Melville, NY November 3, 2023 – Freiberger Haber LLP is pleased to announce that co-founding partners, Jonathan H. Freiberger and Jeffrey M. Haber, have been named by Super Lawyers Magazine® to be among the top lawyers in the New York metropolitan area. This is Mr. Freiberger’s fourth, and Mr. Haber’s twelfth, consecutive year of selection. Both Messrs. Freiberger and Haber were recognized for their work in business and commercial litigation. Super Lawyers Magazine® is an affiliate of Thomson Reuters. It recognizes attorneys who have distinguished themselves by both a high degree of professional achievement and by peer recognition. Each year no more than 5 percent of lawyers are recognized as Super Lawyers by the magazine. The annual selection involves a survey of lawyers, independent research evaluation of candidates, and peer reviews within each practice area. The magazine publishes its lists nationwide, as well as in leading city and regional magazines and newspapers across the country. A description of the selection process can be found on the Super Lawyers website. About Freiberger Haber LLP Located in New York City and Melville, Long Island, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals in a broad range of complex business, securities, construction, real estate, and commercial litigation matters. Founded by Jonathan H. Freiberger and Jeffrey M. Haber, Freiberger Haber applies more than 60 years of combined experience to deliver sophisticated and creative representation to its clients. The firm’s approach is results oriented and client-centric, providing clients with the sophisticated counsel expected from larger firms with the flexibility and agility of a small firm. ATTORNEY ADVERTISING. © 2023 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 425 Broadhollow Road, Suite 416, Melville, New York 11747, (631) 282-8985. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact Jeffrey M. Haber or Jonathan H. Freiberger Freiberger Haber LLP

By: Jeffrey M. Haber On October 31, 2023, the Appellate Division, First Department, unanimously affirmed the dismissal of a fraudulent inducement claim alleged in connection with the purchase of real property. 829 Greenwich St., LLC v. Slorer , 2023 N.Y. Slip Op. 05458 (Oct. 31, 2023) ( here ). The decision addresses a number of principles this Blog frequently examines, including: whether contractual disclaimers can preclude a fraudulent inducement claim; and whether the plaintiff justifiably relied on the oral representations supporting the fraudulent inducement claim. 29 Greenwich St., LLC v. Slorer Plaintiff is the assignee of a buyer who contracted with the defendant-sellers to purchase a house located on Greenwich Street. Before signing the contract, the buyer hired a home inspection company to inspect the premises and issue an inspection report. The report pointed to various instances of water damage and possible signs of mold and moisture.  The contract of sale included a disclaimer clause that specifically disclaimed plaintiff’s reliance on seller’s representations about the condition of the house. In pertinent part, the disclaimer clause provided: “Purchaser is entering into this contract based solely upon such inspection and investigation and not upon any information, data, statements or representations, written or oral, as to the physical conditions, state of repair, use, cost of operation or any other matter related to the Premises or the other property included in the sale, given or made by Seller or its representatives, and shall accept the same ‘as is’ in their present condition and state of repair.” Plaintiff and defendants closed the deal and plaintiff took title to the house. After moving into the house, plaintiff allegedly discovered extensive water infiltration and damage.  Plaintiff brought the suit against defendants, claiming defendants fraudulently induced plaintiff to enter and close the contract by misrepresenting the condition of the house. Defendants filed a motion to dismiss the complaint pursuant to CPLR § 3211(a)(1) & (a)(7), claiming the disclaimer clause within the contract barred plaintiff from bringing the suit. The motion court granted the motion. First, said the motion court, the disclaimer clause “directly disclaim plaintiff’s reliance on seller’s representations of the house condition.” Under New York law, “ party claiming fraudulent inducement cannot be said to have justifiably relied on a representation when that very representation is negated by the terms of a contract executed by the allegedly defrauded party.” 