By:  Jeffrey M. Haber In many of the fraud cases that we examine, the plaintiff alleges that the defendant made an affirmative misrepresentation of fact upon which he/she relied. As we have often noted, fraud does not, however, always concern an affirmative statement. Sometimes a person can perpetrate a fraud through the omission of a material fact.  Where fraud by omission is claimed, the plaintiff must allege that the defendant had a duty to disclose the omitted fact. A duty to disclose arises when (1) the defendant speaks on the subject, in which case he/she must speak truthfully and completely about the matter; 1 (2) there is a fiduciary relationship between the plaintiff and defendant; 2 or (3) the defendant possesses “special facts” about the matter not known by the plaintiff. 3 A fraud by omission claim is not sustainable where information allegedly withheld is ascertainable through publicly available sources. 4  Nor is an omission case sustainable where the omitted information could have been discovered by the plaintiff through the exercise of ordinary intelligence. 5 Both of the foregoing circumstances will negate application of the special facts doctrine. Moreover, if the two-prong test is satisfied, where the party with superior knowledge of essential facts withholds or conceals such facts, the transaction at issue must be “inherently unfair” without such disclosure for the omission to be actionable. 6 Finally, as in a fraud by misrepresentation case, the plaintiff must satisfy the other elements of the claim – namely, intent to defraud, justifiable reliance and injury. And the plaintiff must do so with particularity. 7 e.g.,="e.g.," here,  here=">here" and="and" >here.=">here."> The foregoing principles were examined by the Appellate Division, First Department in Supply Co., LLC v. Hardy Way, LLC , 2024 N.Y. Slip Op. 00058 (1st Dept. Jan. 9, 2024) ( here ). Supply arose from a license agreement between Supply Co., LLC (“Supply”) and Hardy Way, LLC (“Hardy”).  The parties entered into the agreement in November 2014, pursuant to which Hardy permitted Supply to manufacture, warehouse, distribute, bill and collect payment for Ed Hardy brand products (“License Agreement”). Under the License Agreement, Supply was required to pay Hardy royalty fees amounting to 20% of its “Gross Wholesale Sales.” Supply was entitled to take certain deductions relating to markups, chargebacks, or returns of Ed Hardy products when calculating its Gross Wholesale Sales. Supply was also entitled to apply a maximum deduction of 18% of its Gross Wholesale Sales for any annual period, and Supply was required to make a minimum royalty payment of $1,500,000.00. Kevin Yap (“Yap”), Supply’s principal, guaranteed Supply’s performance under the License Agreement (the “Guarantee”). In the Guarantee, Yap agreed to pay all sums due to Hardy in the event of Supply’s default. Under the License Agreement, Supply was required to “document and accept orders” for Ed Hardy products from the list of “approved” retailers set forth in a schedule attached to the agreement. Nonparty Rainbow Apparel Distribution Center Corp. (“Rainbow”) was one of the pre-approved retailers on the Schedule. Yap testified that Iconix—the brand management company that created Hardy to manage the Ed Hardy trademarks—arranged for the sale of Ed Hardy products to Rainbow at least as early as June or July 2014. Rainbow agreed to purchase, in total, over $4.5 million worth of Ed Hardy products. Iconix—not Supply—placed the orders. Under the License Agreement, the Iconix parties were “solely responsible” for placing sales of the Ed Hardy products. From January to March 2015, Supply fulfilled Rainbow’s orders. Supply also entered into a markup agreement (“Markup Agreement”) with Rainbow in November 2014 in connection with the sale of Ed Hardy products to Rainbow. Neither Hardy nor Iconix were parties to the Markup Agreement. Under the Markup Agreement, Supply guaranteed Rainbow a minimum maintained markup percentage of 50% on sales of Ed Hardy merchandise. Supply was also required to reimburse Rainbow for Rainbow’s losses – Rainbow had the right to markdown any Ed Hardy products it received from Supply without Supply’s approval, and Supply was obligated to reimburse Rainbow “the difference of what would have needed in order to achieve the Minimum Maintained Markup percentage target.” Subsequently, Rainbow submitted a $3,300,000.00 markup reimbursement request to Supply. After Hardy and Iconix declined to reimburse Supply for Rainbow’s reimbursement request, Supply refused to pay Hardy the $1.5 million minimum royalty amount under the License Agreement. Thereafter, Supply brought suit. Supply asserted causes of action for breach of contract, fraud in the inducement, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. The motion court dismissed all of Supply’s causes of action except for its fraud in the inducement claim. With regard to that claim, Supply alleged that Hardy and Iconix fraudulently induced it to enter into the License Agreement by omitting material nonpublic information regarding the Ed Hardy trademarks’ lack of value. Hardy and Iconix answered the complaint and asserted a counterclaim for breach of the License Agreement based on Supply’s failure to tender the $1.5 million minimum royalty fee. Hardy commenced another action against Yap for breach of the Guarantee. Yap answered the complaint and asserted counterclaims for declaratory judgment based on Hardy and Iconix’s alleged “deceptive misrepresentations and/or omissions,” which were made “in order to induce Supply Co. and Yap to ... enter into the License Agreement.” Following discovery, the parties in each of the actions moved for summary judgment. The motion court granted defendants’ motions, dismissed Plaintiff’s complaint, and awarded Hardy attorneys’ fees. The motion court also granted the motion with regard to Hardy’s counterclaim for breach of contract and granted in part Hardy’s motion for attorneys' fees. On appeal, the Appellate Division, First Department unanimously affirmed. “The issue on appeal,” said the Court, was “narrow — namely, application of the special facts doctrine in connection with plaintiff’s claim that it was fraudulently induced to enter into a license agreement with Hardy.” 8 The Court held that Plaintiff met the “the threshold two-prong test for the special facts doctrine.” 9 In that regard, the Court found that defendants failed to disclose ( i.e. , omitted) “the criminal behavior of nonparties Neil Cole (the former chief executive officer of defendant Iconix Brand Group, Inc.) and Seth Horowitz (Iconix’s former chief operating and financial officer) and that such information was peculiarly within defendants’ knowledge.” 10 “ laintiff could not have discovered this information through the exercise of ordinary diligence,” said the Court. 11 “However,” concluded the Court, “plaintiff did not show that this was an essential fact, or that defendants’ superior knowledge of this fact rendered the license agreement inherently unfair.” 12 “In addition,” held the Court, “plaintiff did not establish all the elements of fraudulent inducement of contract.” 13 In this regard, the Court was referring to the causation element.  “To establish causation, plaintiff must show both that defendant’s misrepresentation induced plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentations directly caused the loss about which plaintiff complains (loss causation).” 14 Transaction causation is often the easier of the two prongs to satisfy, while loss causation is typically more difficult. As noted by the First Department in Laub : “ egardless of whether plaintiff could establish that he was induced by the alleged misrepresentations to follow recommendations on purchases of equities, plaintiff’s claims must fail because he has not alleged or produced any evidence that those misrepresentations directly and proximately caused his investment losses.” 15 In Supply , the Court found that Yap’s deposition testimony showed “that plaintiff was damaged because it entered into the license agreement with Hardy and at a minimum maintained a markup agreement with nonparty Rainbow Apparel Distribution Center Corp,” and not because of an omitted fact. 16 The Court also found that Yap’s “testimony further showed … that plaintiff entered into those contracts because Yap (1) placed orders with factories before he had agreements in place and (2) allegedly relied on an oral guarantee from Iconix that he would have zero losses.” 17 Takeaway Where a party alleges fraud (or fraudulent inducement) based on an omission of information, rather than an affirmative misrepresentation, a special relationship ( e.g. , a fiduciary relationship) is required to state a claim. However, in the absence of a special relationship, a party may still allege fraud based on an omission where there are special facts such that one party had superior knowledge of certain information, not readily available to the other party. In Supply , there was no fiduciary relationship between the parties, as the parties dealt with each other at arm’s length in a commercial transaction. The special facts doctrine was, however, unavailable to Supply because it could not show that the transactions at issue were inherently unfair, or that the omitted facts were essential to the transactions. With no duty to disclose, Supply could not withstand the challenge to its fraudulent inducement claim. Supply also demonstrates the importance of satisfying all the elements of a fraudulent inducement claim. As noted, the causation element proved to be the foil. Supply was unable to prove that the omitted facts caused its loss. Footnotes Bank of Am., N.A. v. Bear Stearns Asset Mgmt. , 969 F. Supp. 2d 339, 351 (S.D.N.Y. 2013). Balanced Return Fund Ltd. v. Royal Bank of Canada , 138 A.D.3d 542, 542 (1st Dept. 2016). Pramer S.C.A. v. Abaplus Int’l Corp. , 76 A.D.3d 89, 99 (1st Dept. 2010). “The ‘special facts’ doctrine holds that ‘absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.’” Greenman-Pedersen, Inc. v. Berryman & Henigar, Inc. , 130 A.D.3d 514, 516 (1st Dept. 2015), lv. denied , 29 N.Y.3d 913 (2017) (quoting, Pramer , 76 A.D.3d at 99). Northern Group Inc. v. Merrill Lynch, Pierce, Fenner & Smith Inc. , 135 A.D.3d 414 (1st Dept. 2016). Black v. Chittenden , 69 N.Y.2d 665, 669 (1986); Schumaker v. Mather , 133 N.Y. 590, 596 (1892). Jana L. v. West 129th St. Realty Corp. , 22 A.D.3d 274, 278 (1st Dept. 2005). CPLR § 3016(b). Slip Op. at *1. Id. Id. Id. (citing Jana L. , 22 A.D.3d at 278); and Solomon Capital, LLC v. Lion Biotechnologies, Inc. , 171 A.D.3d 467, 469 (1st Dept. 2019)). Id. (citing Jana L. , 22 A.D.3d at 277). Id. (citing Frank Crystal & Co., Inc. v. Dillmann , 84 A.D.3d 704, 704 (1st Dept. 2011)). Laub v. Faessel , 297 A.D.2d 28, 31 (1st Dept. 2002). Id. Slip Op. at *1. Id. 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.

