine of caveat emptor in arm’s-length real estate transactions. This means that buyers are expected to conduct their own due diligence and cannot later claim fraud if they fail to investigate reasonably discoverable facts. Additionally, the Court reaffirmed the principle that active concealment, not mere silence, is required to impose a duty on the seller to disclose information. Since the sellers and agent did not actively prevent plaintiff from discovering the tenant’s occupancy, and the plaintiff failed to exercise due diligence, the Court affirmed the dismissal of the fraud claims. Further, the ruling makes clear that a buyer’s reliance on a seller’s representations is not justifiable if the buyer had access to information that would have revealed the truth through ordinary intelligence or reasonable inquiry. In Bartlett Plaza, the buyer had walked through the property, observed the tenant, and had access to documents referencing the tenant’s presence, yet failed to investigate further. Ultimately, Bartlett Plaza reinforces the importance of due diligence in real estate transactions and illustrates how courts apply the doctrine of caveat emptor to assess the reasonableness of a buyer’s reliance on seller representations. ___________________________________ 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] R. Vig Props. v. Rahimzada, 213 A.D.3d 871, 872 (2d Dept. 2023) (citations and internal quotation marks omitted). [2] We have examined the element of justifiable reliance in numerous articles. Here are some of the more recent articles for your review: Fraud Notes: First Department Talks About Misrepresentations of Fact and Justifiable Reliance; Failure To Read Relevant Documents Prevents Claim Of Justifiable Reliance; Publicly Available Information, Justifiable Reliance and The Caveat Emptor Doctrine; Fraudulent Inducement: Exculpatory Clauses, Representations and Warranties, and Justifiable Reliance; and Fraud Notes: Justifiable Reliance, Particularity and Duplication. To read additional articles in which we examined fraud causes of action, please see the BLOG tile on our website and search for any fraud, or other commercial litigation, issue that may be of interest you. [3] Danann Realty v. Harris, 5 N.Y.2d 317, 322 (1959) (citations and internal quotation marks omitted). [4] TIAA Global Investments, LLC v. One Astoria Square LLC, 127 A.D.3d 75, 87 (1st Dept. 2015) (citing Danann, 5 N.Y.2d at 322). [5] 98 Gates Avenue Corp. v. Bryan, 225 A.D.3d 647, 649 (2d Dept. 2024) (citation omitted). [6] Id. (citations and internal quotation marks omitted). [7] Id. at 649-50 (citations and internal quotation marks omitted). [8] Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018). [9] Slip Op. at *2. [10] Id. [11] Id. (citing R. Vig Props., 213 A.D.3d 8at 73; Schottland v. Brown Harris Stevens Brooklyn, LLC, 107 A.D.3d 684, 686 (2d Dept. 2013); Glazer v. LoPreste, 278 A.D.2d 198, 199 (2d Dept. 2000)).

By: Jonathan H. Freiberger As discussed in our recent article “Mechanics’ Liens and Discharge Bonds,” mechanics’ liens are powerful tools available to, inter alia, contractors, laborers, and materialmen when they are not paid for their work in improving real property. As the Court of Appeals noted long ago: The object and purpose of the mechanics' lien law was to protect a person who, with the consent of the owner of real property, enhanced its value by furnishing materials or performing labor in its improvement, by giving him an interest therein to the extent of the value of such material or labor. The filing of the notice of lien is the statutory method prescribed by which the party entitled thereto perfects his inchoate right to that interest. John P. Kane Co. v. Kinney, 174 N.Y. 69, 73 (1903). “The Lien Law provides that article 2, which governs mechanics’ liens, ‘is to be construed liberally to secure the beneficial interests and purposes thereof’ (Lien Law § 23).” West-Fair Elec. Contractors v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 156 (1995). A subcontractor is entitled to file a mechanics’ lien “for the value or the agreed price of the labor or materials furnished at the request or consent of the owner's contractor. Id at 157; see also Lien Law § 3. However, the lien cannot be for more than the “sum earned and unpaid on the contract at the time of filing the notice of lien, and any sum subsequently earned thereon” and, the owner is not liable to pay lienors more than the “value or agreed price of the labor and materials remaining unpaid, at the time of filing notices of such liens.” Lien Law § 4(1). Thus, as the Court of Appeals has stated: Subcontractors may enforce their mechanics' liens against the property specified in the notice of lien and any person liable for the debt upon which the lien is founded (Lien Law §§ 24, 41). Consequently, the Lien Law grants the subcontractor an independent right, separate and apart from a general contractor's remedies, to file and enforce a mechanics' lien against a person liable for the debt upon which the lien is founded, such as the owner, and the real estate being improved. However, the owner's liability to the subcontractor is limited to the unpaid portion of the value or agreed to price of the improvements at the time the lien is filed (see, Lien Law § 4[1]). Thus, in the event the general contractor fails to pay a subcontractor with the sums the owner has already paid, the Lien Law protects owners from paying more than the value of the improvements, or the contract price. West-Fair, 157-58; see also NGU, Inc. v. City of New York, 189 A.D.3d 850, 852 (2d Dept. 2020). “Money still due and owing from the owner to the contractor at the time of the filing of the lien, plus any sums subsequently earned thereon, is known as the ‘lien fund’.” Peri Formwork Systems, Inc. v. Lumbermens Mut. Cas. Co., 112 A.D.3d 171, 176 (2d Dept. 2013). Lienor’s can only recover from the lien fund. IMP Plumbing and Heating Corp. v. 317 East 34th Street, LLC, 89 A.D.3d 593, 593-94 (1st Dept. 2011). Against this backdrop we discuss Layout, Inc. v. Heavy Metal Corp., a matter decided by the Appellate Division, Second Department, on June 3, 2026. Layout is a mechanics’ lien foreclosure action.[1] The defendant owner (“Owner”) in Layout, hired general contractor (“GC”) for a development project (the “Project”). GC hired a subcontractor (“Subcontractor”) to perform some of the work. Subcontractor hired a sub-subcontractor to perform some of its work (“Sub-subcontractor”). Sub-subcontractor hired a survey company to perform survey work (“Lienor”). Lienor filed a mechanics’ lien, which was discharged by a bond obtained from a surety (the “Surety”) by Subcontractor.[2] The Lienor commenced an action to foreclose the lien and to recover on the bond. The Owner and the Surety moved for summary judgment dismissing the complaint as against them. The Lienor opposed the motions and cross-moved for summary judgment. The Lienor appeals from the granting of the motions of the Owner and the Surety and the denial of its motion. The Second Department held that all motions should have been denied. After noting that a lien cannot exceed the amount owed to the general contractor by the owner, the Court stated that the “lienor must establish the amount of the outstanding debt by submitting proof of either the price of its contract or the value of the labor and materials supplied.” (Citation and internal quotation marks omitted.) The Court further recognized that: The lienor’s right to recover is further limited by principles of subrogation. The subcontractor’s right to recover is derivative of the right of the general contractor to recover, and if the general contractor is not owed any amount under its contract with the owner at the time the subcontractor’s notice of lien is filed, then the subcontractor may not recover. “The purpose of this . . . is to limit the liability of the owner in the aggregate to the amount which he [or she] had contracted to pay.” The Court then noted that the principles of subrogation are more complex with sub-subcontractors because “subrogation applies to all tiers of subcontractor liens” and, “each party is subrogated to the rights of the contracting tier above him or her.” (Citations, internal quotation marks and brackets omitted.) Thus: in the case of a sub-subcontractor to a subcontractor, it may not enforce its lien for an amount in excess of either (1) the amount of money owed to him or her by the subcontractor; (2) the amount of money owed by the general contractor to the subcontractor; or (3) the amount of money owed by the owner to the general contractor. [Citations, internal quotation marks and brackets omitted.] The Court held that both motions should have been denied because triable issues of fact existed as to whether there was a lien fund from which the Lienor could recover. The Court found that the Owner and Surety failed to prove that “there were no funds due and owing to East Coast, to which the plaintiff’s respective liens could attach.” (Citation omitted.) Likewise, the Court found that triable issues of fact were not eliminated “as to the existence of eligible lien funds for the Project. 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] The facts as recited herein are simplified for editorial purposes. [2] As discussed in our article “Mechanics’ Liens and Discharge Bonds,” an owner or a contractor can obtain a bond to discharge a mechanics’ lien. Once obtained, the lien attaches to the bond as opposed to the real property against which the lien was filed.