1 The motion court explained that the language of the disclaimer unambiguously “preclude seller’s representations, fraudulent or not, from becoming the inducement to buyer’s decision to contract.” Since the parties negotiated the contract “at arm’s length” and “specifically disclaim reliance on any representation by the other party,” the motion court saw “no reason to interfere with the parties’ freedom of contract.” Thus, concluded the motion court, plaintiff’s claims for fraudulent inducement failed. The motion court also rejected plaintiff’s argument that there was an inconsistency between the contract of sale, which contained the disclaimer clause, and the attached rider which did not. The motion court noted that the “rider control only if there inconsistencies between the two.” The motion court found that “there no inconsistency between the disclaimer and the seller’s representations in the rider.” Indeed, said the motion court, “ othing in the rider says that buyer was relying on seller’s representations to make the decision.” “Therefore,” said the motion court, “the disclaimer not superseded by the rider, thus effectively binding the two parties.” Second, the motion court found that the inspection report submitted by plaintiff actually supported defendants’ position that the water damage and mold complained of were not peculiarly within their knowledge. The motion court noted that “the infra-red inspection of the family room ceiling indicate possible signs of moisture and mold, and continuous monitoring of the area warranted.” As such, the motion court concluded that plaintiff was on notice of the water conditions: “The warning should have put plaintiff on alert and may justify a heightened inspection for mold and water damages.” Plaintiff appealed. The Appellate Division, First Department unanimously affirmed. The Court held that the motion court “correctly granted defendants’ motion to dismiss,” finding that plaintiff did not justifiably rely “on any representations regarding no water leaks or mold in the purchaser’s rider.” 2 The Court pointed to the “parties’ contract of sale disclaimed such reliance by stating that plaintiff accepted the house ‘as is,’ based on its own inspection and investigation and not based on any representations by the seller defendants.” 3 Like the motion court, the First Department rejected plaintiff’s argument that there was an inconsistency between the contract and the rider sufficient to escape the effect of the disclaimer: “Although the purchaser’s rider stated that the rider controlled in the event of any inconsistency, there was no such inconsistency, since it was silent as to plaintiff’s right to rely on the representations contained in the rider.” 4 Additionally, noted the Court, “ he contract also stated that acceptance of a deed was deemed full performance of the contract and that the representations did not survive closing.” 5 Moreover, the Court held that the presence of leaks and mold in the house were not facts peculiarly with defendants’ knowledge: “any alleged misrepresentation regarding the lack of leaks and mold in the house ‘did not concern facts peculiarly within the seller knowledge.’” 6 “The inspection report cited by plaintiff noted extensive water damage,” said the Court. 7 Finally, the Court rejected plaintiff’s concealment argument, i.e. , the water damage was external, so that plaintiff was not on notice to look for “undetected interior leaks”. 8   The Court found that, “among other things, “the report noted that the fifth-floor ceiling had ‘significant damage from a roof leak above.’” 9 Since “plaintiff was on notice of water damage, and had access to conduct additional inspections prior to closing,” concluded the Court, such access and ability to conduct additional inspections “vitiate its claim that defendants actively concealed issues.” 10 Takeaway A party’s disclaimer of reliance on extra-contractual representations and omissions will not 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. 11 “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.” 