By: Jeffrey M. Haber It is often said that a fiduciary owes the duties of care, loyalty and candor to the person with whom the fiduciary has a relationship. The duty of care requires the fiduciary to act as a reasonable and prudent person would act in a similar circumstance. The duty of loyalty requires the fiduciary to act in good faith and with the best interests of the person or entity with whom the fiduciary relationship exists. This means that the fiduciary must put the interests of the person or entity above his/her own personal interests. As one court observed: The reasons for the loyalty rule are evident. A man cannot serve two masters. He cannot fairly act for his interest and the interest of others in the same transaction. Consciously or unconsciously, he will favor one side or the other, and where placed in this position of temptation, there is always the danger that he will yield to the call of self-interest. The duty of candor requires the fiduciary to act with honesty. This means that the fiduciary must fully disclose information that may harm the person or entity that is owed the duty. In other words, the fiduciary cannot perpetrate a fraud on the person or entity with whom the fiduciary has a fiduciary relationship. here.=">here."> The duty of candor was at issue in Chan v. Havemeyer Holdings LLC , 2024 N.Y. Slip Op. 00020 (1st Dept. Jan. 4, 2024) ( here ). Chan involved the investment by plaintiffs in a real estate investment limited liability company. Plaintiffs are investors and minority members of Havemeyer Holdings LLC (“Havemeyer”), a real estate investment vehicle formed in 2016 for the purpose of developing a property located in Williamsburg, Brooklyn. Each of the plaintiffs – Dai Yu, Kai Cho Vincent Chan, and Allen Fu (collectively, the “Individual Plaintiffs”) – invested in the project at various times between 2016 and 2018, and Yuca Capital Partners LP (an entity controlled by Yu) in 2020. Plaintiffs were passive investors in the project, which was run by TC Havemeyer Manager LLC (“TC Havemeyer”) and Tavros Holdings LLC (“Tavros”) of which Nicholas Silvers (“Silvers”) was a principal. On February 27, 2020, Defendants sent an email solicitation to Plaintiffs offering an opportunity for them, as members of Havemeyer, to make a further investment in the project. Among other things, Defendants stated that refinancing was in process, by which Havemeyer was de-leveraging and de-risking its investment in the project, leading to a projected “sixty percent plus” rate of return (with a worst-case return of 47%) within twelve to fifteen months. On March 2, 2020, Plaintiffs spoke to Silvers about the opportunity set forth in the email. In response to their question as to the status of the refinancing, Silvers stated it was “already done”. Based on the content of the solicitation, the representation about the status of the refinancing, and Defendants’ answers to Plaintiffs’ questions, and after consulting with industry experts and real estate investors about the investment, Plaintiffs invested a total of $3.1 million in Havemeyer.   Within two months after their checks had cleared, Plaintiffs allegedly learned that the refinancing was not “done”. As a result, Plaintiffs demanded rescission of the transactions and the return of their money. Defendants refused to satisfy the demand. Plaintiffs commenced the action, asserting that their March 2020 investments were induced by a materially false statement about the refinancing. The complaint at issue contained seven counts: Count 1 – rescission based on fraud against all defendants; Count 2 – fraud against all defendants; Counts 3 and 4 – violations of the federal securities laws, which were dismissed by agreement; Count 5 – breach of fiduciary duty against TC Havemeyer); Count 6 – negligent misrepresentation by TC Havemeyer; and Count 7 – unjust enrichment against all Defendants. Defendants moved to dismiss. Relying on a no-reliance disclaimer in the subscription agreement, which Plaintiffs signed to make their investment, the motion court dismissed the fraud, rescission and negligent misrepresentation claims, while upholding plaintiffs’ claim for breach of fiduciary duty. The Appellate Division, First Department modified the motion court’s order to deny Defendants’ motion insofar as the Individual Plaintiffs are concerned, and to strike Plaintiffs’ demands for lost profits and punitive damages, and otherwise affirmed the motion court’s order. As an initial matter, the Court held that TC Havemeyer owed plaintiffs the fiduciary duty of candor and breached that duty by failing to provide “full disclosure about the refinancing opportunity.” In this regard, the Court explained that “TC Havemeyer’s interest in enabling Havemeyer to quickly and easily obtain funds from existing investors allegedly conflicted with the Individual Plaintiffs’ efforts to obtain complete and accurate information about the refinancing opportunity.” Notably, the Court held that the no-reliance clause (which can bar a claim for fraud) in the subscription agreement did not bar the Individual Plaintiffs’ breach of fiduciary duty claim. Under New York law, a disclaimer clause in a contract cannot defeat a claim of fraud if the defendant owes the plaintiff a fiduciary duty. Under such circumstances, the contract itself –including the specific disclaimer clause – would be voidable because “a fiduciary cannot by contract relieve itself of the fiduciary obligation of full disclosure by withholding the very information the beneficiary needs in order to make a reasoned judgment whether to agree to the proposed contract.” Thus, held the Court, the motion court “properly declined to dismiss the fifth cause of action with respect to the Individual Plaintiffs, who are the only plaintiffs alleging breach of fiduciary duty against TC Havemeyer.” “By contrast,” noted the Court, “TC Havemeyer did not owe a fiduciary duty to plaintiff Yuca Capital Partners LP, which, unlike the Individual Plaintiffs, was not a preexisting investor.” Without being a pre-existing investor, Yuca entered into the transaction at arm’s length. As such, the no-reliance clause applied to bar Yuca’s fraud claim: Because the plain language of section 4 says Yuca is relying solely on the Offering Materials, as a matter of law, Yuca could not have relied on defendant Nicholas Silvers’ statement that the refinancing was “already done”. Moreover, the Court held that there were hints of falsity ( e.g. , the conflicting statements about the refinancing) that required Yuca to “have exercised a heightened degree of diligence.” Accordingly, the Court held that “Yuca’s claims for fraud and rescission based upon fraud … fail.” The Court also rejected Defendants’ arguments that Plaintiffs failed to plead the elements of their fraud claims. “With respect to justifiable reliance,” said the Court, “the beneficiaries of a fiduciary relationship, such as the Individual Plaintiffs, are entitled to rely on their fiduciary’s ‘representations and complete, undivided loyalty.’” Thus, concluded the Court, Plaintiffs were “‘not required to perform independent inquiries … to reasonably rely on their fiduciary’s representations.’” “As to whether there was a false representation of existing fact,” the Court concluded that “the statement that ‘the refinancing was “already done”’ was a factual statement about the past, not an expression of hope about the future.” Under New York law, to be actionable, the “representation relied upon must relate to a past or existing fact,” as opposed to a representation of what is “hoped or expected to occur in the future.” The Court also held that “Plaintiffs … sufficiently allege scienter,” stating that “intent to commit fraud is a question of fact which cannot be resolved on a motion to dismiss.” Finally, the Court held that Plaintiffs were not required to allege their demand for damages with particularity. Unlike cases where the complaint did not contain any facts from which it could be inferred that the plaintiff incurred damages or where the claim of damages was conclusory and without any factual support, the Court held that Plaintiffs’ demand for the return of their investment sufficed to satisfy the damages element of the claim. Takeaway Chan is notable for three reasons. First, it confirms that fiduciaries owe a duty of candor to those with whom they have a fiduciary relationship. Second, it makes clear that a defendant cannot use a no-reliance or disclaimer clause to bar a claim of fraud ( i.e. , a breach of the duty of candor claim) in the fiduciary duty context. Finally, it underscores the rule that a plaintiff pleading fraud does not have to plead damages with particularity . ______________________________ 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. Wachovia Bank & Trust Co. v. Johnston , 269 N.C. 701, 715, 153 S.E.2d 449, 459-60 (1967). See also Birnbaum v. Birnbaum , 73 N.Y.2d 461, 466 (1989) (“it is elemental that a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect. This is a sensitive and ‘inflexible’ rule of fidelity, barring not only blatant self-dealing, but also requiring avoidance of situations in which a fiduciary’s personal interest possibly conflicts with the interest of those owed a fiduciary duty.”) (citations omitted). The facts discussed herein come from the motion court’s decision, the First Department’s decision and the parties’ briefing on appeal. Slip Op. at *1 (citing Birnbaum , 73 N.Y.2d at 466; Shatz v. Chertok , 180 A.D.3d 609, 610-611 (1st Dept. 2020)). Id. Id. (citing Dube-Forman v. D’Agostino , 61 A.D.3d 1255, 1257 (3d Dept. 2009); Salm v. Feldstein , 20 A.D.3d 469, 470 (2d Dept. 2005)). Dube-Forman , 61 A.D.3d at 1257; Salm , 20 A.D.3d at 470; see also Dubbs v. Stribling & Assoc. , 96 N.Y.2d 337, 341 (2001). Blue Chip Emerald v. Allied Partners , 299 A.D.2d 278, 279-280 (1st Dept. 2002). Slip Op. at *1. Id. Id. (citing D’Artagnan, LLC v. Sprinklr Inc. , 192 A.D.3d 475, 476-477 (1st Dept. 2021)). Id. (citing Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 279 (2011) (“When the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy.”) (internal brackets and quotation marks omitted)). Id. at *2. Id. (quoting Frame v. Maynard , 83 A.D.3d 599, 602 (1st Dept. 2011) (internal quotation marks omitted)). Id. (quoting Frame , at 602 (internal quotation marks omitted)). Id. Id. (quoting Zanani v. Savad , 217 A.D.2d 696, 697 (2d Dept. 1995)). Id. (citing ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 131 A.D.3d 427, 428 (1st Dept. 2015)). Id. Id. (citations omitted).