By: Jeffrey M. Haber What happens when a business owner believes he’s been misled about the value of his company, only to have his claims dismissed not on their merits, but because of a procedural misstep years earlier? A recent decision from the Appellate Division, Second Department – Rubin v. Hodes, 2026 N.Y. Slip Op. 03328 (2d Dept. May 27, 2026) – addresses this question. In Rubin, plaintiff, once the majority shareholder of a healthcare company, brought the action alleging fraud, unpaid loans, and financial loss tied to the restructuring and sale of corporate interests. He claimed that he was deceived about the true value of his shares and that outstanding promissory notes remained unpaid. Yet despite the substance of these allegations, the courts never reached the merits. Instead, the litigation turned on a threshold issue: whether plaintiff had the legal capacity to sue at all. The answer hinged on an earlier Chapter 11 bankruptcy filing, in which plaintiff failed to disclose key assets, including stock holdings and loan documents that later formed the basis of his claims. Under well-established bankruptcy principles, such omissions proved to be fatal. Once a debtor files for bankruptcy, all assets, including potential legal claims, become part of the bankruptcy estate. If those claims are not disclosed, the debtor may be barred from pursuing them later. Affirming the Supreme Court’s dismissal, the Second Department reinforced a strict but essential rule: the integrity of the bankruptcy system depends on complete transparency. Even inadvertent omissions can strip a litigant of the ability to seek relief in court. As discussed below, Rubin highlights the intersection of bankruptcy law, corporate transactions, and fraud claims, as well as the consequences of incomplete disclosure. Rubin v. Hodes In 1993, plaintiff became the majority shareholder of defendant, UHP-Delaware, Inc. (“UHP”), with 85% of the stock shares. In 1996, plaintiff loaned UHP $250,000 with interest, and in 2001, he loaned defendant Patriot Health, Inc. (“Patriot”) $100,000 with interest. Both loans were evidenced by promissory notes. As of 2004, only a portion of each loan had been repaid. Defendant Cost Containment Group, Inc. (“Cost Containment”) was later created and became the parent company of UHP and Patriot. Plaintiff, however, was under the belief that Cost Containment became UHP’s successor and that there was a change in name only. Thereafter, defendant Cost Containment Group, Inc., Employee Stock Ownership Plan (the “ESOP”) was formed to purchase shares of Cost Containment stock. The ESOP paid approximately $32 million for approximately 80% of the shares of Cost Containment stock. In 2017, plaintiff and his wife were paid approximately $6 million for their equity interest in Cost Containment. In June 2013, plaintiff filed a voluntary petition for Chapter 11 bankruptcy in federal court. He also filed a Schedule B listing his personal property but omitting his UHP stock shares and the promissory notes (the “subject assets”). The bankruptcy proceeding was closed in 2017. In 2018, plaintiff commenced the action seeking, inter alia, to recover damages for fraud, repayment of the loans, and punitive damages. Plaintiff alleged that due to certain misrepresentations about UHP and the value of his shares, he relinquished his shares for substantially less than their value. He also alleged that he had not been paid the amounts due under the outstanding promissory notes. Thereafter, Cost Containment, UHP, Patriot, and the individual defendants (collectively, the “Cost Containment defendants”) moved, inter alia, pursuant to CPLR 3211(a)(3) to dismiss the amended complaint on the ground that plaintiff lacked the legal capacity to sue. The ESOP and defendant Wilmington Trust Retirement and Institutional Services Company separately moved, among other things, for the same relief on the same ground. In an order entered December 11, 2020, the Supreme Court, inter alia, granted those branches of the separate motions. Plaintiff appealed. The Second Department affirmed. The Court held that plaintiff lacked the capacity to sue due to his failure to disclose the promissory notes in his bankruptcy action. “The failure of a party to disclose a cause of action as an asset in a prior bankruptcy proceeding, which the party knew or should have known existed at the time of that proceeding, deprives him or her of the legal capacity to sue subsequently on that cause of action,” explained the Court.[1] Indeed, said the Court, “[t]he integrity of the bankruptcy system depends on full and honest disclosure by debtors of all of their assets.”[2] The Court found that “plaintiff did not disclose in his schedule of assets in the bankruptcy proceeding the subject assets or the claims he now asserts against the defendants” – facts that were undisputed.[3] Whether plaintiff’s “failure to list the promissory notes in his schedule of assets in the bankruptcy proceeding,” was “inadvertent[ ] or mistaken[ ],” it did not excuse his failure to include them in the bankruptcy proceeding, concluded the Court.[4] Accordingly, plaintiff was “preclude[d] … from pursuing those claims.”[5] The Court also found that “defendants’ submissions in support of their separate motions established that the plaintiff knew or should have known of the existence of the subject claims prior to the filing of the bankruptcy petition, that the causes of action against the defendants remained property of the bankruptcy estate, and that the plaintiff therefore lacked capacity to sue on those claims.”[6] Takeaway Rubin underscores three interrelated legal principles that ultimately defeated plaintiff’s fraud claims. At the outset, Rubin reinforces the requirement of full disclosure in bankruptcy proceedings. Individuals who file for bankruptcy must disclose all assets, including not only tangible property but also potential legal claims, whether contingent or not yet fully developed. In Rubin, plaintiff failed to list his stock interests and the promissory notes, assets that later became the foundation of his fraud and repayment claims. The Court made clear that this obligation is neither optional nor flexible; it is central to preserving the integrity of the bankruptcy system. Even where an omission is characterized as inadvertent or mistaken, the consequence is severe: a debtor in bankruptcy who fails to disclose such assets is precluded from later asserting claims based on them. Closely tied to that principle is the rule that undisclosed claims remain property of the bankruptcy estate, not the individual debtor. Once a bankruptcy petition is filed, any causes of action that exist, or that the debtor reasonably should have known about, vest in the bankruptcy estate by operation of law. Because plaintiff’s claims arose from events predating his bankruptcy filing, they belonged to the bankruptcy estate, and only the bankruptcy trustee had standing to pursue them. As a result, plaintiff lacked the legal capacity to bring the action himself, regardless of the viability of the underlying allegations of fraud. Rubin also illustrates how procedural barriers can foreclose substantive claims. The Court never reached the merits of plaintiff’s allegations that he was misled about the value of his shares or that he was owed repayment under promissory notes. Instead, the action was resolved on a threshold issue – the capacity to sue. This outcome, therefore, serves as a reminder that even meritorious fraud claims can be dismissed before they are heard on the merits if procedural requirements are not followed. __________________________________ 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, quoting Golden Jubilee Realty, LLC v. Castro, 196 A.D.3d 680, 682 (2d Dept. 2021) (alteration and internal quotation marks omitted), and citing Potruch & Daab, LLC v. Abraham, 97 A.D.3d 646, 647 (2d Dept. 2012). [2] Id., quoting Flanders v. E.W. Howell Co., LLC, 193 A.D.3d 822, 823 (2d Dep. 2021) (alteration and internal quotation marks omitted), and citing Turner v. Owens Funeral Home, Inc., 189 A.D.3d 914, 916 (2d Dept. 2020). [3] Id., citing Jean-Paul v. 67-30 Dartmouth St. Owners Corp., 174 A.D.3d 870, 871; Potruch & Daab, 97 A.D.3d at 647. [4] Id., citing Dynamics Corp. of Am. v. Marine Midland Bank-N.Y., 69 N.Y.2d 191, 197 (1987); Hutchinson v. Chana Weller, DDS, PLLC, 93 A.D.3d 509, 510 (1st Dept. 2012). [5] Id. [6] Id., citing Keegan v. Moriarty-Morris, 153 A.D.3d 683, 684 (2d Dept. 2017); Potruch & Daab, 97 A.D.3d at 647-648.