12 As discussed, in 829 Greenwich St. , the disclaimer was specific to the matters allegedly misrepresented. An exception to the enforceability of a disclaimer clause is where the defendant has unique or peculiar knowledge of an allegedly misrepresented fact. Under such circumstances, even a specific contractual disclaimer will not defeat a plaintiff’s contention that it reasonably relied on the misrepresentation. In 829 Greenwich St. , the issue of water leaks, water infiltration, and mold were matters identified in the inspection report. In fact, as noted by the Court, the report spoke of “extensive water damage.”In the context of real estate, to satisfy the justifiable reliance element of a fraudulent inducement claim, the purchaser of real property has a duty to inspect the property and satisfy himself/herself as to the bona fides of the transaction. The courts in New York will not hesitate to dismiss a fraud claim by a purchaser of real property where a defective condition exists and was reasonably discovered through an inspection or another form of due diligence. Since the seller has no duty to disclose the pre-existing condition, the seller will be liable only when he/she thwarts or prevents the purchaser from discovering the condition through the exercise of due diligence. As shown in 829 Greenwich St. , plaintiff could not demonstrate justifiable reliance on any alleged misrepresentation. Footnotes Perrotti v. Becker, Glynn, Melamed & Muffly LLP , 82 A.D.3d 495, 495 (1st Dept. 2011). Slip Op. at *1. Id. (citing 116 Waverly Place LLC v. Spruce 116 Waverly LLC , 179 A.D.3d 511, 512 (1st Dept. 2020)). Id. Id. Id. (quoting Basis Yield Alpha Fund (Master) v. Goldman Sachs Grp., Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014); and citing 85-87 Pitt St., LLC v. 85-87 Pitt St. Realty Corp. , 83 A.D.3d 446 (1st Dept. 2011)). Id. (citation omitted). Id. Id. Id. Basis Yield , 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. 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 New York, as in other jurisdictions, settlement agreements “are judicially favored, will not lightly be set aside,” and will be enforced “with rigor and without a searching examination into their substance.” 1 A court called upon to enforce a settlement must be satisfied that the agreement is “clear, final and the product of mutual accord.” 2 Thus, an out-of-court agreement settling an action is binding on each party to the agreement only if “it is in a writing subscribed by him or his attorney.” 3 “In addition, since settlement agreements are subject to the principles of contract law, for an enforceable agreement to exist, all material terms must be set forth” in that writing, “and there must be a manifestation of mutual assent.” 4 In Nash v. Walker Mem. Baptist Church, Inc. , 2023 N.Y. Slip Op. 05447 (1st Dept. Oct. 26, 2023) ( here ), the Appellate Division, First Department considered the foregoing principles in connection with a settlement by mediation and the post-mediation emails purporting to reserve certain indemnification rights. Nash arose out of an agreement in which the parties agreed to settle a personal injury action. In that action, plaintiff, Curtis Nash, sought damages after he was injured while working for Rosalyn Yalow Charter School (“Rosalyn”), which had leased a building owned by defendant/third-party plaintiff Walker Memorial Baptist Church, Inc. (“Walker”). Plaintiff sued Walker, alleging that it had been negligent in its duty to maintain the premises; Walker then filed a third-party action against Rosalyn seeking contractual indemnification based on the lease between them. During a virtual mediation session, the parties and their insurance carriers reached an agreement concerning the amounts that would be paid to plaintiff. The agreement also specified that Walker’s insurance carrier, Philadelphia Indemnity Insurance Company (“PIIC”), reserved its rights against nonparty Munich Re Insurance, Rosalyn’s excess liability carrier. The mediator memorialized the terms of the settlement in a post-mediation agreement, which also contained language specifying that each party released the others from all claims or liability arising from the matter. Soon after the mediation session concluded, in response to an email from Munich Re’s counsel, Walker’s counsel confirmed that the settlement resolved all direct claims and third-party claims; the email did not reserve any specific claims. Several other emails among the parties and the court followed, indicating that the matter had been settled. Walker later took the position that PIIC’s request to reserve its rights included the third-party claims against Rosalyn. Thereafter, Rosalyn filed a motion to enforce the settlement, seeking to dismiss the third-party claim against it. The motion court granted the motion. In doing so, the motion court held: Here, Rosalyn established prima facie that the parties had an enforceable settlement agreement by submitting an email from Walker's counsel agreeing to the settlement. The November 23, 2021 email that Walker’s counsel sent only minutes after the mediation confirmed that “all claims” were resolved at the mediation. The email, which reduced the settlement to a writing in accordance with CPLR 2104, was “subscribed” within the meaning of the statute, as the sender was identifiable and there is no contention that Walker’s counsel did not send the email intentionally ( Philadelphia Ins. Indem. Co. , 197 AD3d at 80). The email also contained all material terms, since the sole issue was whether all claims, amongst all parties (to the underlying case), were fully resolved. Walker appealed. The First Department unanimously affirmed. The Court held that the motion court “correctly determined that a binding settlement existed between Walker and Rosalyn and that Walker released its third-party contractual indemnity claim.” 