By:  Jeffrey M. Haber Invoice fraud is a type of accounting fraud. Invoice fraud comes in many forms. For example, bill padding is a type of invoice fraud. In this type of fraud, the invoice is legitimate, but the payment request includes charges that are erroneous ( i.e. , they are inflated). Another type of invoice fraud involves duplicate charges. In this form of invoice fraud, the company will send the same invoice twice or list the same materials on more than one invoice. Still another type of invoice fraud involves the issuance of fake invoices. In this form of fraud, the company will send an invoice for non-existent orders. In today’s Enforcement News , we examine an enforcement action and settlement involving the issuance of fake invoices. On December 22, 2023, the Securities and Exchange Commission (“SEC”) announced ( here ) that it had settled charges against Brooge Energy Limited, a publicly traded energy company located in the United Arab Emirates, the company’s former CEO, Nicolaas Lammert Paardenkooper, and its former Chief Strategy Officer and Interim CEO, Lina Saheb. According to the SEC, before and after going public through a special purpose acquisition transaction, Brooge, whose securities trade on NASDAQ, misstated between 30 and 80 percent of its revenues from 2018 through early 2021 in SEC filings related to the offer and sale of up to $500 million of securities and the issuance (by an affiliate) of $200 million of 5-year senior secured bonds in the Nordic bond market (the “Nordic Bonds”). The alleged fraud was perpetrated through the creation of two sets of invoices. According to the SEC, the first set consisted of actual invoices to customers who stored oil at Brooge’s facilities in Fujairah. Customers paid these invoices in the ordinary course of business. A second set of invoices, which reflected significantly higher rates and volumes were ostensibly sent to customers who never used Brooge’s facilities. These invoices, said the SEC, were “paid” through a complicated series of unsupported transactions involving an affiliated or related party. The SEC alleged that Paardenkooper and Saheb (together “Senior Management”) knew, or were reckless in not knowing, of the accounting fraud. In addition to the foregoing, the SEC alleged that certain company personnel reporting to Senior Management provided Brooge’s outside auditors with only the second set of invoices along with falsified ledger entries and other documents designed to support the inflated rates and volumes on the false second set of invoices. As a result, claimed the SEC, Senior Management misled the company’s auditors regarding Brooge’s revenues.  Further, said the SEC, in order to avoid an event of default on the Nordic Bonds, an affiliate of the company created a third set of unsupported invoices, and certain persons at the company directed the creation of additional false documents during the pendency of the SEC’s investigation. Finally, the SEC alleged that Brooge personnel tried to conceal the accounting fraud from the Commission.  In April 2023, the company announced a restatement of its audited financial statements from 2018 through 2020. The SEC charged the company with violations of the antifraud, proxy statement, reporting, and books and records provisions of the federal securities laws. In settlement of the charges, the company agreed to pay a $5 million penalty. Paardenkooper and Saheb also agreed to settle the charges, to each pay $100,000 civil penalties, and to permanent officer and director bars. The defendants agreed to settle the charges without admitting or denying the SEC’s findings, except as to the SEC’s jurisdiction over them and the subject matter of the proceeding. On news of the charges and settlement, the price of Brooge’s stock fell $0.37 per share, or 11.08%, to close at $2.97 per share on December 26, 2023. A copy of the SEC’s Cease-and-Desist Order can be found here .  Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger This BLOG has written numerous times on issues related to contract formation.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  Briefly stated, “ o create a binding contract, there must be a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with all material terms.”  Total Telcom Group Corp. v. Kendal on Hudson , 157 A.D.3d 746, 747 (2 nd Dep’t 2018) (Citations and internal quotation marks omitted).  The Court of Appeals, in Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher , 52 N.Y.2d 105 (1981), explained the importance of “definiteness” in a contract’s terms: t also follows that, before the power of law can be invoked to enforce a promise, it must be sufficiently certain and specific so that what was promised can be ascertained. Otherwise, a court, in intervening, would be imposing its own conception of what the parties should or might have undertaken, rather than confining itself to the implementation of a bargain to which they have mutually committed themselves. Thus, definiteness as to material matters is of the very essence in contract law. Impenetrable vagueness and uncertainty will not do. Martin Delicatessen , 52 N.Y.2d at 109 (citations omitted).  See also Vizel v. Vitale , 184 A.D.3d 602, 604 (2 nd Dep’t 2020).  The definiteness doctrine, however, should not be applied “rigidly” because “ ontracting parties are often imprecise in their use of language, which is, after all, fluid and often susceptible to different and equally plausible interpretations.”  166 Mamaroneck Avenue Corp. v. 151 East Post Road Corp. , 78 N.Y.2d 88, 91 (1991).  Because a “strict application of the definiteness doctrine could actually defeat the underlying expectations of the contracting parties<,> where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain.” Id. (citations omitted).  The Court of Appeals has “identified two ways in which the requirement of definiteness could be satisfied in the absence of an explicit contract term: (1) an agreement could contain a methodology for determining the missing term within the four corners of the lease, for a term so arrived at would have been the end product of agreement between the parties themselves; or (2) an agreement could invite recourse to an objective extrinsic event, condition or standard on which the amount was made to depend.  Id. , at 91 -92 ( quoting Martin Delicatessen, internal quotation marks, ellipses and brackets omitted). Moreover, New York General Obligations Law 5-703(2) requires that certain contracts relating to real property be in writing.  As we have previously noted in this BLOG : The statute of frauds provides that “ contract for the . . . the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.”  New York General Obligations Law 5-703(2) “To satisfy the statue of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.”  Nesbitt v. Penalver , 40 A.D.3d 596, 598 (2d Dept. 2007) (citation and quotation omitted). The memorandum may be informal – it can be a series of emails – and therefore in compliance with the statute of frauds “where it identifies the parties, describes the subject property, recites all essential terms of a complete agreement.” O’Brien v. West , 199 A.D.2d 369, 370 (2d Dept. 1993). “If the contract does not contain all the necessary terms, the law presumes that the parties have not reached an agreement as to such terms and, therefore the agreement is fatally flawed and unenforceable.” 3-32 Warren’s Weed New York Property § 32.10.  In that instance, or if “it is necessary to resort to parol evidence to ascertain what was agreed to, the remedy of specific performance is not available.” Nesbitt , 40 A.D.3d at 598 (citation and internal quotation marks omitted). These general principles are addressed in Duffy v. Leteri , decided by the Appellate Division, Second Department, on December 20, 2023.  Duffy was an action in which the plaintiff/seller sought a declaration from the court that its contract for the sale of real property was unenforceable.  The relevant facts are summarized herein.    The parties in Duffy entered into two contracts for the sale of real property.  According to the motion court’s decision: The first contract involved land on tax map … (Approximately 4.20 acres) which comprises the entirety of lot 7 of the property. The contract states that it was conveying 4.20 acres of vacant land. The second contract indicates the tax map … with a handwritten additions of "p/o 006.000". In parenthesis, "Approximately 4.20 acres" has been crossed out and changed to "Approximately 4.71 acres". The addition of "p/o 006.000" refers to "part of Lot 6," which lot is 7.20 acres. The second contract still stated that the property being conveyed consisted of 4.20 acre . The defendant, in his statement of fact, states that there was only one contract. The defendant claims that there was a mistake in the contract that refers to 4.20 acre . Furthermore, he remembers distinctly which .50 acre P/O lot #6 was included in the contract.  The plaintiff, seller, commenced an action seeking, inter alia , a declaration that the contracts are unenforceable.  The defendant, purchaser, counterclaimed for, inter alia , specific performance.  The plaintiff moved for summary judgment arguing, inter alia , that the subject contract is unenforceable because it contains indefinite terms.  The defendant cross-moved for summary judgment enforcing the contract.  [Eds. Note: this BLOG has addressed specific performance of real estate contracts < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  The motion court granted the motion of plaintiff/seller and denied the cross-motion of defendant/purchaser, finding that the property description was not certain. The Second Department affirmed and, in so doing, stated: Where a contract's material terms are not reasonably definite, the contract is unenforceable. To be enforceable, a contract for the sale of real property must be evidenced by a writing sufficient to satisfy the statute of frauds. The statute of frauds provides that " contract for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing." (General Obligations Law § 5-703<2> ). To satisfy the statute of frauds, a memorandum, subscribed by the party to be charged, must designate the parties, identify and describe the subject matter, and state all the essential terms of a complete agreement. The writing must set forth the entire contract with reasonable certainty so that the substance thereof appears from the writing alone. Parol evidence—evidence outside the four corners of the document—is admissible only if a court finds an ambiguity in the contract. Whether or not a writing is ambiguous is a question of law to be resolved by the courts. The description of real property in a contract of sale need not be as detailed and exact as the description in a deed. Only reasonable certainty, not absolute certainty, as to the terms of the agreement is required. Where the property is described with such definiteness and exactness as will permit it to be identified with reasonable certainty, parol evidence would then be admissible to enable the court to identify precisely the property to which the contract relates. Here, the plaintiff demonstrated her entitlement to judgment as a matter of law by submitting evidence establishing that the contract lacked a material term. The description of the property was not sufficiently definite and exact to permit the property to be identified with reasonable certainty in satisfaction of the statute of frauds. In opposition, the defendant failed to raise a triable issue of fact. Contrary to the defendant's contentions, the precise location of the property cannot be ascertained by extrinsic evidence. For the same reasons, the defendant failed to meet his prima facie burden on that branch of his cross-motion which was for summary judgment on his counterclaim for specific performance of the contract. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In past articles, we have examined a motion under CPLR § 3213 ( see , e.g. , here , here , here , here , and here ). CPLR § 3213 is a procedural mechanism that allows a party to make a motion for summary judgment before filing a complaint in actions based upon “an instrument for the payment of money only or a judgment.” The purpose of the statute “is to provide an accelerated procedure where liability for a certain sum is clearly established by the instrument itself.” 1 CPLR § 3213 is a device that “for the limited matters within its embrace, melded pleading and motion practice into one step, allowing a summary judgment motion to be made before issue was joined.” 2 The provision is “intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious … a formal complaint is superfluous and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” 3 “The prototypical example of an instrument within the ambit of is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” 4 Generally, CPLR § 3213 is used to enforce “some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness,” so that “a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.” 5 A promissory note may qualify as such an instrument, 6 so long as the plaintiff submits proof of the existence of the note and of the defendant’s failure to make payment. 7 Such proof must be in admissible form sufficient to establish the absence of any material, triable issues of fact. 8 A settlement agreement may also qualify as instrument for the payment of money, when the agreement contains an unconditional promise to pay a sum certain, signed by one the parties and due on demand or at a definite time. In I nsitro, Inc. v. Cellaria, Inc. , 2022 N.Y. Slip Op. 30902(U) (Sup. Ct., N.Y. County Mar. 14, 2022) ( here ), a case that we examined here , the court held that a settlement agreement constituted an instrument for the payment of money only because the agreement contained an unconditional commitment by the defendant to make certain installment payments to the plaintiff over a certain period of time.  The cases show, however, that “ here the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.” 9 A plaintiff’s prima facie proof “cannot be drawn from sources outside the agreement itself.” 10 Once the movant meets this burden, it becomes incumbent upon the party opposing the motion to come forward with proof in admissible form to raise a triable issue of fact. 11 On December 14, 2023, the Supreme Court, New York County decided Brooke v. Streit , 2023 N.Y. Slip Op. 51426(U) (Lebovits, J.) ( here ), a case involving a motion for summary judgment in lieu of complaint and a settlement agreement. As discussed below, the motion court held that the agreement fell within the scope of CPLR § 3213. Plaintiff moved for summary judgment in lieu of complaint to enforce a settlement agreement he entered into with defendants Michael Streit and Streit’s single-member LLC, Home Enterprises Group LLC (collectively, “Defendant”). In 2019, the parties began work on a home-development project in the Town of Southampton, New York. Plaintiff handled the financing, providing partial funding and securing the remainder from a bank. Defendant oversaw the development aspects of the project, including hiring a builder and managing the day-to-day home design and construction. The Southampton project exceeded the parties’ initial cost predictions. Priceless Custom Homes, Inc. (“Priceless”), the construction company hired for the project, provided the remaining funds needed for its completion. After further delays and unforeseen costs, Plaintiff terminated Priceless’ services and sued Priceless for fraud and unjust enrichment. 