By: Jonathan H. Freiberger Today’s BLOG deals with the “Relation-Back Doctrine” (the “Doctrine”)[1], which, inter alia, “allows a claim asserted against a defendant in an amended filing to relate back to claims previously asserted against a codefendant for Statute of Limitations purposes where the two defendants are “‘united in interest.’” Buran v. Coupal, 87 N.Y.2d 173, 177 (1995) (citation omitted); see also Marcotrigiano v. Dental Specialty Assoc., P.C., 209 A.D.3d 850, 851 (2d Dept. 2022); Cotto v. Robinson, 244 A.D.3d 1183, 1186 (2d Dept. 2025). The Doctrine was codified by the CPLR. See, e.g., CPLR 203(b), (c), (e) and (f). As explained by the Court of Appeals, the Doctrine “enables a plaintiff to correct a pleading error by adding either a new claim or a new party after the statutory limitations period has expired [and] thus gives courts the sound judicial discretion to identify cases that justify relaxation of limitations strictures to facilitate decisions on the merits if the correction will not cause undue prejudice to the plaintiff's adversary.” Buran, 87 N.Y.2d at 177-178 (citations, internal quotation marks and ellipses omitted); see also Marcotrigiano, 209 A.D.3d at 851; Ramirez v. Elias-Tejada, 168 A.D.3d 401, 403 (1st Dept. 2019). Under the Doctrine, claims against a later added party would relate back to the commencement date of the action if: “(1) both claims arose out of the same conduct, transaction or occurrence; (2) the new party is united in interest with the original defendant, and by reason of that relationship can be charged with such notice of the institution of the action that they will not be prejudiced in maintaining their defense on the merits; and (3) the new party knew or should have known that, but for an excusable mistake by the plaintiff as to the identity of the proper parties, the action would have been brought against [them] as well.” Nemeth v. K-Tooling, 40 N.Y.3d 405, 411 (2023) (citations, internal quotation marks and brackets omitted); see also O’Halloran v. Metropolitan Transp. Authority, 154 A.D.3d 83, 86-87 (1st Dept. 2017). A “more relaxed” standard is recognized in the application of the Doctrine when a party seeks to add a new claim against an existing party as opposed to adding a new party to an existing action. O’Halloran, 154 A.D.3d at 86. In such circumstances, “the relevant considerations are simply (1) whether the original complaint gave the defendant notice of the transactions or occurrences at issue and (2) whether there would be undue prejudice to the defendant if the amendment and relation back are permitted.” Id. at 87 (citations omitted). Against this backdrop, we discuss BAC Home Loan Servicing, LP v. MacPherson, a case decided on May 27, 2026, by the Appellate Division, Second Department. In 2007, the plaintiff lender in BAC commenced a mortgage foreclosure action against the borrower. In 2010, the lender’s motion for summary judgment and for an order of reference was granted, and in 2017, the motion court issued a judgment of foreclosure and sale. Thereafter, a corporation (the “Corp.”), whose owner and CEO was the borrower, moved pursuant to CPLR 5015(a)(4) to vacate the Judgment of foreclosure and sale. The Corp. argued that the borrower transferred title to the subject property to it prior to the commencement of the action but was not named as a defendant in the action. The motion court granted the motion. In 2018, the lender moved pursuant to CPLR 2004 and CPLR 306-b for an extension of time to serve the Corp. with the summons and complaint, which motion was denied due to the resulting prejudice to the Corp. if the application was granted. In 2021, relying on the Doctrine, the lender moved pursuant to CPLR 3025(b) for leave to add the Corp. as a defendant to the existing action.[2] The motion court granted the motion and the Corp. appealed. The Second Department affirmed. First the Court noted that leave to amend pleadings is freely granted “provided the amendment is not palpably insufficient, does not prejudice or surprise the opposing party, and is not patently devoid of merit” and that “[a]mendments that seek to add a time-barred claim or party will be found to be patently devoid of merit, unless the untimeliness can be saved by application of the [D]octrine.” (Citation and internal quotation marks omitted.) After quoting the Buran three-prong test establishing the applicability of the relation-back doctrine as set forth herein, the Court stated that the “linchpin of the [D]octrine is whether the new defendant had notice within the applicable limitations period.” (Citation and internal quotation marks omitted.) The Court then addressed the three prongs. The Court noted that Corp. did not dispute that the applicability of the first prong. As to the second prong, the Court found that the lender “established that, at the time the action was commenced, [the Corp.] was owned by [the borrower], who was also its CEO, and thus, [the Corp.] was united in interest with [the borrower], who was originally named as a defendant in this action [and, therefore] by reason of that relationship, [the Corp.] could be charged with such notice of the institution of the action that it would not be prejudiced in maintaining its defense on the merits." (Citation, internal quotation marks and brackets omitted.) As to the third prong, the Court stated: With regard to the third prong, as [the Corp.] acknowledges, New York law requires merely mistake—not excusable mistake—on the part of the litigant seeking the benefit of the [D]octrine. Further, contrary to [the Corp.]'s contentions, with regard to the third prong, the [D]octrine is not limited to cases where the amending party's omission results from doubts regarding the omitted party's identity or status. Rather, the [D]octrine applies when the party knew or should have known that, but for the mistake—be it a simple oversight or a mistake of law (i.e., that the amending party failed to recognize the other party as a legally necessary party)—the non-amending party would have been named initially. Here, in its capacity as owner of the property that was subject to the mortgage, [the Corp.] could not have understood its omission to be anything other than an oversight. Moreover, nothing in the record before us even suggests that the [lender] initially omitted [the Corp.] in order to obtain a tactical advantage in the litigation. Although omission of a necessary party does not automatically establish a mistake, here there is no evidence of an attempt to game the system. [Citations, internal quotation marks and brackets 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 previously addressed the Doctrine (see, e.g., [here], [here] and [here]) and the background information this article is derived from one or more of those articles. [2] Among other things, the Corp. argued that the finding of prejudice by the motion court in denying the lender’s motion pursuant to CPLR 2004 and CPLR 306-b was law of the case and, therefore, necessitated the denial of the lender’s motion to amend. The Second Department, however, held that it “is not bound by the law of the case doctrine, and … will consider the merits of the [lender]'s motion for leave to amend the complaint to add [the Corp.] as a defendant pursuant to the [D]octrine.”