5 In so holding, the Court noted that “ o party dispute that Walker’s counsel had authority to accept the settlement, and that the confirmation email he sent to Munich Re’s counsel came from his email account.” 6 Importantly, said the Court, “ ounsel’s email did not contain any language setting conditions on the settlement or explicitly reserving any specific claims.” 7 The Court found that “the postmediation agreement and confirmatory email from Walker’s counsel contained all material terms, as the only relevant issues were the amounts that would be paid to plaintiff by the parties and their insurance carriers, and whether all claims had been resolved by the settlement agreement.” 8 Finally, the Court held that “objective evidence established that the parties intended to be bound and corroborated the existence and terms of the agreement”: “The emails that followed also indicated that Walker intended to be bound by the agreement reached during the mediation session and did not intend to pursue further litigation against Rosalyn.” 9 See,="See," e.g., =">" here,="here," here,=">here," >here=">here" and="and" >here.=">here."> Takeaway As explained by the Court in Nash , the parties to the mediation fully and completely resolved the dispute. The settlement reflected the parties’ intention that all claims between them were fully resolved. Counsel confirmed the settlement immediately after the mediation and did not give any indication that any rights were being reserved. The only reservation of rights concerned non-parties PIIC and Munich Re. Under these circumstances, the settlement was held to be binding and enforceable.  Footnotes Forcelli v. Gelco Corp. , 109 A.D.3d 244, 247-248 (2d Dept. 2013) (internal quotation marks omitted). Id. CPLR § 2014. Forcelli , 109 A.D.3d at 248 (internal quotation marks omitted). Slip Op. at *1. Id. Id. (citing Philadelphia Ins. Indem. Co. v. Kendall , 197 A.D.3d 75, 80 (1st Dept. 2021)). Id. (citing Rawald v. Dormitory Auth. of the State of N.Y , 199 A.D.3d 477, 477 (1st Dept. 2021). See also Forcelli v. Gelco Corp. , 109 A.D.3d 244, 249 (2d Dept. 2013) (Correspondence between the parties or counsel “can qualify as an enforceable stipulation of settlement under CPLR 2104,” so long as that correspondence “set forth the material terms of the stipulation” and is a properly subscribed ( i.e. , signed) in writing). Id. (citing Flores v. Lower E. Side Serv. Ctr., Inc. , 4 N.Y.3d 363, 369 (2005). 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 Once an attorney appears in an action on behalf of a client and becomes the attorney of record, the client is free to change counsel by filing with the clerk, a substitution of counsel stipulation, which must also be served on “the attorneys for all parties in the action or, if a party appears without an attorney, to the party.”  CPLR 321 (b)(1).   Additionally, an attorney of record “may withdraw or be changed by order of the court in which the action is pending, upon motion on such notice to the client of the withdrawing attorney, to the attorneys of all other parties in the action or, if a party appears without an attorney, to the party, and to any other person, as the court may direct.”  CPLR 321(b)(2).   What happens, however, when a litigant’s attorney must be replaced due to “death, removal or disability”?  This question is answered by CPLR 321(c), which provides: If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs. CPLR 321(c) “protects client by automatically staying action from the date of the disabling event.”  Wells Fargo Bank, N.A. v. Kurian , 197 A.D.3d 173, 176 (2 nd Dep’t 2021) (citations omitted).  “The obvious purpose of the stay is to vest the party who has lost counsel with a reasonable opportunity to obtain new counsel before further proceedings are taken and thereby avoid prejudice that might conceivably arise from the absence of counsel in the interim.” Id .  (Citations omitted.) “During the stay imposed by CPLR 321(c), no proceedings against the party will have any adverse effect.”  