12 As that action progressed, the parties entered into a settlement agreement to resolve who would pay for the legal fees and expenses incurred from the prolonged litigation. Four amended agreements were signed by the parties, with the most recent version executed on January 28, 2021. Defendant claimed that he entered into the agreements under economic duress. Defendant argued that Plaintiff threatened to sue him and exclude him from all future projects, leveraging his financial vulnerability stemming from an 18-month jail term for grand larceny. Plaintiff maintained that Defendant voluntarily agreed to reimburse him for the legal fees and expenses resulting from the Priceless Lawsuit.  Plaintiff moved to enforce the terms of the settlement agreement under CPLR 3213.  Defendant opposed the motion, arguing that the settlement agreement was not an instrument for the payment of money only, because it discussed other projects that he worked on with Plaintiff. The motion court disagreed and granted the motion. The motion court held that the discussion of auxiliary projects between the parties in the settlement agreement did not establish that additional performance from those projects was required for payment. 13 The motion court explained that the obligations imposed by the settlement agreement involved only the payment of money, without any non-monetary performance. 14 As such, concluded the motion court, plaintiff’s claim fell within the scope of CPLR 3213. 15 Since Defendant was in default of the terms of the settlement agreement, and did not contest that he had not cured his defaults, the motion court held that Plaintiff was entitled to the principal amount, pre-judgment interest, and attorney fees, as stipulated to in the settlement agreement. 16 Having determined that Plaintiff’s claim came within the scope of CLR 3213, the motion court addressed Defendant’s asserted defenses. First, the motion court rejected Defendant’s argument that he was under economic duress when he signed the settlement agreement. 17 Under New York law, economic duress may void a contract when a party is compelled to agree to its terms by means of a wrongful threat which precludes the exercise of the party’s free will. 18 Financial pressure and unequal bargaining pressure are insufficient to constitute economic duress. 19 That a defendant felt economically constrained to accept the terms of an agreement is immaterial to a defendant’s economic duress claim. 20 Similarly, the use of financial leverage and a person’s difficult financial circumstances to one’s advantage does not create economic duress. 21 The party asserting an economic-duress defense has the burden to establish it. 22 The motion court found that Defendant was actively involved in the negotiation of the settlement agreement, showing that Defendant “had the opportunity to negotiate terms, propose changes, and express concerns”, actions that foreclosed a duress defense. 23 Here, Streit agreed to a valid contract that was duly executed on January 28, 2021. He provided no evidence that he was compelled to agree to the terms of the settlement agreement by means of a wrongful threat that precluded his exercise of free will. To the contrary, email communications show that Streit actively participated, and negotiated in, the formation of the settlement agreement. In an email dated April 9, 2019, Streit wrote, “there are 2 items that need to be changed and then we are good to go .” In another email later that day, Brooke and Streit’s lawyer asked Streit to “please confirm you’re ok with everything now so we can execute.” Streit later responded saying he was indeed ok with the changes. This level of active participation suggests that Streit had the opportunity to negotiate terms, propose changes, and express concerns—thus foreclosing his duress defense. 24 Second, the motion court rejected Defendant’s conflict-of-interest defense. Defendant argued that Plaintiff used financial leverage and Defendant’s financial circumstances to force him to use an attorney who also represented Plaintiff, thus creating an irreconcilable conflict of interest. The motion court held that Defendant’s “conflict-of-interest defense unavailing.” 25 The motion court stated that it was “not persuaded … that a disinterested lawyer would believe it impossible to competently and diligently represent the interests of both and in preparing the settlement agreement.” 26 This was so, noted the motion court, because “each side consented to the simultaneous representation after full disclosure of the implications and risks involved, as required by Rule 1.7 of the New York Rules of Professional Conduct.” 27 Footnotes G.O.V. Jewelry, Inc. v. United Parcel Serv. , 181 A.D.2d 517, 517 (1st Dept. 1992). Weissman v. Sinorm Deli, Inc. , 88 N.Y.2d 437, 443 (1996).  Interman Indus. Products, Ltd. v. R.S.M. Electron Power, Inc. , 37 N.Y.2d 151, 154 (1975) (citations and internal quotation marks omitted). Weissman , 88 N.Y.2d at 443-44 (citations, internal quotation marks and footnote omitted). Interman Indus. Prods., Ltd. , 37 N.Y.2d at 154-155 (1975). “An unconditional guaranty is an instrument for the payment of money only within the meaning of CPLR 3213.” Cooperatieve Centrale Raiffeisen Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492 (2015). See Bonds Fin’l, Inc. v. Kestrel Techs., LLC , 48 A.D.3d 230 (1st Dept. 2008); Seaman-Andwall Corp. v. Wright Machine Corp. , 31 A.D.2d 136 (1st Dept. 1968). See CPLR § 3212(b); Jacobsen v. New York City Health & Hosps. Corp. , 22 N.Y.3d 824 (2014); Alvarez v. Prospect Hosp. , 68 N.Y.2d 320 (1986); Zuckerman v. City of New York , 49 N.Y.2d 557 (1980). Weissman , 88 N.Y.2d at 444. Rhee v. Meyers , 162 A.D.2d 397, 398 (1st Dept. 1990); see Ian Woodner Family Collection, Inc. v. Abaris Brooks, Ltd. , 284 A.D.2d 163 (1st Dept. 2001). See Alvarez v Prospect Hosp. , supra ; Zuckerman , supra . See 32 Westway LLC, v. Priceless Custom Homes, Inc. , Index No. 606025/2017 (Sup. Ct., Suffolk County) (the “Priceless Lawsuit”). Slip Op. at *2. Id. Id. Id. at *3. Id. at *2-*3. See 767 Third Ave. LLC v. Orix Capital Markets, LLC , 26 A.D.3d 216, 218 (1st Dept 2006). See Edison Stone Corp. v. 42nd St. Dev. Corp , 145 A.D.2d 249, 256 (1st Dept. 1989). See Dreyer and Traub v. Rubinstein , 191 A.D.2d 236, 237 (1st Dept. 1993). See Matter of Will of Bryer , 72 A.D.3d 532, 532 (1st Dept. 2010); accord Bethlehem Steel Corp. v. Solow , 63 A.D.2d 611 (1st Dept. 1978). See Austin Instrument v. Loral Corp. , 29 N.Y.2d 124, 130 (1971). Slip Op. at *3. Id. (citations to the record omitted). Id. Id. Id. (citing 22 NYCRR 1200.00 (Rule 1.7 (b); Gustavo G. , 9 A.D.3d 102, 105 (1st Dept. 2004)). 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.

By: Jeffrey M. Haber In today’s article, we examine Eva Chen Fine Jewelry, Inc. v. Recovery Racing IX, LLC , 2023 N.Y. Slip Op. 06511 (2d Dept. Dec. 20, 2023) ( here ), a case involving common law fraud, New York’s lemon law and Section 349 of New York’s General Business Law (“GBL”). In May 2014, plaintiff purchased a 2014 Maserati Ghibli from Maserati of Bergen County, an authorized Maserati dealership owned at the time by defendant Recovery Racing IX, LLC. The subject vehicle was used solely by plaintiff’s principal and only employee, Eva Chen (“Chen”). After seeking repairs with respect to the vehicle’s air conditioning system on six occasions, plaintiff commenced the action to recover damages pursuant to GBL §§ 198-a and 349, and for fraud and breach of contract . Defendants moved for summary judgment dismissing the complaint. The motion court granted the motion. The motion court held that Chen’s claim for relief under GBL § 198-a (New York’s Lemon Law) was “baseless because the Lemon Law only applies to consumers.” In the complaint, plaintiff, a corporation, purchased the car as a company car. Under GBL § 198-a, the purchaser of a motor vehicle must use the vehicle “primarily for personal, family or household purposes. If the vehicle is used primarily for commercial purposes, the statute does not apply. The motion court similarly held that the claim under GBL § 349 was without merit. To state a claim under GBL § 349, the plaintiff must plead and prove that the defendant “has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.” “ arties claiming the benefit of must, at the threshold, charge conduct that is consumer oriented.” “Private contract disputes, unique to the parties … not fall within the ambit of the statute.” The deceptive practices that GBL § 349 seeks to combat involve recurring transactions of a consumer type. The practices at issue cannot be, in effect, a “single shot transaction”, which is “tailored to meet the purchaser’s wishes and requirements.” The motion court found that Chen failed to allege any effect on consumers at large or to establish any injury suffered. The motion court also dismissed plaintiff’s fraud cause of action for failure to plead fraud with particularity. Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. The motion court found that plaintiff failed to allege any misrepresentations or omissions with specificity. On appeal, the Appellate Division, Second Department affirmed. The Court held that “defendants established their prima facie entitlement to judgment as a matter of law dismissing the cause of action pursuant to General Business Law § 198-a, by demonstrating that the plaintiff was not a ‘consumer’ that would be entitled to relief under the statute.” The Court noted that “defendants submitted evidence establishing that the vehicle was purchased, paid for, and insured in the name of the , and the had claimed the vehicle as a 100% business use deduction on its corporate tax returns since the year the vehicle was purchased.” Such evidence, and plaintiff’s failure to raise a triable issue of fact, sufficed to grant defendants’ motion for summary judgment. The Court also held that defendants “established their prima facie entitlement to judgment as a matter of law dismissing the cause of action pursuant to General Business Law § 349.” The Court found that the alleged conduct attributed to defendants “did not constitute consumer-oriented conduct pursuant to General Business Law § 349.” As shown in the record on appeal, the evidence demonstrated that Plaintiff’s complaints were specific to her vehicle ( i.e. , they were individualized concerns about the air conditioning system in Chen’s vehicle) and did not affect the general public or consumers at large. Finally, the Court held that the motion court “properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging fraud.” The Court found that “plaintiff failed to plead fraud with specificity, as the complaint did not identify any specific material misrepresentation of fact, the person or entity who made such alleged misrepresentation, or any alleged knowledge of any party who made the misrepresentation of its falsity.” Takeaway The courts have been steadfast in their holdings that a plaintiff must identify the alleged misrepresentation or omission upon which they relied to satisfy the first element of a fraud claim. Just last month, we wrote about Barlow v. Skroupa , 2023 N.Y. Slip Op. 05786 (1st Dept. Nov. 16, 2023) ( here ), in which the First Department affirmed the dismissal of a fraud claim because the plaintiffs failed to identify any misrepresentations of material fact uttered by any of the defendants. Eva Chen is another reminder that a plaintiff who does not allege a specific misrepresentation or omission will not survive a challenge to his/her fraud claim. The courts have also been steadfast in their holding that a party claiming the benefit of GBL § 349 must allege conduct that is consumer oriented. This means that “ defendant’s acts or practices must have a broad impact on consumers at large.” The deceptive practices GBL § 349 seeks to combat involve recurring transactions of a consumer type. Private transactions not of a recurring nature or without ramifications for the public at large are not a proper subject of a claim under GBL § 349. In Eva Chen , the only parties affected by the alleged deceptive practices were plaintiff and defendants. “A breach of a private contract affecting no one but the parties to the contract, whether that breach be negligent or intentional, is not an act or practice affecting the public interest.” Thus, an action that involves a “single shot transaction,” such as the repair of a plaintiff’s vehicle, “which is tailored to meet the wishes and requirements,” does not, without more, “constitute consumer-oriented conduct for the purposes of .” Colabella v. Europa Int’l, Inc. , 168 A.D.2d 534 (2d Dept. 1990) (citation omitted). Aracena v. BMW of N. Am., LLC , 159 A.D.3d 664, 666 (2d Dept. 2018) (citation and internal quotation marks omitted). See , e.g. , New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 320 (1995); Gaidon v. Guardian Life Ins. Co. of Am. , 94 N.Y.2d 330, 334 (1999); Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank , 85 N.Y.2d 20, 25 (1995). Oswego Laborers’ Local 214 , 85 N.Y.2d at 25; see also New York Univ. , 87 N.Y.2d at 320. Genesco Entertainment, a Div. of Lymutt Indus., Inc. v. Koch , 593 F. Supp. 743, 752 (S.D.N.Y. 1984). Id. New York Univ. , 87 N.Y.2d at 321. See also North State Autobahn, Inc. v. Progressive Ins. Grp. Co. , 102 A.D.3d 5, 12 (2d Dept. 2012). Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Slip Op. at *1 (citation omitted). Id. (citation omitted). In Parlato v. Chrysler Corp. , 170 A.D.2d 442 (2d Dept. 1991), the Second Department held that a party is a “consumer” as defined under BCL § 198-a in relation to the actual manner of use of the vehicle, rather than to the technicalities of whether title is held in an individual or corporate name. A finding that the vehicle is “used primarily” for “personal, family, or household” purposes entitles the purchaser to “consumer” status, even if that purchaser is a corporation. Id. (citations omitted). Id. Id. (citing Nafash v. Allstate Ins. Co. , 137 A.D.3d at 1090 (2d Dept. 2016); Brualdi v. IBERIA, Lineas Aereas de España, S.A. , 79 A.D.3d 959, 960-961 (2d Dept. 2010); Dumas v. Fiorito , 13 A.D.3d 332 (2d Dept. 2004)). New York Univ. , 87 N.Y.2d at 320; Oswego Laborers’ Local 214 , 85 N.Y.2d at 25; see also North State Autobahn , 102 A.D.3d at 12. Genesco Entertainment , 593 F. Supp. at 752 (citation omitted). North State Autobahn , 102 A.D.3d at 12. __________________________ 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.