By: Jeffrey M. Haber It is well-settled that leave to amend a pleading is to be freely granted.[1] Leave may be denied, however, if the proposed amendment is palpably insufficient or patently devoid of merit, or if it would cause undue prejudice to a party.[2] Amendments that seek to add a time-barred claim or party will be found to be patently devoid of merit,[3] unless the untimeliness can be saved by application of the relation-back doctrine.[4] The statutory basis for the relation-back doctrine is found in CPLR 203(c) and (f).[5] CPLR 203(c) provides that “[i]n an action which is commenced by filing, a claim asserted in the complaint is interposed against the defendant or a co-defendant united in interest with such defendant when the action is commenced.” CPLR 203(f) provides that “a claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences to be proved pursuant to the amended pleading.” Built upon those provisions, the relation-back doctrine permits, under certain defined circumstances, the commencement of claims against a party that has not been timely sued, but which relates back to the original timely complaint. The doctrine also permits the addition of untimely claims against an original defendant under some of those same defined conditions. The leading case on the relation-back doctrine is Buran v. Coupal.[6] In Buran, the relation-back doctrine was defined as requiring the plaintiff to establish all three prongs of a three-part test for the addition of untimely claims or parties. The first prong is that the new claims arise out of the same conduct, transaction, or occurrence as that alleged in the original complaint. Second, if a new party is to be added, it must be united in interest with one or more of the original defendants, and by reason of that relationship can be charged with such notice of the institution of the action that he or she will not be prejudiced in defending the action on the merits. Third, if a new party is to be added, the newly added defendant must have known, or should have known, that the action would have been timely commenced against him or her but for a mistake by the plaintiff as to the identity of the proper parties.[7] In Bisono v. Mist Enterprises, Inc., 2024 N.Y. Slip Op. 03873 (2d Dept. July 24, 2024) (here), the Appellate Division, Second Department consider the application of the relation-back doctrine to a set of facts that the Court considered to be unusual. In Bisono, plaintiffs sought to interpose untimely claims against a proposed corporate defendant by relating those claims back under CPLR 203(c) and (f) to an individual defendant who had been timely sued, discontinued from the action before the statute of limitations had run, and re-added as a defendant after the applicable statute of limitations had expired for all parties.[8] Since no party objected to, raised any contentions concerning, or appealed the granting of leave to re-add the previously discontinued individual as a party defendant, the Court held that the relation-back doctrine applied. Background Bisono arose from a motor vehicle accident in March 2016. Plaintiff was driving his motor vehicle in Brooklyn, New York. As the vehicle drove by a fixed dumpster that was situated on the street, a gust of wind blew open the dumpster’s door, causing that door to strike the vehicle as it passed. The vehicle spun and hit a parked vehicle. In 2017, plaintiffs (the driver and passenger) commenced the action to recover damages for personal injuries allegedly sustained as a result of the accident against Mist Enterprises, Inc. (hereinafter “Mist”), New York Presco, Inc. (hereinafter “Presco”), and Yakov Eisenbach. Plaintiffs alleged that their injuries were caused by defendants’ negligence in the ownership, operation, maintenance, control, and placement of the dumpster. Mist and Presco answered the complaint and asserted, inter alia, various affirmative defenses. The individual defendant’s attorney wrote to plaintiffs’ counsel, requesting that defendant be discontinued from the action. Defendant’s attorney claimed, among other things, that defendant was not personally affiliated with or involved in the operations related to plaintiffs’ alleged injuries, that at no time did defendant possess any ownership interest in the dumpster, and that at no time was defendant personally in control of the operation, maintenance, control, or use of the dumpster. In December 2017, defendant’s attorney and plaintiffs’ attorney executed a stipulation discontinuing the action against defendant, without prejudice. In 2019, plaintiffs, without leave of court, filed a supplemental summons and amended complaint, naming as party defendant Mist, Presco, Eisenbach, Jozefko Construction, Inc., and Design N Safety, Inc. (hereinafter “Design”). Also in 2019, Mist and Presco moved for summary judgment dismissing the complaint. Plaintiffs opposed the motion, contending, among other things, that the moving defendants failed to demonstrate the absence of triable issues of fact. According to plaintiffs, these triable issues of fact included whether Mist improperly inspected or positioned its container. Plaintiffs separately moved for leave to amend the complaint to add both Eisenbach and Design as party defendants. Plaintiffs claimed that discovery showed a connection between the existing defendants and Eisenbach and Design and that Eisenbach and Design knew that the incident had occurred and that the action was commenced in connection with that incident. Plaintiffs requested that under the circumstances, the motion court grant leave to amend the complaint. Design opposed Plaintiffs’ motion but submitted no opposition on behalf of Eisenbach. Design contended that it would be unduly prejudiced if named as a new defendant after the statute of limitations had expired and dispositive motions had been made. Design urged that plaintiffs sought to assert claims that were untimely because those claims related back to prior claims that were voluntarily discontinued years ago. Since the claims against Eisenbach were abandoned or discontinued, Design and Eisenbach were not codefendants for relation-back purposes. Moreover, according to Design, Eisenbach and Design were not united in interest. Eisenbach, individually, submitted no papers responsive to plaintiffs’ motion to re-add him as a party defendant via the proposed amended complaint. As such, as against Eisenbach, the motion was unopposed. In an order dated February 10, 2021, the motion court, among other things, granted the motion for summary judgment dismissing the complaint against Mist and Presco, and in effect, granted that branch of plaintiffs’ motion for leave to amend the complaint to add Eisenbach as a defendant, and, in effect, denied plaintiffs’ motion for leave to amend the complaint to add Design as a defendant. The motion court did not provide any reasoning for its grant of leave to amend as to Eisenbach and its denial of leave to amend as to Design. Plaintiffs appealed. Looking at the factors discussed above concerning the application of the relation-back doctrine, the Court held that plaintiffs had satisfied them. The Court held that “[a]s to the applicability of the first prong of the relation-back doctrine [– the new claims arise out of the same conduct, transaction, or occurrence as that alleged in the original complaint –] there can be no dispute.”[9] “The claims that the plaintiffs seek to interpose against Design involve the same occurrence as that of the original complaint, where an unlatched door of a debris container swung open and struck the plaintiffs’ passing vehicle,” noted the Court.[10] “Design was the permit holder of the container and maintained the container after Mist’s delivery of it to the site of the accident, and Eisenbach was the manager of work at that site,” said the Court.[11] The Court held that plaintiffs satisfied the second prong of the doctrine—unity of interest.[12] The Court reasoned that “Eisenbach was Design’s CEO and was actively managing the construction site, which included the container at issue, on the date and at the time of the occurrence. The litigation interests of Design and Eisenbach [were] therefore united as to satisfy the second prong of the relation-back doctrine.”