JPMorgan Chase Bank, Nat. Ass’n v. Simonsen , 208 A.D.3d 1167, 1169 (2 nd Dep’t 2022) (citations, internal quotation marks and brackets omitted).  It is up to opposing counsel to “bring the stay to an end by serving a notice on the affected party to appoint new counsel within 30 days.”  Id .   The protections of CPLR 321(c) can be waived by appearing pro se or by retaining “a new counsel who formally appears in the action.”  Id .  Counsel for the defendant in Kurian , supra , was suspended from the practice of law during the pendency of a mortgage foreclosure litigation, which triggered the stay provisions of CPLR 321(c).  One year later, the plaintiff moved for summary judgment but did not first serve a notice to appoint new counsel pursuant to CPLR 321(c) – perhaps not knowing of the suspension.  New counsel appeared and opposed the motion and cross-moved to dismiss the complaint and the court considered those papers.  The motion court granted plaintiff’s motion and denied defendant’s cross-motion.  Defendant’s pro-se appeal from this order was never perfected. Thereafter, plaintiff’s unopposed motion for a judgment of foreclosure and sale was granted.  Subsequently, defendant’s third counsel moved by order to show cause to stay the sale because “on the date that the plaintiff filed its initial motion, inter alia, for summary judgment and for an order of reference, the motion was invalid, and any orders predicated upon those papers were null and void.”   The motion was denied, and the defendant appealed. In affirming the motion court, the Second Department in Kurian recognized that the “appeal presents a simple issue involving the straightforward provisions of CPLR 321(c), but in a factual posture that is of first impression in the Second Department.”  Kurian , 197 A.D.3d at 174.  The Court found that the defendant waived her right to make an argument under CPLR 321(c) and stated: Therefore, we hold that even in the absence of service of a notice to appoint new counsel upon the unrepresented party as procedurally required by CPLR 321(c), a continuing stay under the statute may be waived by the unrepresented party's affirmative conduct of retaining new counsel, effective as of the time that new counsel formally appears in an action. Here, since the defendant's waiver of the stay occurred before her opposition papers were due in response to the plaintiff's motion, inter alia, for summary judgment and for an order of reference, the fact that the plaintiff filed its motion on an earlier date, when the stay was still in effect, is of no moment. Further, in regards to the suspension of the original attorney of record, the defendant's opposition papers and cross motion did not include any argument, at that time, that the motion before the Supreme Court violated the stay provisions of CPLR 321(c), further bolstering our conclusion that any issue regarding the existence of a stay had been waived. Kurian , 197 A.D.3d at 174. The Second Department addressed CPLR 321(c) on October 25, 2023, in Desiderio v. Wilgosz .   The plaintiff in Desiderio commenced an action alleging that he performed work for the defendants and was not paid.  A clerk’s judgment was entered upon defendant’s failure to answer the complaint.  “Thereafter, the plaintiff filed separate motions seeking to compel the turnover of certain funds, to compel to comply with a subpoena and for sanctions against , to hold in contempt, and to enforce the … judgment.”  The motion court granted the defendant’s motion to vacate the judgment pursuant to CPLR 5105 (a).  Defendant retained a lawyer who appeared and interposed an answer, but was later suspended from the practice of law.  The motion court denied plaintiff’s motions related to the enforcement of the judgment and granted the defendant’s motion to vacate the judgment. On the plaintiff’s appeal, the Second Department affirmed but on different grounds based on CPLR 321(c), and stated: Here, the defendants' attorney was suspended from the practice of law effective May 18, 2020. Thereafter, the defendants were not served with a notice to appoint another attorney, and the Supreme Court did not grant leave to resume the proceedings. Since another attorney did not appear on behalf of the defendants until September 24, 2020, an automatic stay was in place when the judgment was entered on July 13, 2020. Contrary to the plaintiff's contention, even assuming that the defendants improperly raised this issue for the first time in their reply papers, they properly raised this issue on appeal. Accordingly, the court properly granted the defendants' motion to vacate the … judgment.  