By Jonathan H. Freiberger This BLOG has written numerous times on statutes of limitation issues in mortgage foreclosure actions.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Briefly stated, and as has been stated previously in this BLOG, an action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4) .  See also , Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment or other default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne , 171 A.D.3d 34, 37 (2 nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC , 171 A.D.3d at 1030 (citations omitted). Today’s BLOG will discuss Genovese v. Nationstar Mortgage LLC , a case decided by the Appellate Division, First Department, on December 19, 2023.  Genovese , is an action to cancel and discharge a mortgage pursuant to RPAPL 1501(4) .  [Eds. Note: this BLOG has addressed RPAPL 1501(4) < here =">here"> , < here =">here"> and < here =">here"> .]  Simply stated, RPAPL 1501(4) permits , inter alia , a mortgagor to commence an action to have a mortgage discharged and cancelled of record if the lender would otherwise be time-barred from bringing its own action to foreclose the mortgage.   The basic facts of Genovese are important.  Plaintiff’s decedent executed a reverse mortgage on property in the Bronx.  Plaintiff’s decedent’s repayment obligation was triggered by the decedent’s death in March 2008.  Lender commenced a foreclosure action against the decedent’s heirs in May 2009.  At the time of the commencement of the action a fiduciary had not yet been appointed.  The lender clearly accelerated the debt in the complaint.  A fiduciary was appointed seven months after the commencement of the action.  An order of reference was obtained in September of 2015 and a judgment of foreclosure and sale was issued in or about April of 2016.  In April of 2017, the judgment of foreclosure and sale was vacated, and the action dismissed, because the court lacked personal jurisdiction over the decedent’s heirs, who were the named defendants because “a plaintiff is unable to commence an action during the period between the death of a potential defendant and the appointment of a representative of the estate and no representative had been appointed for the decedent's estate at the time the foreclosure action was commenced.”  (Citation and internal quotation marks omitted.)  The motion court, however, did not address acceleration in any way.  As will be discussed, this last fact is important.  Thereafter, the original lender assigned the mortgage to another lender. In 2022, one of the co-executors of decedent’s estate commenced an action pursuant to RPAPL 1501(4) to cancel and discharge the mortgage as time-barred.  Plaintiff argued that the mortgage debt was accelerated in 2009, thus triggering the six-year statute of limitations.  Defendant lender moved to dismiss the complaint “on the grounds that the debt secured by the mortgage had not been validly accelerated in the foreclosure action because that action was a nullity, the six-year statute of limitations to commence a foreclosure action had not begun to run (let alone expire), and, therefore, an action to foreclose the mortgage was not time-barred.”  Agreeing with the lender’s position, the motion court granted the motion to dismiss.  Also, in its decision, the motion court “intimated” that no acceleration occurred because “the foreclosure action was a nullity.”  After the complaint was dismissed, but before the appeal was perfected, the Foreclosure Abuse Prevention Act (“FAPA”) became the law in New York. Because some lenders were employing a tactic of acceleration/deacceleration/reacceleration to extend the six-year statute of limitations to circumvent mistakes made in pending foreclosure actions, among other reasons, FAPA was passed by the New York Legislature and signed into law by the Governor.  The Genovese Court described the problem thusly: FAPA represents the Legislature's response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, ch 821 at 1; Senate Introducer's Mem in Support of 2022 NY Senate Bill S5473D at 1). "The legislature that there is an ongoing problem with abuses of the judicial foreclosure process and lenders' attempts to manipulate statutes of limitations; that the problem has been exacerbated by recent court decisions which, contrary to the intent of the legislature, have given mortgage lenders and loan servicers opportunities to avoid strict compliance with remedial statutes and manipulate statutes of limitations to their advantage; and that the purpose of is to clarify the meaning of existing statutes, and to rectify these erroneous judicial interpretations thereof" (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, ch 821 at 1). FAPA's aim: "to thwart and eliminate abusive and unlawful litigation tactics that have been adopted and pursued in mortgage foreclosure actions to manipulate the law and judiciary to yield to expediency and the convenience of mortgage banking and servicing institutions at the expense of the finality and repose that statutes of limitations are meant to ensure" ( id. ; see also Senate Introducer's Mem in Support of 2022 NY Senate Bill S5473D at 1). Genovese , at *2 - *3.  Indeed, FAPA, “had the effect of nullifying holding in < Freedom=">Freedom" Mtge.="Mtge." Corp.="Corp." v.="v." Engel ,="Engel," N.Y.3d="N.Y.3d" 1,="1," (2021)="(2021)"> ” ( GMAT Legal Title Trust 2014-1 v. Kator , 213 A.D.3d 915 (2 nd Dep’t 2023)), in which, inter alia , the Court adopted a bright-line rule “that where the maturity of the debt has been validly accelerated by commencement of a foreclosure action, the noteholder’s voluntary withdrawal of that action revokes the election to accelerate, absent the noteholder’s contemporaneous statement to the contrary”  ( Engel , 37 N.Y.3d at 19).  [Eds. Note: this BLOG has addressed Engel < here =">here"> , < here =">here"> , < here =">here"> . In describing FAPA, the Genovese Court stated: Although FAPA effected a number of important changes to the RPAPL (i.e., RPAPL 1301<3> , <4> ), the General Obligations Law (i.e., General Obligations Law § 17-105<4> , <5> ), and the CPLR (e.g., CPLR 203 , 205 , 205-a, 3217 ), this appeal implicates only one: the addition of paragraph b to CPLR 213(4) ( see L 2022, ch 821, § 7). The new CPLR 213(4)(b) provides that, in an action under RPAPL 1501(4) to cancel and discharge a mortgage, "a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated." An outstanding issue with FAPA is whether it is to be applied retroactively -- an issue about which New York lower courts are split.  See, e.g. , HSBC Bank USA, N.A. v. Besharat , 80 Misc 3d 269, 284 - 85 (Sup. Ct. Putnam Co. 2023) (FAPA is not to be applied retroactively); U.S. Bank Trust, N.A. v. Miele , 80 Misc. 3d 839, 848 (Sup. Ct. Westchester Co. 2023) (FAPA is to be applied retroactively).  The plaintiff in Genovese argued that FAPA should be applied retroactively.  Retroactive application of FAPA would negate the lender’s defense that the statute of limitations never began to run because the 2009 acceleration did not occur because the first action was a nullity. After analyzing the language of FAPA and the relevant law on retroactive application of statutes, the Court concluded that FAPA should be applied retroactively.  First, the Court determined that FAPA’s clear language supports retroactive application.  Second, the Court found that FAPA is “remedial in nature,” as it was “designed, in part, to rewrite unintended judicial interpretations, and to reaffirm legislative judgment about what certain laws relating to the application of the statute of limitations to mortgage foreclosure actions should be.”   After concluding that FAPA is to be applied retroactively, the Court found that the lender was estopped under CPLR 213 (4)(b) “from asserting that the statute of limitations on a cause of action to foreclose on the mortgage has not expired.”  The Court noted that “CPLR 213(4)(b)'s potent estoppel bar will not be imposed, and a defendant will be free to assert that the debt secured by the mortgage was not validly accelerated in connection with a prior action, if, and only if, the prior action was dismissed based on an express judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”  The Court then noted that the motion court made mention of acceleration. The Court did not address the defendant’s constitutional challenge on retroactive application because the lender did not notify the Attorney General of such a challenge as is required by CPLR 1012 (b). Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber A recurring question that courts and litigants often encounter is how to apply the continuing wrong doctrine to a statute of limitations.  Statutes of limitations restrict the time within which a defendant can be held liability for all types of alleged wrongdoing. Plaintiffs who do not pursue their rights within the limitations period will find the courthouse doors closed to their claims. For this reason, whether the statute of limitations has run is an important issue for a lawyer and client to discuss. In today’s article, we examine  225 ADC Realty Corp. v. Popular Jewelry Corp. , 2023 N.Y. Slip Op. 06469 (1st Dept. Dec. 19, 2023) ( here ), a case involving the statute of limitations for a breach of contract cause of action and the application of the continuing wrong doctrine.   This Blog has examined statutes of limitations and the continuing wrong doctrine on many occasions.  See ,  e.g. , here ,  here ,  here ,  here , and  here . Before we examine 225 ADC Realty , we will discuss the relevant law, in particular the law concerning the continuing wrong doctrine. Since we have written on the topic on many occasions, we reprint our legal discussion below. In New York, the statute of limitations for a breach of contract claim is six years. It begins to run ( i.e. , accrue) from the date of the breach. The claim does not accrue from the date of discovery. As the Court of Appeals explained, a contrary rule “would be entirely dependent on the subjective equitable variations of different Judges and courts instead of the objective, reliable, predictable and relatively definitive rules that have long governed this aspect of commercial repose.” Statutes of limitation can be tolled – that is extended. One doctrine that allows for tolling is the continuing wrong doctrine. “The continuous wrong doctrine is an exception to the general rule that the statute of limitations runs from the time of the breach though no damage occurs until later.” Where applicable, the doctrine “serves to toll the running of a period of limitations to the date of the commission of the last wrongful act” and “may only be predicated on continuing, unlawful acts and not on the continuing effects of earlier unlawful conduct.” “The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.” Thus, the doctrine does not apply where the subsequent wrongs are consequences of the original, time-barred wrongful act. The distinction between the consequences of a wrongful act and the wrongs themselves was discussed by the Appellate Division, First Department in Henry , a case involving a plaintiff who was enrolled in two credit card programs without his consent and billed monthly for those programs. The First Department held that the doctrine did not toll the limitations period for two reasons: first, the absence of a breach of a recurring duty, and second, the wrongful acts – automatic monthly credit card fee charges – “represent the consequences of those wrongful acts in the form of continuing damages, not the wrongs themselves.…” The same result was rendered by the First Department in Matter of Yin Shin Leung Charitable Foundation v. Seng (Matter of Yin Shin) , 177 A.D.3d 463 (1st Dept. 2019), where the Court held that the doctrine did not toll the plaintiffs’ claim because “ he loss of corporate income was merely a continuing effect of the initial decision” from which the claim arose. In CWCapital Cobalt VR Ltd. v. CWCapital Investment LLC (Cobalt) , 195 A.D.3d 12, 13-16 (1st Dept. 2021), the plaintiff asserted a breach of contract claim against the defendant CWCapital Investment, LLC (“CWCI”) for CWCl’s failure to manage certain commercial mortgage-backed securities (“CMBS”) based on their agreement. The agreement required CWCI to, in pertinent part, appoint a special servicer to “direct and supervise the disposition of nonperforming and underperforming loans that are held by a particular CMBS trust so as to mitigate the losses suffered by the trust.” The parties’ arrangement also required CWCI “to ensure that the value of assets is maximized.” The plaintiff alleged that CWCI breached the agreement in three distinct ways, each category of wrongdoing dealing “with the actions of the special servicer CWCI selected on behalf”. CWCI moved to dismiss the complaint in its entirety, arguing that the plaintiff’s causes of action were time-barred. The First Department held that the continuing wrong doctrine applied to toll the statute of limitations as to the last wrongful act because “ he explicit language of the conferred on CWCI a continuing duty to manage investment.” Cobalt alleged that, “with respect to special servicers like CWCA, this responsibility included wielding the power not only to appoint and terminate, but also to ensure that all services being performed by the special servicer were done only to benefit the COO investors.” “Essentially,” noted the Court, “the allegations describe an arrangement by which CWCI acted as eyes and ears with respect to the CMBS trusts and had a responsibility to do everything in its power to prevent any activities that could possibly be to detriment.” “Thus,” concluded the Court, “while certainly a claim accrued the first time CWCI failed to act upon CWCA’s engagement in behavior that allegedly diminished the value of its investment, there no basis for the argument that each subsequent time CWCI failed to act did not constitute a separate, actionable, wrong.” The First Department placed heavy emphasis on the parties’ agreement, which conferred a “contractual obligation to manage the CMBS trust assets on an ongoing basis, with ‘reasonable care and in good faith.’” Therefore, the defendants’ subsequent breaches were based on new failures or omissions of the ongoing, recurring duty. In Marcal Finance SAA v. Middlegate Securities Ltd. , 203 A.D.3d 467 (1st Dept. 2022), the plaintiff contracted with defendant Middlegate Securities Ltd. to “manage inheritance for their benefit.” Plaintiffs sued defendant in October 2015 for breaching their agreement by misappropriating the funds in 2011. The First Department held that the plaintiffs sufficiently alleged a “series of unauthorized transfers” whereby the “continuing wrong doctrine tolled the running of the statute of limitations until the last such transfer was made.” Similarly, in Manipal Education Americas, LLC v. Taufiq , 203 A.D.3d 662 (1st Dept. 2022), the defendant, who was the plaintiff’s former director of marketing, repeatedly contracted with the company, Exit Editorial, Inc., for video editing services. The plaintiff brought suit, asserting that the defendant “falsely represented to it that he negotiated with Exit at arm’s length and that Exit’s prices were reasonable, when in fact its prices were well above market rate, he had an ownership interest in Exit, and he received a cash finder’s fee for each contract with Exit.” The First Department found that “a separate exercise of judgment, and thus a separate wrong, was committed each time Exit was hired, thereby enabling the application of the continuing wrong doctrine.” With these decisions in mind, we examine 225ADC Realty . 