[13] Finally, as to the third prong of the analysis – whether Design knew or should have known that but for a mistake by plaintiffs as to the identity of the proper parties – the Court held that the action would have been commenced against Design in the original complaint.[14] The Court found that “there [was] a fair reading of the record that had Eisenbach not been discontinued from the action based upon inaccurate representations, Design’s role at the construction site would have been revealed and an action timely commenced against it.”[15] “Further,” explained the Court, “with Eisenbach named as an original defendant in the action, Design knew or should have known that but for a mistake as to the identity of the parties, it would have been named as a party defendant as well.”[16] With relation-back, the Court concluded that the motion court “improvidently exercised its discretion in denying leave to amend the complaint as to Design.”[17] Having decided the applicability of the relation-back doctrine, the Court addressed “another complication” raised by the appeal – whether “the untimely party to be added to [the] action relate[d] back to an existing party that ha[d] been timely” sued.[18] In other words, the Court had to determine whether the party to be added after the expiration of the applicable statute of limitations was “tethered to another party against which claims were timely interposed,” and whether “that preexisting party” was “an active defendant at the time the relation-back doctrine [was] applied.”[19] The Court held that the claims against Eisenbach and Design were tethered to those against an existing party, though it did so for procedural reasons, such as under the law of the case doctrine: Here, however, Eisenbach—the preexisting party—had been discontinued from the action by the plaintiffs, though under false or mistaken pretenses that were not discovered until later. Technically, therefore, when the plaintiffs sought leave to amend the complaint to add Eisenbach and Design as party defendants, the statute of limitations had already expired as to both of them; Eisenbach was no longer an existing party within the statute of limitations to which Design could be tethered. Further, for Eisenbach to be properly re-added to the action after the expiration of the statute of limitations, he would have to relate back to yet another party—a double relation-back—although no circumstances for his own relation-back are shown on this record. *** Further, and most significantly, so much of the Supreme Court’s order as granted that branch of the plaintiffs’ unopposed motion which was for leave to amend the complaint to re-add Eisenbach as a defendant in the action, whether correct or not, has not been appealed by any party; the only issues that have been appealed pertain to whether Design should have been added as a defendant in the action under the relation-back doctrine and whether summary judgment had been improperly awarded to Mist and Presco. Therefore, this appeal is postured where Eisenbach, though technically untimely, was added to the action via an amended complaint which, absent opposition and an appeal of that issue, is now the law of the case. So postured, Design may be added as a defendant to the action, beyond the statute of limitations for Design, by virtue of the relation-back to Eisenbach who has again become an existing presence in the action in a manner that is both uncontested and the law of the case.[20] The Court sought to make it clear that it was not creating new law with regard to the relation-back doctrine – i.e., modifying the three-pronged test when an untimely party is added to an existing action: The result here, where relation-back is applied against one party by relating back the claims to another party that is itself untimely added, should not be construed as suggesting that the three-pronged test for the relation-back doctrine is modified. It is not. Nor does it suggest that relation-back can be applied when the party to whom a claim relates is not a timely, existing party in an action. Decisional authorities require that there be a preexisting party against whom there is a timely claim. The result here, while very unusual, is instead a product of its peculiar circumstances; namely, the absence of any opposition to Eisenbach being re-added as a party defendant after the statute of limitations had expired as to him which restored him as an existing party in the action, and as a consequence, the absence of any argument that Eisenbach’s renewed presence in the case was an error by the Supreme Court.[21] Accordingly, the Court reversed the order insofar as reviewed, and granted that branch of Plaintiffs’ motion which was for leave to amend the complaint to add Design as a defendant on the basis of the relation-back doctrine. ____________________________ 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] CPLR 3025(b); Edenwald Contr. Co. v. City of New York, 60 N.Y.2d 957, 959 (1983). [2] See, e.g., Watkins-Bey v. MTA Bus Co., 174 A.D.3d 553, 554 (2d Dept. 2019). [3] See Schwartz v. Walter, 171 A.D.3d 969, 970 (2d Dept. 2019); Roco G.C. Corp. v. Bridge View Tower, LLC, 166 A.D.3d 1031, 1033 (2d Dept. 2019) (as corrected); Grant v. Brooklyn Ctr. for Rehabilitation & Residential Health Care, LLC, 153 A.D.3d 798 (2d Dept. 2017); Jenal v. Brown, 80 A.D.3d 727 (2d Dept. 2011); Ricca v. Valenti, 24 A.D.3d 647, 648 (2d Dept. 2005). [4] See, e.g., Catnip, LLC v. Cammeby’s Mgt. Co., LLC, 170 A.D.3d 1103, 1106 (2d Dept. 2019); Myung Hwa Jang v. Mang, 164 A.D.3d 803, 804-805 (2d Dept. 2018); Marrone v. Miloscio, 145 A.D.3d 996, 999 (2d Dept. 2016); Rodriguez v. Paramount Dev. Assoc., LLC, 67 A.D.3d 767, 768 (2d Dept. 2009). [5] See Matter of Red Hook/Gowanus Chamber of Commerce v. New York City Bd. of Stds. & Appeals, 5 N.Y.3d 452, 457 (2005); Ortega v. New York City Tr. Auth., 170 A.D.3d 872, 873 (2d Dept. 2019); Martin v. City of New York, 153 A.D.3d 693, 694 (2d Dept. 2017); Moezinia v. Ashkenazi, 136 A.D.3d 990, 992 (2d Dept. 2016). [6] 87 N.Y.2d 173 (1995). [7] Id. at 178-179; see also Wilson v. Rye Family Realty, LLC, 218 A.D.3d 836, 838 (2d Dept. 2023); Estate of Stengel v. Good Samaritan Hosp., 214 A.D.3d 954 (2d Dept. 2023); Sanders v. Guida, 213 A.D.3d 714, 715 (2d Dept. 2023); Marcotrigiano v. Dental Specialty Assoc., P.C., 209 A.D.3d 850, 851-852 (2d Dept. 2022); OneWest Bank N.A. v. Muller, 189 A.D.3d 853, 855 (2d Dept. 2020). [8] Normally, the relation-back doctrine may be applied only when the party being added relates back to another party that has already been timely sued and remains a continuing defendant in the case. [9] Slip Op. at *2. [10] Id. [11] Id. [12] Unity of interest examines the jural relationship of the parties that are said to be united, and the nature of the claims asserted against them by the complainant. Matter of 130-10 Food Corp. v. New York State Div. of Human Rights, 166 A.D.3d 962, 965 (2d Dept. 2018); Kammerzell v. Clean Burn, Inc., 165 A.D.3d 768, 769 (2d Dept. 2018); Connell v. Hayden, 83 A.D.2d 30, 42-43 (2d Dept. 1981). Where one party is vicariously liable for the acts or omissions of another, their available defenses will be the same, and the parties’ interests will be united. See Cedarwood Assoc., LLC v. County of Nassau, 211 A.D.3d 799, 800 (2d Dept. 2022); Chandler v. New York City Tr. Auth., 209 A.D.3d 825, 826 (2d Dept. 2022); Petruzzi v Purow, 180 A.D.3d 1083, 1085 (2d Dept. 2020); Weckbecker v. Skanska USA Civ. Northeast, Inc., 173 A.D.3d 936 (2d Dept. 2019); Connell, 83 A.D.2d at 45. Under the doctrine of respondeat superior, an employer will be vicariously liable for the torts of its employee committed within the scope of employment. See Judith M. v. Sisters of Charity Hosp., 93 N.Y.2d 932, 933 (1999); Fernandez v. Fernandez, 216 A.D.3d 743, 745 (2d Dept. 2023); Montalvo v. Episcopal Health Servs., Inc., 172 A.D.3d 1357, 1359 (2d Dept. 2019); Gadson v. City of New York, 156 A.D.3d 685, 686 (2d Dept. 2017). [13] Slip Op. at *3. [14] Id. [15] Id. [16] Id. [17] Id. [18] Id. [19] Id. (citing, among others, Liverpool v. Arverne Houses, 67 N.Y.2d 878, 879 (1986)). [20] Slip Op. 3-4. [21] Id. at *4.