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 Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. 1 In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. 2 Consequently, courts will interfere as little as possible with the agreement of consenting parties to submit their disputes to arbitration. 3 Since arbitration is a “creature of contract”, 4 only signatories to a contract containing an arbitration agreement can be compelled to arbitrate. 5 Consequently, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” 6 Like all rules, there are exceptions, such as incorporation by reference, assumption, agency, veil-piercing/alter ego and estoppel. 7 In Gilat v. Sutton , 2023 N.Y. Slip Op. 05363 (1st Dept. Oct. 24, 2023) ( here ), the exception at issue was the “direct benefits theory of estoppel.” Under this theory, “a nonsignatory may be compelled to arbitrate where the nonsignatory ‘knowingly exploits’ the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement.” 8 Where “the benefits are merely ‘indirect,’ a nonsignatory cannot be compelled to arbitrate a claim.” 9 “A benefit is indirect where the nonsignatory exploits the contractual relation of the parties, but not the agreement itself.” 10 Gilat involved a claim that defendants interfered with plaintiff’s rights in a partnership and company that she obtained from her deceased husband, most notably not paying her or the subject company any distributions. In 2015, plaintiff’s husband passed while owning a 100% interest in Rosh, Inc. (“Rosh”) and an 8% interest in 44-45 Realty Associates, L.P. (“Partnership”). 44 G.P. LLC (“LLC”) is allegedly the general partner and owns 20% of the Partnership. Rosh allegedly owns 10% of the LLC. Thus, plaintiff alleged that she owned 8% of the Partnership directly and another 2% vis-à-vis her interest through Rosh. Plaintiff sued defendants, asserting fourteen causes of action in her complaint. In essence, plaintiff maintained that defendants were depriving her of her rights, including the right to receive distributions from her ownership of the Partnership and LLC. Defendants moved to compel arbitration pursuant to CPLR 7503. Defendants maintained that the partnership agreement that plaintiff’s husband signed (the “Partnership Agreement”) contained an arbitration provision requiring “ ny dispute or controversy arising out of or relating to agreement be determined and settled by arbitration.” The LLC operating agreement did not, however contain such a provision. Plaintiff argued that she could not be compelled to arbitrate because defendants could not simultaneously claim she was not a partner while enforcing the Partnership Agreement against her.  The motion court rejected plaintiff’s contention, finding that it was “at odds with first cause of action for breach of the Partnership Agreement and fourteenth cause of action for a declaration that she is a partner, which necessarily implicates the Partnership Agreement.” The motion court also noted that plaintiff did not challenge that her husband had entered the Partnership Agreement and that she sought to enforce rights under that agreement. Thus, the motion court granted the motion. Rosh appealed. The Appellate Division, First Department unanimously reversed. The Court held that “ he court should have denied the motion to compel arbitration of Rosh’s claims because Rosh a nonsignatory to the agreement that contain the arbitration clause.” 11 The Court found that defendants “failed to show that the direct benefits theory of estoppel applie .” 12 The Court noted that the arbitration clause was contained in the Partnership Agreement to which Rosh was not a party and not a partner in the Partnership. 13 “Rather,” said the Court, “Rosh was a ten percent owner in a limited liability company that was the general partner of the partnership. This did not constitute a direct benefit to Rosh from the partnership agreement.” 14 Finally, said the Court, “before Rosh could be compelled to arbitrate, it had to invoke or attempt to enforce the terms of the partnership agreement.” 15 “The Court found, however, that “all of Rosh’s claims were asserted under the operating agreement of the limited liability company or based on its status as a member of that company.” 16 Takeaway Although State policy favors arbitration, a party cannot be required to submit to arbitration any dispute that he/she has not agreed to submit. For this reason, courts are “wary of imposing a contractual obligation to arbitrate on a non-contracting party.” 