225ADC Realty involved an alleged breach of a sublease. Defendant entered the sublease on October 1, 2010, for use of plaintiff’s premises on Canal Street in New York City (the “Premises”). The term of the sublease extended to September 30, 2018. Among other things, when work was to be performed by defendant on the Premises, the sublease required defendant to “comply with all laws, orders, rules and regulations of all government authorities having jurisdiction of the premises.” On January 15, 2011, the New York City Department of Buildings (“DOB”) issued a Notice of Violation to plaintiff, after defendant installed signs on the building’s facade without a permit. Plaintiff cured the violation on March 1, 2011, and paid the fine assessed by the DOB on March 18, 2011. Over seven years later, on December 21, 2018, plaintiff mailed a demand letter to defendant for the costs incurred from the DOB violation. Plaintiff commenced the action on March 11, 2019, seeking to recover damages for defendant’s alleged breach of the sublease, indemnification, and attorneys’ fees. Defendant moved to dismiss the complaint on statute of limitations grounds. Defendant maintained that plaintiff commenced the action well after the six-year limitation period under CPLR 213(2) expired. The motion court granted the motion. The motion court found that plaintiff’s breach of contract claim “plainly” arose from defendant’s alleged noncompliance with the DOB’s code. The motion court rejected plaintiff’s argument that the breach was caused by defendant’s failure to surrender the Premises in broom-swept condition. As such, the motion court held that the breach of contract claim arose in January 2011, well after the six-year limitation period expired. The motion court rejected plaintiff’s argument that the continuing wrong doctrine tolled the statute of limitations until defendant’s last breach occurred. The motion court found that plaintiff failed to allege that defendant breached any “recurring duty.” Rather, said the motion court, the complaint alleged that the breach arose from “the same DOB violation issued January 15, 2011.” Thus, concluded the motion court, “ bsent any allegation of continuing unlawful conduct, the continuing wrongs doctrine is inapplicable.” On appeal, the First Department affirmed. The Court held that the motion court “properly found that the action barred by the six-year statute of limitations applicable to breach of contract claims.” Noting that the statute of limitations for breach of contract begins to run at the time of the alleged breach, the Court found that the breach occurred in January 2011, “over six years before this action was commenced.” The Court also held that the continuing wrong doctrine did not apply because “plaintiff alleged a single breach that caused the Department of Buildings to issue a violation in January 2011.” Thus, concluded the Court, “the claim accrued, and the statute of limitation began to run, no later than March 1, 2011.” CPLR § 213(2). ACE Sec. Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Prods., Inc. , 25 N.Y.3d 581, 594 (2015). Id. (citations and internal quotation marks omitted). Henry v. Bank of Am. , 147 A.D.3d 599, 601 (1st Dept. 2017) (citation omitted). Id. Id. (internal quotation marks and citation omitted). Id. at 602. Id. Id. Id. at 464. 195 A.D.3d at 19-20. Id. at 20. 203 A.D.3d at 468. 203 A.D.3d at 663. Citing Henry , 147 A.D.3d at 602. Citations omitted. Slip Op. at *1. Id. (citation omitted). Id. Id. _____________________________ 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.

By: Jeffrey M. Haber In Columbia Consultants, LLC v. Danucht Entertainment, LLC , 2023 N.Y. Slip Op. 06439 (1st Dept. Dec. 14, 2023) ( here ), the Appellate Division, First Department addressed the issues in the title of this article: fraudulent inducement claims in the context of settlement agreements, broad releases and no reliance clauses. As discussed below, the Court found that the release at issue was broad enough to cover the alleged fraud claim and that the no reliance clause in the parties’ settlement agreement barred the claim to the extent it was based on extra-contractual representations. The Court also held that even if plaintiff could overcome the foregoing obstacles, plaintiff nevertheless failed to satisfy the justifiable reliance element of the claim, explaining that in light of the no reliance clause, any reliance on the extra-contractual representations was unreasonable. Columbia Consultants involved a dispute between two former partners. Plaintiff and defendant previously owned and operated various nightclubs around the world. In 2015, plaintiff requested that defendant buy out his share in the businesses that they owned. The parties entered into an agreement (the “Agreement”) pursuant to which plaintiff was compensated for his share of the businesses and, among other things, granted certain rights to share in potential future revenues, in addition to the upfront payment of money. The Agreement was subject to a provision which granted plaintiff a substantial portion of the excess of any sale by defendant of his membership interests to a third party above the $2.5 million that defendant had paid plaintiff. Almost immediately after the Purchase Agreement (and related agreements) was executed, the parties began to dispute the various amounts and rights set forth in the agreements. After two years of negotiations and threats of litigation, the parties entered into a settlement agreement to resolve all of their disputes (the “Settlement Agreement”). Relevant to the appeal, the Settlement Agreement expressly provided that it “superseded,” “extinguished,” and “nullified” the obligations in the Agreement and related agreements. It contained, among other things, a broad mutual release of “all claims … known and unknown,” a no reliance clause whereby the parties expressly agreed that they were not relying on extra-contractual oral representations, a general merger clause, and a statement that each party understood “that it may later discover Claims or facts that may be different from, or in addition to, those that it or any other Releasor now knows … which … may have materially affected this Agreement.” Plaintiff claimed that defendant made knowingly false and misleading statements regarding the negotiation and consummation of defendants’ sale of the purchased membership interests in 2017. Plaintiff maintained that, although defendant was “knee deep” in negotiations for the sale of the interests, defendant failed to disclose such negotiations to plaintiff, even when asked repeatedly if any negotiations were ongoing. Plaintiff brought suit, claiming, among other things, fraudulent inducement against defendant.  Defendant moved to dismiss, among other claims, the fraud cause of action on the grounds that the claim was barred by the broad release, no reliance clause, and other provisions in the Settlement Agreement. The motion court denied the motion (including on reargument). On appeal, the First Department modified the motion court’s order to grant the motion to dismiss the fraudulent inducement claim. The Court held that “Plaintiffs released their claim that they had been fraudulently induced to enter into the settlement agreement and release.” 1 The Court explained that the “release cover all claims (with certain exceptions that not relevant to this appeal), whether ‘known or unknown, foreseen or unforeseen, matured or unmatured, suspected or unsuspected, … arising out of or relating to’ the purchase agreements, the businesses covered by the purchase agreements, and the dispute between the parties concerning their obligations thereunder.” 2 The Court concluded that “ his broad enough to cover plaintiffs’ fraud claim.” 3 In New York, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.” 4 If “the language of a release is clear and unambiguous, the signing of a release is a ‘jural act’ binding on the parties.” 5 For this reason, “ release should never be converted into a starting point for … litigation except under circumstances and under rules which would render any other result a grave injustice.” 6 The Court also held that “ he release was ‘fairly and knowingly made.’” 7 In New York, “a release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is ‘fairly and knowingly made.’” 8 The Court found it dispositive that the Settlement Agreement was negotiated by counsel and that the Settlement Agreement specifically provided for the release of unknown claims, even if such claims were discovered after the agreement was executed:  The settlement agreement and release was the subject of negotiations between counselled parties. ection 1.3(b) provides that the release will remain in effect despite that each releasor “may later discover laims or facts that may be different from … those that it … now knows or believes to exist regarding the subject matter of the release’ and which ‘if known at the time of signing of greement, may have materially affected greement and such arty’s decision to enter into it.” The Court further held that “Plaintiffs … failed to identify ‘a separate fraud from the subject of the release.’” 10 Under New York law, a party that releases a fraud claim may later challenge that release as fraudulently induced only if he/she can identify a separate fraud from the subject of the release. 11 As the Court of Appeals observed, “ ere this not the case, no party could ever settle a fraud claim with any finality.” 12 Finally, the Court noted that “ ven if the fraud claim were not barred by the release, it would fail for lack of justifiable reliance.” 13 A plaintiff seeking to invalidate a release due to fraudulent inducement must “establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” 14 In concluding that plaintiff failed to satisfy the justifiable reliance element of the claim, the Court pointed to the no-reliance clause in the Settlement Agreement. 15 In New York, 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. 16 “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.” 17 In holding that the no-reliance provision of the Settlement Agreement barred plaintiff’s fraudulent inducement claim, the Court pointed to section 3 of the Settlement Agreement, which stated in pertinent part: “‘Each party … acknowledges that in entering into agreement, it has not relied upon any representation or warranty made by the other parties …, except as specifically provided in section 2.” 18 “ nd,” said the Court, “section 2 has nothing to do with indication of interest in buying membership interests.” 19 Thus, concluded the Court, “ n light of section 3, plaintiffs’ reliance on misrepresentation is unreasonable as a matter of law.” 20 Footnotes Slip Op. at *1. Id. Id. (citing Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 277 (2011); Sodhi v. IAC/InterActive Corp. , 201 A.D.3d 451 (1st Dept. 2022); Avnet, Inc. v. Deloitte Consulting LLP , 187 A.D.3d 430, 431 (1st Dept. 2020)). Global Minerals & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). Booth v. 3669 Delaware, Inc. , 92 N.Y.2d 934, 935 (1998) (quoting Mangini v. McClurg , 24 N.Y.2d 556, 563 (1969)). See also Centro , 17 N.Y.3d at 276. Id. (internal quotation omitted). Slip Op. at *1 (quoting Centro , 17 N.Y.3d at 276 (internal quotation marks omitted)). Centro , 17 N.Y.3d at 276 (citations omitted). Slip Op. at *1. Id. (citations omitted). Centro , 17 N.Y.3d at 276 (citation omitted). Id. Slip Op. at *1. Centro , 17 N.Y.3d at 276 (quoting Global Mins. , 35 A.D.3d at 98). Slip Op. at *1-*2. Basis Yield Alpha Fund (Master) v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 323 (1959); MBIA Ins. Corp. v. Merrill Lynch , 81 A.D.3d 419 (1st Dept. 2011). Basis Yield , 115 A.D.3d at 137. Slip Op. at *2. Id. Id. (citations omitted). 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.