By: Jonathan H. Freiberger In today’s article we will discuss Yesmin v. Aliobaba, LLC, an Opinion and Order rendered on May 14, 2025, in which the Appellate Division, Second Department, held that “a notice of pendency that was unexpired at the time of the foreclosure sale has no effect on the title acquired by a good faith purchaser for value from a sale conducted pursuant to the judgment of foreclosure and sale.” By way of brief background, the borrower in Yesmin secured a $600,000 loan with a mortgage on a residential property in Queens, New York. Upon the borrower’s default, the lender commenced a mortgage foreclosure action[1] in which a notice of pendency[2] was filed and extended. In 2017, the motion court entered a judgment of foreclosure and sale (“JFS”). The borrower appealed from the JFS but did not seek a stay of its enforcement pursuant to CPLR 5519 during the pendency of the appeal. Within ninety days of the entry of the JFS, a foreclosure sale occurred and the property was sold. Thereafter, the purchaser took title to the property by referee’s deed. Three years later, the Second Department reversed the JFS and denied the lender’s motion to confirm the referee’s report and for a judgment of foreclosure and sale finding, inter alia, that the report was not supported by admissible evidence.[3] Thereafter, the borrower commenced an action pursuant to RPAPL Article 15 against the purchaser to cancel and discharge the referee’s deed. The Borrower argued that “since the [JFS] that authorized the sale had been reversed, the referee’s deed must be canceled” and that the purchaser “took title subject to a valid notice of pendency, which had not expired by the time of the foreclosure sale, and, therefore, [the purchaser]’s title, taken by the referee’s deed, was invalidated by the reversal of the [JFS].” The purchaser cross-moved for summary judgment and for the imposition of an equitable lien on the property arguing, inter alia, that “it was a good faith purchaser for value whose title was protected from the effects of the reversal of the [JFS].” The purchaser appealed from the motion court’s order granting the borrower’s motion. The Court framed the issue to be decided as “whether the referee’s deed was invalidated by the reversal of the [JFS].” The Court noted that it must first examine “the statutory authority vested in the courts to remedy the effects that a judgment of foreclosure and sale, subsequently reversed, vacated, or otherwise set aside, may have had on the rights of the parties with regard to the property at issue.” The Court stated that CPLR 5523 permits an “appellate court reversing or modifying a final judgment [to] order restitution of property or rights lost by the judgment.” It further noted that its order reversing the JFS “left untouched” the motion court’s grant of summary judgment and “did not order restitution of the property or rights lost by the [JFS].” The Court further stated that: [P]ursuant to CPLR 5015(d) where a judgment has been set aside or vacated, the Supreme Court is authorized to direct and enforce restitution in like manner and subject to the same conditions as where a judgment is reversed or modified on appeal. Of significance, the ability of a trial or appellate court to order restitution of property is qualified by the condition that “where the title of a purchaser in good faith and for value would be affected, the court may order the value or the purchase price restored or deposited in court” (id. § 5523). The effect of this provision is that where title to the property has been transferred to a purchaser in good faith and for value, in the event of an appellate reversal, restitution of the property is no longer available and the successful appellant must content itself with restoration of the value or purchase price already paid. [Citation, internal quotation marks and ellipses omitted; hyperlink added.] It was undisputed that the purchaser was a purchaser for value at the foreclosure sale. The borrower, however, argued that the purchaser could not be a “good faith” purchaser because a valid notice of pendency was of record at the time of the foreclosure sale. The Court rejected this contention noting, inter alia, that a notice of pendency serves to “prevent a defendant from thwarting the objective of an action by transferring the property to an unwitting third party” and “to provide constructive notice of a plaintiff’s claim to potential purchasers or incumbrancers, and not for a defendant’s benefit.” (Citations and internal quotation marks omitted.) The Court further recognized that constructive notice is unnecessary at a foreclosure sale because “the purchaser has actual notice of the plaintiff’s claim to a lien on the property and is well aware that the title to the property is transferring through foreclosure.” Further, the Court noted that the entry of a judgment of foreclosure and sale: transforms the lender’s rights from “potential” to “real”; are conclusive unless overturned on appeal; and, are fully enforceable in the absence of a judicially issued stay pending disposition of the appeal.” (Citations and internal quotation marks omitted.) Because no stay was obtained, the lender was free to proceed with a foreclosure sale. Because notices of pendency are frequently in place at the time of a foreclosure sale, the Court found “untenable” the borrower’s contention that “title acquired by referee’s deed, otherwise taken in good faith and for value, is nonetheless negated upon reversal of the judgment because the notice of pendency of the foreclosure action had not yet expired at the time of the foreclosure sale…. If the Court was to find to the contrary, it “would render meaningless the need to obtain a stay and run contrary to the established caselaw requiring a stay pending disposition of the appeal in order to protect title and restrict alienability.” (Citations omitted.) The Court found that the purchaser “established that no stay was issued precluding the foreclosure sale and that it was a purchaser in good faith and for value, whose title is insulated from the effects of the reversal of the [JFS].” Thus: Contrary to [the borrower]'s contention, the referee's deed was not rendered void merely by the reversal of the [JFS]. Her reliance on cases in which the judgment was found void for lack of personal jurisdiction are inapposite, as the judgment here was not found void. Furthermore, we note that [the borrower] has not sought to set aside the foreclosure sale itself. Since no party argues that the referee's deed cannot be set aside without also setting aside the foreclosure sale, that issue is not before us. Since [the purchaser] established that it is “a purchaser in good faith and for value” whose title would be affected by restitution of [the borrower]'s property rights lost by the [JFS], [the borrower] may not seek restitution by canceling the referee's deed and, instead, is limited to monetary relief against the plaintiff to the foreclosure action. [Citations omitted.] Thus, the Court reversed the order appealed from, denied the borrower’s motion for summary judgment, and granted the purchaser’s motion for summary judgment, dismissing the complaint. 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 written numerous articles addressing notices of pendency. To find such articles, please see the BLOG tile on our website and type “notice of pendency” into the “search” box. Simply stated, a notice of pendency (or lis pendens) is a provisional remedy governed by Article 65 of the CPLR. The purpose of a notice of pendency is to put defendants and the world on constructive notice of the full scope of the rights claimed by plaintiff to defendant’s real property. Sjogren v. Land Assoc., LLC, 223 A.D.3d 963, 965 (3rd Dep’t 2024). [3] This BLOG has written numerous articles on referee reports. See, e.g., [here], [here], and [here].

By: Jonathan Freiberger Referees are frequently appointed by New York courts. The fees to which an appointed referee is entitled are generally governed by Rule 8003 of the New York Civil Practice Law and Rules (“CPLR”). CPLR 8003(a) presently provides that: A referee is entitled, for each day spent in the business of the reference, to three hundred fifty dollars unless a different compensation is fixed by the court or by the consent in writing of all parties not in default for failure to appear or plead. Referees can be appointed for a variety of different reasons. As one court noted in describing the types of references to which CPLR 8003(a) applies: This section is applicable to all kinds of references in which an attorney is enlisted by the court to resolve a limited issue upon evidence submitted, including proceedings involving, e.g., the assessed value of property (O'Dwyer v. Robson, 103 AD2d 1036 (4th Dep't, 1984)), the determination of counsel fees (Albano v. Albano, 2003 WL 21911128), an accounting upon the dissolution of a business relationship (Pittoni v. Boland, 278 AD2d 396 (2d Dep't, 2000), as well as the sale of real property in foreclosure actions. NYCTL 1998-2 Trust v. Kahan, 9 Misc.3d 1119(A), 862 N.Y.S.2d 809, at *1 (Sup. Ct. Kings Co. 2005). In mortgage foreclosure actions (a frequent topic of this Blog ([here] [here] [here] [here] [here] [here] [here] [here] [here] [here] [here] [here] [here] [here]), referees are typically appointed to: (1) calculate the amounts due to a lender; and, (2) sell the foreclosed property. In Wells Fargo Bank, N.A. v. Brown, (Sup. Ct. Suffolk Co. October 28, 2019), the court was called upon to decide the quantum of fees to which a referee was entitled. The referee in Wells Fargo (the “Referee”) was appointed to “compute the amount due and owing under the mortgage and execute the sale of the Property.” Wells Fargo, at *2. While acting in his appointed capacity, the Referee was