17 Notwithstanding, where a non-party knowingly exploits and directly receives a benefit from an agreement containing an arbitration clause, the courts will compel the non-signatory to arbitrate any disputes flowing from the agreement. In Gilat , defendants were unable to demonstrate that the direct benefits theory of estoppel applied to Rosh. As noted by the Court, being a non-signatory to the Partnership Agreement and minority owner of the Partnership did not suffice to trigger the theory. Footnotes Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted). Id. at 49-50. (citations omitted). Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001). TBA Global, LLC v. Fidus Partners, LLC , 132 A.D.3d 195, 202 (1st Dept. 2015). AT&T Techs., Inc. v. Communications Workers of Am. , 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582 (1960)). Merrill Lynch Inv. Managers v. Opibase, Ltd. , 337 F.3d 125, 129 (2d Cir. 2003). Belzberg v. Verus Inv. Holdings Inc. , 21 N.Y.3d 626, 631 (2013) (adopting the doctrine from federal law and citing federal cases). Id. Id. (citations omitted). Slip Op. at *1. Id. (citing Belzberg , 21 N.Y.3d at 631)). Id. Id. (citations omitted). Id. (citing Oxbow Calcining USA Inc. v. American Indus. Partners , 96 A.D.3d 646, 649-650 (1st Dept. 2012)). Id. Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Int’l, Inc. , 198 F.3d 88, 97 (2d Cir. 1999). 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 A couple of months ago, we examined  NW Media Holdings Corp. v. IBT Media Inc. , 2023 N.Y. Slip Op. 30875(U) (Sup. Ct., N.Y. County Mar. 22, 2023) ( here ), a case in which a lower court addressed the question whether the destruction of millions of pages of data on a Google Workspace states a claim for trespass to chattels or conversion ( here ). As discussed in that article, the court concluded that the allegations concerning the destruction of such data sufficed to state a claim for conversion. NW Media  was again the subject of an article by this Blog, this time in the context of board deadlock – that is, when the members of a company’s board of directors are deadlocked regarding the vote on a matter of corporate concern.  NW Media Holdings Corp. v. IBT Media Inc. , 2023 N.Y. Slip Op. 03288 (1st Dept. June 15, 2023) ( here ). As discussed in that article, the Court held that the “motion court correctly granted IBT’s motion to dismiss the complaint” because defendant “Pragad lost his presumptive authority to initiate th action in the corporation’s name because NW Media’s board was deadlocked.” NW Media is once again the subject of an article, this time in the context of a motion to dismiss certain causes of action alleged against the defendants. IBT Media Inc. v. Pragad , 2023 N.Y. Slip Op. 05315 (1st Dept. Oct. 19, 2023) ( here ). In late 2016, plaintiff IBT Media, Inc. became the subject of a criminal investigation by the Manhattan District Attorney’s office. In 2018, when it appeared that plaintiff and its principal would be indicted, plaintiff decided to sell its membership interest in nonparty Newsweek to defendant NW Media, a company owned partially by defendant Dev Pragad and formed for the purpose of buying plaintiff’s interest in Newsweek. The transaction was documented in a September 2018 purchase agreement between plaintiff and NW Media. The purchase agreement, which contained a merger clause, stated that plaintiff agreed to sell its membership in Newsweek to NW Media free and clear of any claims or restrictions, and that the transaction would convey good title in Newsweek to NW Media. In or around late 2021, Pragad stated that he would not return NW Media’s ownership interest in Newsweek to plaintiff. Plaintiff sued, asserting a number of causes of action including declaratory relief (first cause of action), anticipatory breach of oral agreement (second cause of action), promissory estoppel (third cause of action), unjust enrichment (fourth cause of action), fraudulent inducement (fifth cause of action), breach of fiduciary duty (eighth cause of action), constructive trust (ninth cause of action), and equitable accounting (tenth cause of action). Defendants moved to dismiss the foregoing causes of action. The motion court granted the motion and plaintiff appealed. The Appellate Division, First Department affirmed. The Court held that the motion court properly dismissed plaintiff’s claim for a declaratory judgment, finding that the plain terms of the purchase agreement barred plaintiff from obtaining the relief sought. In that regard, the Court stated that the purchase agreement was “clear and therefore must be enforced according to its plain terms.” 1 As such, the merger clause, which was included in the agreement, “foreclose the introduction of parol evidence to vary or contradict the terms of the writing.” 