By Jonathan H. Freiberger A court can award sanctions to any party or attorney in any civil action or proceeding before the court, except where prohibited by law, costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct as defined in this Part.  22 NYCRR 130-1.1 ; see also Conregation Ahavas Moische, Inc. v. Katzoff , 134 A.D.3d 934 (2 nd Dep’t 2015).  “In addition to or in lieu of awarding costs, the court, in its discretion may impose financial sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Part.”  22 NYCRR 130-1.1.  “Conduct is frivolous if (1) it is completely without merit in law or fact and cannot be supported by a reasonable argument for the extension, modification, or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false.”  Id. ; see also Congregation Ahavas , 134 A.D.3d at 934.  “The decision whether to impose costs or sanctions against a party for frivolous conduct, and the amount of any such costs or sanctions, is generally entrusted to the court’s sound discretion.”  Strunk v. New York State Bd. of Elections , 126 A.D.3d 779, 781 (2 nd Dep’t 2015) (citation omitted). On December 12, 2023, the First Department, in 13 East 124 LLC v. J&M Realty Services Corp. , upheld a sanctions award against the plaintiff of in excess of $22,000.00 for frivolous conduct pursuant to 22 NYCRR 130-1.1.  The plaintiff in 13 East was a building owner that entered into a contract with the defendant to “manage, maintain, and lease vacant units in plaintiff’s building.”  The plaintiff terminated the contract and alleged that, post termination, the defendant “withheld books, records, security deposits, and keys, and were generally uncooperative with the new property management company.”  The plaintiff commenced an action against the defendant for declaratory and injunctive relief, breach of contract, breach of fiduciary duty, professional malpractice and negligence, and accounting against defendants in connection with the parties' property management contract.” The plaintiff “moved by order to show cause for a preliminary injunction directing defendants to cooperate with the change in property management.”  The defendant cross-moved for sanctions; alleging that it agreed to the relief sought in the plaintiff’s motion but the plaintiff refused to so stipulate.  Thus, the defendants’ cross-motion: was supported by the affidavit of Jerry Edelman, an individual defendant, and president of defendant J&M Realty Services Corp. Mr. Edelman explained that he agreed to turn over the books and records and comply with the property management transition, but he requested plaintiffs execute a formal termination letter as required by the terms of the contract as well as by the New York City Department of Housing Preservation and Development. Mr. Edelman transferred the books and records to his former attorney to be held in escrow pending plaintiffs' execution of the formal termination letter. Upon receiving plaintiffs' order to show cause, Mr. Edelman directed his attorney to resolve the dispute with plaintiffs' counsel directly rather than in court by offering plaintiffs the entirety of their requested relief. In response to Mr. Edelman's overture, plaintiffs' counsel stated that the "motion's goal was not the possession of the documents, . . . 'but to make Jerry cry, pay $500,000 in legal fees, and then only agree to discontinue the action when Jerry agrees to reimburse laintiffs' legal fees.'" Subsequently, the plaintiff refused to sign a stipulation drafted by the defendants’ counsel pursuant to which “plaintiffs would receive all books and records, the parties would acknowledge that the management contract was terminated, and plaintiffs would discontinue the action.” The motion court denied the plaintiff’s motion for injunctive relief and granted the defendants’ cross-motion for sanctions, finding that “plaintiffs acted in bad faith when they refused to withdraw their motion despite defendants consenting to all relief requested.”  The defendants’ counsel submitted an affirmation supporting a claim for $22,133.45 in legal fees.  On the same day plaintiff filed a notice of discontinuance of the action and opposed the application for legal fees on the ground that the action was discontinued and, therefore, the supreme court was without jurisdiction to “issue further orders in connection with the matter pursuant to CPLR 3217.”  Rejecting the plaintiff’s arguments, the motion court issued an order directing the plaintiff to pay the full amount demanded by the defendant.  The plaintiff appealed, arguing that the discontinuance “divested the Supreme Court of jurisdiction to impose sanctions based on their pre-discontinuance conduct.” The First Department affirmed the motion court’s order.  In describing the purpose of sanctions, the Court stated that “Rule 130 sanctions are retributive, in that they punish past conduct. They are also goal oriented, in that they are useful in deterring future frivolous conduct not only by the particular parties, but also by the Bar at large. The goals include preventing the waste of judicial resources, and deterring vexatious litigation and dilatory or malicious litigation tactics."  (Citation, internal quotation marks and brackets omitted.)  The Court reiterated that the plaintiff acted in bad faith by refusing “to consent to a stipulation which would have granted them all the relief they were seeking.” In rejecting the plaintiff’s jurisdictional argument, the Court stated: Voluntary discontinuance did not divest the court of jurisdiction to impose sanctions for pre-discontinuance conduct. The Second Circuit has held that the District Court "clearly jurisdiction to impose sanctions irrespective of the status of the underlying case because the imposition of sanctions is an issue collateral to and independent from the underlying case" ( Schlaifer Nance & Co. v Estate of Warhol , 194 F.3d 323, 333 <2d cir 1999> , citing Cooter & Gell v Hartmarx Corp. , 496 US 384, 395-396 <1990> ). Similarly, this Court has held that the trial court's jurisdiction over the underlying case is not necessary to impose sanctions pursuant to 22 NYCRR 130-1.1 ( see e.g . World Sports Group v Motion Picture Academy of Arts & Sciences , 273 AD2d 53, 54 <1st dept 2000> ). Accordingly, plaintiffs' voluntary discontinuance did not divest the court of jurisdiction to determine the amount of the attorneys' fees award to defendants ( see Schlaifer Nance & Co. , 194 F3d at 333 ; World Sports Group , 273 AD2d at 54).  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber As readers of this Blog know, we often write about the pleading requirements under the Civil Practice Law and Rules (“CPLR”). In that regard, many of our articles involve cases in which CPLR 3016(b) is at issue – the provision of the civil practice rules requiring pleading fraud with particularity. There is another provision of the civil practice rules that requires particularity – CPLR 3016(a). This provision of the CPLR concerns claims for libel and slander ( i.e. , defamation) and requires the plaintiff to plead “the particular words complained of.” Today, we examine the particularity requirement of CPLR 3016(a). To plead a claim of defamation, the plaintiff must satisfy the following elements: “a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se.” 1 There are two forms of defamation: libel and slander. 2 Since only facts can be proven false, statements purporting to assert facts about the plaintiff are the proper subject of a defamation claim. 3 In deciding whether a statement is defamatory, a court “must consider the content of the communication as a whole, as well as its tone and apparent purpose and in particular should look to the over-all context in which the assertions were made and determine on that basis whether the reasonable reader would have believed that the challenged statements were conveying facts about the [] plaintiff.” 4 When pleading a claim of defamation, “ he complaint … must allege the time, place and manner of the false statement and specify to whom it was made.”5 The failure to make such allegations is fatal to a defamation cause of action. 6 Additionally, pursuant to CPLR 3016(a), the complaint must set forth “the particular words complained of.” The language at issue cannot amount to “expressions of opinion” or ‘“loose, figurative or hyperbolic statements.’” 7 Nor can the language at issue be paraphrased. Courts will only consider “the particular defamatory words” stated; they will not entertain a claim “based instead on a paraphrased version.” 8 Indeed, imprecision and paraphrasing “not only opens the complaint to the question of whether the words were ever published, but also renders the complaint defective as a matter of law.” 9 Finally, a plaintiff alleging defamation per quod must plead special damages. 10 Special damages must be “fully and accurately identified ‘with sufficient particularity to identify actual losses.’” 11 Against this background, we examine Salescare, Inc. v. SEIU 1199 Natl. Benefits Fund , 2023 N.Y. Slip Op. 06340 (1st Dept. Dec. 12, 2023) ( here ). Plaintiffs, SalesCare Inc. (“SalesCare”) and Marian Parker (“Parker,” and collectively with SalesCare, the “plaintiffs”) brought action against defendants, SEIU 1199 National Benefit Fund (the “Fund”), 1199 SEIU Funds, 12 and Auburn IT Resources (“Auburn”), claiming breach of contract and defamation. In August 2019, Auburn contacted Parker about the potential for SalesCare working on an Information Security project with the Fund. Parker, who was SalesCare’s President at the time, met with the Fund’s staff and discussed the project. Thereafter, Parker entered into a Contractors Agreement (the “agreement”) with Auburn. Among other things, the agreement governed the terms of the project.  Relevant to the order on appeal, the agreement provided that its terms became effective on the date it was signed, and that Parker’s engagement with the Fund would continue “AS REQUIRED, or until the completion of designated work at the client, whichever occur first.” Either SalesCare or Auburn could terminate the agreement on ten days’ written notice. If the Fund elected to terminate SalesCare’s assignment “prior to the time or event as specified in paragraph 1 , such notice as gives to will also be given to .” On September 3, 2019, Parker began her assignment with the Fund. Shortly before the Fund ended the assignment, the Fund changed Parker’s job responsibilities in a way that Parker claimed went beyond the terms of the agreement. Because of this switch and a lack of administrative guidance with the Fund, Parker alleged that her last two weeks of work with the Fund were unproductive. On November 7, 2019, Parker reported to work and found that her ID credentials had been canceled. Shortly thereafter, she was dismissed from the assignment. According to Parker, that evening, Auburn’s President contacted her and told her that an unnamed representative of the Fund had told him that the Chief Information Security Officer (“CISO”) had said to them that Parker’s assignment had ended due to her “insubordination.” A few days later, Parker spoke to one of her former colleagues at the Fund, who informed her that the CISO had stated in a meeting on November 7, 2019, that he “had to fire her” and he would fire anyone else who challenged him. Defendants moved separately to dismiss the complaint based on documentary evidence and for failure to state a cause of action, pursuant to CPLR 3211(a)(1) and (a)(7). The motion court granted the motion. Regarding the defamation causes of action, the motion court held that plaintiffs failed to satisfy the particularity requirement of CPLR 3016(a). First, the motion court held that plaintiffs failed to identify the person to whom the alleged defamatory statement was published. Instead, said the motion court, plaintiffs simply alleged that an unnamed employee of the Fund was told by the CISO that Parker’s assignment was terminated because she was insubordinate. Second, the motion said that the second statement – that the CISO had to fire Parker – was qualified in the complaint by the statement “or words to that effect.” Such imprecision, held the motion court, rendered the claim inactionable. 