sued numerous times by the defaulted borrower. As a result, the Referee, who was the managing partner of a law firm, was forced to defend himself, and prevailed, in the actions – all of which were determined to be frivolous. In so doing, the Referee incurred significant legal fees and expenses. The court decided the Referee’s motion for an “Award of Referee’s Fees and Reimbursement of Legal Fees” by setting the matter down for an evidentiary hearing, at which the Referee presented “credible” evidence of the amounts claimed by him to be due. Wells Fargo, at 2. The next question for the court was “how much compensation the Referee should be entitled to regarding such fees relating to the mortgage foreclosure and the defense of the aforementioned litigation proceedings.” Wells Fargo, at 2. The court stated that “the issue at bar is to determine what is considered ‘reasonable’” based on CPLR 4321(1), which provides that “[a]n order or a stipulation for a reference shall determine the basis and method of computing the Referee’s fees and provide for their payment. The court may make an appropriate order for the payment of the reasonable expenses of the referee….” Wells Fargo, at *2. The court then set forth the following seven factors to consider when determining the reasonableness of legal fees: “(1) complexity of the matter; (2) time and labor required; (3) attorney’s experience and reputation; (4) amount in controversy; (5) normally charged attorney’s fees for similar work; (6) results of the attorney’s actions; and (7) attorney’s responsibility.” Wells Fargo, at 2 – 3. The court also noted that the “Loadstar-the product of a reasonable hourly rate and the reasonable number of hours required-creates a presumptively reasonable fee.” Wells Fargo, at 2 - 3 (citations and internal quotation marks omitted). According to the “forum rule,” which the court noted it must “adhere” to, a reasonable hourly rate must take into consideration, the “prevailing [hourly rate] in the community.” Wells Fargo, at *3 (citation omitted). Using the Loadstar approach, the court found that the Referee’s claim for legal fees and expenses in the approximate amount of $139,000.00 was fair and reasonable because he had to, inter alia, defend three frivolous lawsuits. After all, “[i]t has long been established that frivolous lawsuits typically warrant the awarding of Attorney’s fees as damages to the innocent party as compensation for having to defend themselves over such a matter.” (Citation omitted.) Notwithstanding the court’s finding of reasonableness of the requested legal fees and the decided frivolity of the litigations brought against the Referee that he was forced to defend, the court found that there “is, however, a statutory impediment to [the requested] award which overrides the general principles enunciated in the case law [analyzed by the court].” Wells Fargo, at *7. The court, in ultimately determining that absent an order authorizing enhanced fees in advance, compensation was limited to the statutory fee, stated: The Plaintiff argues that the Referee cannot receive an enhanced fee because it was not authorized in the Order of Reference, citing to CPLR 8003 and Matter of Charles F., 242 AD2d 297, 660 N.Y.S.2d 594 [2nd Dept.1997]. The Court therein held: "...since the record does not contain any agreement concerning the Referee's compensation which was made prior to the Referee's performance of his duties, the Referee's fee must be limited to the statutory per diem fee of $50 (see, CPLR 8003 [a]; Majewski v Majewski, 221 AD2d 420; Neuman v Syosset Hosp. Anesthesia Group, 112 AD2d 1029)." (Id. at 298). In the case of NYCTL 1998-2 Tr. v. Kahan, 9 Misc. 3d 1119(A), 862 N.Y.S.2d 809 (Sup. Ct. Kings Co. 2005), Justice Demarest described, with great eloquence, the public policy dangers in allowing Referees to remain under compensated. Despite these concerns, however, she ultimately held that CPLR 8003 constrained the Court to find that it was impermissible to award "...payment in excess of $50.00 per day...without written agreement or prior court authorization." (Id.). This rule cannot be circumvented by authorizing enhanced compensation nunc pro tunc. (Id.). As noted in Scher v. Apt, 100 A.D.2d 582, 583, 473 N.Y.S.2d 521 (2nd Dept. 1984) "...the statutory per diem rate should apply under ordinary circumstances unless a different rate has been fixed at some preliminary point in the proceeding." (Id. at 583). Wells Fargo, at *7 – 8. Thus, the court found that “a fair reading of the Order of Reference appointing [the Referee] confirms the lack of authorization for a fee in excess of the $50.00 per diem provided in CPLR 8003.” Wells Fargo, at 8. The court also noted that the statutory fee set forth in CPLR 8003(a) has been increased to $350 since the Referee’s appointment in Wells Fargo, but there is no indication in the statute or legislative history that the higher fee was to be applied retroactively. Wells Fargo, at 8. In calculating the Referee’s compensation, the court stated: The $50.00.00 (sic) compensation can be awarded, not just for the date of sale, but "...for each day spent in the business of the reference..." (CPLR 8003[a]). We agree with the Kahan Court that this applies to each day that [the Referee] devoted himself to perform "some aspect" of his "duties as Referee to sell" (NYCTL 1998-2 Tr. v. Kahan, supra). This Court finds that appearing in Federal and State Court to defend his actions as a Referee clearly come within the scope of duties for which he is eligible to be compensated. Wells Fargo, at *8. Based on this analysis, the court found that the $50.00 per diem rate should be applied to the Referee’s 156 days of work, for a total of $7,800.00. The court also awarded the Referee reimbursement of $2,449.51 in expenses that were “separate and distinct from the fees addressed in CPLR 8003 and can also be awarded.” In noting the great disparity between the fees the Referee sought and the amount he was awarded, the court stated: The Court is mindful that this sum is but a fraction of the amount requested by the Referee and what the Court found to be a reasonable reflection of his considerable legal services in this case. The operative Statute, however, is absolute and so learned Counsel must be consoled with the truth found in the words of the immortal poet Katherine Philips: "So honour is its own reward and end." Wells Fargo, at *8. Thus, while the Referee lost out on a $139,000.00 fee, he did get $7,800 and “honour.” So, to quote Bill Murray’s character from Caddyshack, “at least the Referee has that going for him – which is nice.”

By Jonathan H. Freiberger When a borrower borrows money from a lender the repayment obligation is evidenced by a promissory note signed by the borrower and delivered to the lender. Frequently, a borrower’s repayment obligations are secured by a mortgage on real property. Upon a payment (or other) default, the lender may sue on the note or foreclose the mortgage, but cannot do both simultaneously. [Eds. Note: the issue of a lender’s election of remedies under RPAPL § 1301 has been addressed by this Blog [here], [here], and [here].] When a lender elects to foreclose a mortgage foreclose instead of suing on the note for the sums due, or vice versa, it generally considers the solvency of the borrower and the collectability of a money judgment versus the extent to which the sale of the mortgaged real property at public auction will wholly or partially satisfy the borrower’s financial obligations. The important question of the amount due to the lender is generally answered during the course of the foreclosure litigation. Typically, when the lender moves for a default judgment and/or summary judgment (depending on extent to which the defendants have appeared and/or answered), it will also move for the appointment of a referee to, inter alia, compute the amount due to the lender. While it is possible for the judge overseeing the foreclosure action to determine these issues, they are most frequently resolved by a reference. Thus, RPAPL § 1321(1) provides, in pertinent part that “[i]f the defendant fails to answer within the time allowed or the right of the plaintiff is admitted by the answer, upon motion of the plaintiff, the court shall ascertain and determine the amount due, or direct a referee to compute the amount due to the plaintiff … and to examine and report whether the mortgaged premises can be sold in parcels and, if the whole amount secured by the mortgage has not become due, to report the amount thereafter to become due”. The court, in its order appointing a referee, specifically sets forth the scope of the referee’s appointment. In this regard, CPLR § 4311 provides that “[a]n order of reference shall direct the referee to determine the entire action or specific issues, to report issues, to perform particular acts, or to receive and report evidence only. It may specify or limit the powers of the referee and the time for the filing of his report and may fix a time and place for the hearing.” Accordingly, “[t]he scope of a referee’s duties are defined by the order of reference [and a] Referee’s authority is derived from the order of reference and a Judicial Hearing Officer who attempts to determine matters not referred to him by the order of reference acts beyond and in excess of his jurisdiction.” Zaslavskaya v. Boyanzhu, 144 A.D.3d 675, 676 (2nd Dep’t 2016) (citations, internal quotation marks and internal brackets omitted). In Zaslavskaya, for example, the Court appointed a referee to “hear and determine” a single issue. Zaslavskaya, 144 A.D.3d at 676 (emphasis added). At the hearing, however, the parties stipulated that the referee could determine additional issues and the referee noted this fact on the order of reference. After the hearing, the referee issued a decision and an order and