13 On appeal, the Appellate Division, First Department affirmed, holding that the motion court “properly dismissed plaintiffs’ defamation claim and related business disparagement claim against Funds.” 14 Like the motion court, the Court found that the first statement – that Parker was “insubordinate” – failed to satisfy CPLR 3016(a) because “plaintiffs failed to identify the employee to whom the supervisor made the alleged statement.” 15 The Court also found the second statement – that Parker was fired – to be inactionable because the statement was true. 16 Finally, the Court held that the claim for defamation per quod was defective because “plaintiffs were required to allege special damages,” which they “failed to do.” 17 Takeaway To satisfy CPLR 3016(b), the plaintiff must state the defamatory statement in haec verba and identify the time, place and person(s) to whom the statement was made. These requirements are strictly enforced. As shown in SalesCare , the failure to comply with CPLR 3016(a) and related interpretations will result is dismissal of a defamation claim. Footnotes Circulation Assocs., Inc. v. State , 26 A.D.2d 33, 38 (1st Dept. 1966); Salvatore v. Kumar , 45 A.D.3d 560, 563 (2d Dept. 2007). Ava v. NYP Holdings, Inc. , 64 A.D.3d 407, 411 (1st Dept. 2009). Davis v. Boeheim , 24 N.Y.3d 262, 268 (2014). Mann v. Abel , 10 N.Y.3d 271, 276 (2008) (internal quotation marks omitted). Dillon v. City of New York , 261 A.D.2d 34, 38 (1st Dept. 1999). E.g. , CSI Grp., LLP v. Harper , 153 A.D.3d 1314, 1321 (2d Dept. 2017) (“ ailure to state the particular person or persons to whom the allegedly defamatory statements were made … warrants dismissal” of a complaint for defamation); Arvanitakis v. Lester , 145 A.D.3d 650, 652 (2d Dept. 2016) (failure to plead when the false statement was made). Wolberg v. IAI N. Am., Inc. , 161 A.D.3d 468, 470 (1st Dept. 2018) (quoting Dillon , 261 A.D.2d at 38). BCRE 230 Riverside LLC v. Fuchs , 59 A.D.3d 282, 283 (1st Dept. 2009). Stephan v. Cawley , 24 Misc. 3d 1204(A), at *2 (Sup. Ct., N.Y. County 2009); Oszustowicz v. Admiral Ins. Brokerage , 25 Misc. 3d 1201(A), at *5 (Sup. Ct., Kings County 2007), aff’d sub nom. , Oszustowicz v. Admiral Ins. Brokerage Corp., 49 A.D.3d 515 (2d Dept. 2008); Ramos v. Madison Square Garden Corp. , 257 A.D.2d 492, 493 (1st Dept. 1999). See Liberman v. Gelstein , 80 N.Y.2d 429 (1992); L.W.C. Agency, Inc. v. St. Paul Fire & Marine Ins. Co. , 125 A.D.2d 371 (2d Dept. 1986). Carter v. Waks , 57 Misc. 3d 1208(A) (Sup. Ct., Queens County 2017) (citing Cammarata v. Cammarata , 61 A.D.3d 912, 915 (2d Dept. 2009)); see also Epifani v. Johnson , 65 A.D.3d 224 (2d Dept. 2009). The SEIU defendants are collectively referred to as the “Funds”. Citing Geddes v. Princess Properties Intern., Ltd. , 88 A.D.2d 835 (1st Dept. 1982) (stating, “ ny qualification in the pleading thereof by use of the words ‘to the effect’, ‘substantially’, or words of similar import generally renders the complaint defective”); see alsoOffor v. Mercy Med. Ctr. , 171 A.D.3d 502, 503 (1st Dept. 2019). Slip Op. at *2. Id. (citing BDCM Fund Adviser, L.L.C. v. Zenni , 98 A.D.3d 915, 917 (1st Dept. 2012); Bell v. Alden Owners , 299 A.D.2d 207, 208 (1st Dept. 2002), lv. denied , 100 N.Y.2d 506 (2003)). Id. (citing Rosenberg v. Metlife, Inc. , 8 N.Y.3d 359, 370 (2007)). Id. (citing Franklin v. Daily Holdings, Inc. , 135 A.D.3d 87, 93 (1st Dept. 2015); Harris v. Hirsh , 228 A.D.2d 206, 209 (1st Dept. 1996), lv. denied , 89 N.Y.2d 805 (1996)). 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.

By Jonathan H. Freiberger Among the problems resulting from COVID-19, is the pandemic’s effect on business.  Numerous businesses were forced to close due to lock downs and supply chain issues.  The economic slowdowns and business closures caused by the pandemic has generated much litigation; a great deal of which has occurred in the landlord/tenant arena.  [This BLOG has addressed landlord/tenant COVID-19 related litigation < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .]  As discussed in this BLOG’s prior articles, commercial tenants have generally been unsuccessful in defending rent arrears and eviction cases by relying on, inter alia , the doctrines of frustration of purpose and impossibility of performance. A landlord makes it prima facie case for rent arrears by “submit the original lease … and a detailed rent statement documenting defendant’s outstanding rent….”  Dee Cee Assoc. LLC v. 44 Beehan Corp. , 148 A.D.3d 636, 640 - 41 (1 st Dep’t 2017); see also Kate Spade & Co., LLC v. G-CNY Group LLC , 63 Misc. 3d 1205(A) at *3 (Civil Ct., City of New York 2019). Many tenants have interposed defenses such as “frustration of purpose” and “impossibility” in response to rent arrears suits in the COVID era.  The Appellate Division, First Department, has described frustration of purpose as follows: For a party to a contract to invoke frustration of purpose as a defense for nonperformance, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.  The doctrine applies when a change in circumstances makes one party's performance virtually worthless to the other, frustrating his purpose in making the contract. PPF Safeguard, LLC v. BCR Safeguard Holding, LLC , 85 A.D.3d 506, 508 (1 st Dep’t 2011) (citations and internal quotation marks omitted); see also Schmaltz Brewing Co., LLC v. Dog Cart Mgt LLC , 202 A.D.3d 1349, 1352 (3 rd Dep’t 2022). Impossibility “is an affirmative defense under New York law against liability for nonperformance of a contractual obligation.  Siemens Energy, Inc. v. Petroleos De Venezuela, S.A. , 82 F.4 th 144, 154 (2 nd Cir. 2023) (applying New York law).  The Appellate Division, First Department, has explained the defense of impossibility as follows: Impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible. Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.  The excuse of impossibility is generally “limited to the destruction of the means of performance by an act of God, vis major, or by law. Kolodin v. Valenti , 115 A.D.3d 197, 200 (1 st Dep’t 2014) (citations, internal quotation marks and brackets omitted); see also Siemens , supra , at 153 - 54. Durst Pyramid LLC v. Silver Cinemas Acquisition Co. , decided by the First Department on December 7, 2023, addressed these issues.    The motion court, in its decision and order , recognized that the action “is a dispute, one of many in New York courts, between a commercial tenant and its former landlord about whether the tenant may be relieved of its obligation to pay rent due to disruptions caused by the COVID-19 pandemic.”  The defendant/tenant is a movie theatre operator that, in 2016, entered into a twenty-year lease with the plaintiff/landlord.  The premises, located in Manhattan, were to be used as a movie theatre.  The tenant was behind in rent prior to the pandemic and stopped paying rent once movie theatres were ordered to be shut down in March 2020.  In August 2020, the tenant surrendered to the landlord physical possession of the premises.  Later that year, the landlord commenced an action against, inter alia , the tenant to collect rent arrears and other charges.  The landlord moved for summary judgment on, inter alia , its claim for rent arrears. As to the landlord’s evidentiary showing on its arrears claim, the motion court stated: Landlord is entitled to summary judgment against Tenant on its First Cause of Action for breach of contract, based on unpaid Rent Arrears under the Lease from January 1, 2020, through September 11, 2020, in the amount of $1,082,317.00. Landlord’s evidentiary submission shows: (i) the existence of a valid, binding Lease; (ii) the Lease provisions required Tenant to pay rent and additional charges without offset, reduction, counterclaim and/or deduction; (iii) Tenant’s undisputed failure to pay rent due and owing; and (iv) Landlord’s calculation of the Rent Arrears in the amount of $1,082,317.00. That evidence establishes a prima facie case for entitlement to summary judgment ( Thor Gallery at S. Dekalb, LLC v Reliance Mediaworks (USA) Inc. , 143 AD3d 498, 498 <1st dept 2016> ).  The motion court held that plaintiff/landlord satisfied its burden on its arrears claim and summarily rejected defendant/tenant’s frustration of purpose and impossibility defenses, noting that a “steady drumbeat of New York cases have rejected those doctrines as defenses to claims for unpaid rent, despite government restrictions that temporarily limited, or even outlawed, commercial tenants’ businesses.” (Citations omitted.)  The motion court recognized that temporary closures in the face of a long-term lease does not “give rise to a viable frustration defense.” As to its affirmance of the motion court’s grant of summary judgment to the landlord and its dismissal of the tenant’s frustration and impossibility affirmative defenses, the First Department stated: The landlord established its entitlement to summary judgment on its cause of action for rent arrears by submitting documentary evidence establishing the existence of a valid lease signed by defendant tenant Silver Cinemas Acquisition and a guaranty signed by defendant guarantor Silver Holdco, Inc., and by submitting affidavits along with invoices and ledgers showing that neither the tenant nor the guarantor paid rent from January 1, 2020 through September 11, 2020. This evidence was sufficient to establish a cause of action for rent arrears. Supreme Court also properly dismissed defendants' affirmative defenses of frustration of purpose, impossibility, and failure of consideration because under the terms of the force majeure provision of the lease, the temporary disruption that the COVID-19 pandemic caused to the tenant's business was foreseeable and was not serious enough for unilateral rescission of a 20-year lease.