judgment. An appeal was filed by the plaintiff, who was aggrieved by the referee’s determination on the additional issues. The Second Department held that the “Referee erred when he issued an order and judgment” deciding issues outside of the scope of his appointment. The Court also noted several options that were available to the parties to ensure the validity of any rulings by the referee outside of the scope of the initial appointment. Thus, the Court noted that here, “the parties did not obtain an order of reference referring the additional question to the Referee, either by moving in the Supreme Court for a new order of reference or to amend the original order of reference, or by filing a copy of their stipulation with the clerk of the court and obtaining a supplemental order of reference (see CPLR 4317 [a]), or by obtaining an order of reference in some other way.” Zaslavskaya, 144 A.D.3d at 676. In the context of computing the amounts due to a mortgagee in a foreclosure action, the referee is typically appointed to report to the court on the amounts due (as opposed to determine the amounts due) in which case the court is the “ultimate arbiter of the dispute [with] the power to reject the Referee’s report and make new findings (see, CPLR 4403)….” Adelman v. Fremd, 234 A.D.2d 488, 489 (2nd Dep’t 1996). See also, Nationstar Mortgage, LLC v. Durane-Bolivard, 175 A.D.3d 1308, 1310 (2nd Dep’t 2019) (citation omitted). While a hearing before the referee is contemplated, it can be waived or disposed of if the defendant has ample opportunity to object to the referee’s report. In MTGLQ Investors, L.P. v. Thompson, 188 A.D.3d 1483 (3rd Dep’t 2020), the Court, addressing defendant’s claim that supreme court erred in confirming the referee’s report, stated that the: record reflects that a notice of computation provided that, if the parties had objections, they were to submit written objections to the referee. The notice also stated that the determination of whether a hearing was warranted based upon any objections would be left to the discretion of the referee and that if no objections were submitted, the referee's report would be based solely on submissions. Although defendant submitted objections, the objections took the form of legal arguments and, as the referee noted, did not address any errors in the computations. Accordingly, the referee did not err in summarily reaching his computation. MTGLO, 188 A.D.3d 1483 (citations omitted). Courts generally assess the referee’s computation report when the lender moves to confirm the report and for a judgment of foreclosure and sale. The defendant can object to the referee’s computation report in opposition to the motion to confirm as well. A challenge to a referee’s report in a mortgage foreclosure action was resolved in Bank of America, N.A. v. Barton, decided by the Appellate Division, Second Department, on November 3, 2021. The Barton supreme court appointed a referee to compute the sums due to the mortgagee. The Defendant opposed the motion to confirm the resulting report and for a judgment of foreclosure and sale and “cross-moved to reject the referee’s report and for a computation hearing”. Supreme court granted lender’s motion and denied the cross-motion. The Court found that a hearing was unnecessary because: [h]ere, the defendants were served with the referee's proposed report and were afforded the opportunity to serve objections thereto. The defendants were advised that the referee would compute the amount due to the plaintiff on submission if they failed to serve objections. The defendants did not request a hearing at that time or serve objections to the proposed report. As a result, the referee was not required to hold a hearing. Nonetheless, the Court remitted the matter to supreme court “for a new report computing the amount due to the plaintiff in accordance [with the opinion], followed by further proceedings in accordance with CPLR 4403, and the entry of an appropriate amended judgment thereafter,” finding that: the Supreme Court should have denied the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, and granted that branch of the defendants' cross motion which was to reject the referee's report. The referee's computations as to the amount due and owing to the plaintiff were not substantially supported by the record. An affidavit of an assistant vice president of the plaintiff, which was submitted in support of the plaintiff's motion to establish the amount due and owing, constituted inadmissible hearsay and lacked probative value because the business records purportedly relied upon in making the calculations were not produced. (Numerous citations omitted.) Similarly, in Nationstar, the Court noted that the “report of a referee should be confirmed whenever the findings are substantially supported by the record, and the referee has clearly defined the issues and resolved matters of credibility.” Nationstar, 175 A.D.3d at 1310 (citation omitted). As in Barton, the Court in Nationstar remitted the matter to supreme court for a new report because the “plaintiff failed to lay a proper foundation for the business records on which [the referee] relied with respect to the amount due to the plaintiff. Contrary to the plaintiff's contention, under the circumstances presented, the Supreme Court's error in relying on the hearsay evidence was not harmless.” Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jonathan H. Freiberger This Blog frequently writes on numerous issues related to mortgage foreclosure. One aspect of a foreclosure action is the calculation of the amounts due to the lender. Generally, when the foreclosing lender moves for summary judgment and/or a default judgment, it also moves for the appointment of a referee to compute the amounts due to the lender. [Eds. Note: this BLOG has previously written about referees in foreclosure actions. See, e.g., [here], [here] and [here].] Although the judge presiding over the action can calculate the amounts due, the task is typically referred to a referee. See CPLR 4317(b). On March 27, 2024, the Appellate Division, Second Department, decided Bank of America v. Danzig, a case involving the calculation of the amounts due to the lender under a mortgage. In 2009, the lender in Danzig commenced an action to foreclose a mortgage. Thereafter, an order of reference and a judgment of foreclosure and sale were entered on default. The property was sold at auction, but the purchaser failed to close. Apparently, the borrower saw the failed sale as an opportunity to move to, inter alia, vacate the judgment of foreclosure and sale, set aside the sale and to vacate his default in appearing in the action. The borrower’s motion was denied “except that branch which was to vacate the judgment of foreclosure and sale and set aside the sale ‘based upon a “mistake” with respect to the judgment amount,’ which the court declined to rule on, citing insufficiencies in the plaintiff’s papers, which failed to address the particular amounts challenged by the defendant.” The motion court directed a framed-issue hearing to address the accuracy of the referee’s calculations. If it was determined that the referee’s calculations were inaccurate, “then the court granted the subject branch of the [borrower]’s motion in the interest of justice to the limited extent that the sale shall be deemed rescinded, the judgment of foreclosure and sale shall be deemed vacated, and the [lender] shall submit, on notice, a proposed new judgment of foreclosure and sale including a new amount due to the [lender] as ‘calculated by the [h]earing [c]ourt.’” (Some brackets omitted and some added.) The lender and the borrower appeared before the hearing court and reached a settlement in which both parties agreed on the proper amount due after acknowledging that the original referee’s calculation was erroneous. Despite placing the proposed settlement terms on the record, the parties failed to finalize the settlement. Accordingly, the lender moved to amend the judgment of foreclosure and sale to include as the amount due, the amount the parties stipulated to as part of the failed settlement. The motion court granted the motion and accepted the amount due “as stipulated”. On the borrower’s appeal, the Second Department reversed finding that foreclosure actions are equitable in nature, and it would be inequitable to permit the amount due to be derived from the failed settlement. Thus, the Court stated: A foreclosure action is equitable in nature and triggers the equitable powers of the court (Bank of N.Y. Mellon v George, 186 AD3d 661, 663 [2nd Dep’t 2020]; see Notey v Darien Constr. Corp., 41 NY2d 1055, 1056 [1977]; U.S. Bank N.A. v Losner, 145 AD3d 935, 937 [2nd Dep’t 2016]. “‘Once equity is invoked, the court’s power is as broad as equity and justice require’” (Bank of N.Y. Mellon v George, 186 AD3d at 663, quoting U.S. Bank N.A. v Losner, 145 AD3d at 938 [internal quotation marks omitted]). Here, as noted above, the hearing court was charged with calculating the amount due and owing to the [lender] and, in the event that the hearing court found that the referee’s calculation of the amount due to the [lender] was inaccurate and that the [borrower] had not received certain credits to which he was entitled, amending the judgment of foreclosure and sale accordingly. A review of the hearing transcript makes clear that the parties’ stipulation as to the amount due to the [lender] was made in conjunction with the parties’ global settlement discussions. As the settlement was never finalized, as a matter of equity, it remained the obligation of the hearing court to calculate the amount due to the [lender] and to amend the judgment of foreclosure and sale, nunc pro tunc, to reflect that amount. [Hyperlinks added.] 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.