2 merger clauses typically are found at the end of a contract or agreement, among the other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. boilerplate merger clauses are given little weight by the courts. however, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent. in new york, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement. without such specificity, the courts have allowed parol evidence to be used to explain the parties’ intent, especially in cases involving claims of fraudulent inducement. 3 > merger clauses typically are found at the end of a contract or agreement, among the other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. boilerplate merger clauses are given little weight by the courts. however, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent. in new york, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement. without such specificity, the courts have allowed parol evidence to be used to explain the parties’ intent, especially in cases involving claims of fraudulent inducement. 3 >  The Court also held that the motion court properly dismissed the promissory estoppel (third cause of action) and unjust enrichment (fourth cause of action) causes of action. 4 The Court reasoned that those claims were premised on the existence of the agreement between the parties – i.e. , the purchase agreement. Since “a valid written contract exists, and the relationship between the parties is therefore governed by that written agreement,” 5 plaintiff’s quasi-contract claims could not stand. 6 7 however, “where there is a bona fide dispute as to the existence of a contract or the application of a contract in the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as breach of contract, and will not be required to elect his or her remedies.” 8 > 7 however, “where there is a bona fide dispute as to the existence of a contract or the application of a contract in the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as breach of contract, and will not be required to elect his or her remedies.” 8 > The Court further held that the motion court properly dismissed the fraudulent inducement claim because plaintiff did “not allege facts establishing that in August and September 2018, when the parties were negotiating the terms of the purchase agreement, Pragad had no intention of honoring his promises with respect to that agreement.”9 “General allegations of lack of intent to perform are insufficient; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.”10 “At most,” said the Court, “plaintiff allege facts establishing that around three years later, in the fall of 2021, Pragad stated that he would not return Newsweek to plaintiff.” 11 Finally, the Court held that the motion court “correctly dismissed the causes of action for breach of fiduciary duty and equitable accounting.” 12 To plead both causes of action, a plaintiff must allege a fiduciary relationship. The Court found that plaintiff failed to do so, citing authority that stands for the proposition that a fiduciary relationship does not exist when parties merely negotiate an agreement at arm’s length. 13 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.  References Slip Op. at *1 (citing W.W.W. Assoc., Inc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990)). Id. Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 320-21 (1959); Laduzinski v. Alvarez & Marsal Taxand LLC , 132 A.D.3d 164, 169 (1st Dept. 2015).  The Court noted that “ ismissal of the cause of action for unjust enrichment compel dismissal of the cause of action for constructive trust because ‘the purpose of a constructive trust is prevention of unjust enrichment.’” Slip Op. at *2 (quoting Genger v. Genger , 121 A.D.3d 270, 278 (1st Dept. 2014) (internal quotation marks omitted)). Slip Op. at *2 (citing Wilson v. Dantas , 173 A.D.3d 460, 461 (1st Dept. 2019), lv. denied , 34 N.Y.3d 909 (2020); Fariello v. Checkmate Holdings, LLC , 82 A.D.3d 437, 438 (1st Dept. 2011)). Id. (citing Kramer v. Greene , 142 A.D.3d 438, 441 (1st Dept. 2016)). See MG W. 100 LLC v. St. Michael’s Prot. Episcopal Church , 127 A.D.3d 624, 626 (1st Dept. 2015). Goldman v. Simon Prop. Grp., Inc. , 58 A.D.3d 208, 220 (2d Dept. 2008). Slip Op. at *2 (citing King Penguin Opportunity Fund III, LLC v. Spectrum Grp. Mgt. LLC , 187 A.D.3d 688, 690 (1st Dept. 2020)). Perella Weinberg Partners LLC v. Kramer , 153 A.D.3d 443, 449 (1st Dept. 2017); Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 71 (1st Dept. 2017). Slip Op. at *2 (citing Braddock v. Braddock , 60 A.D.3d 84, 89 (1st Dept. 2009), appeal withdrawn , 12 N.Y.3d 780 (2009)). Id . Id. (citing Eden v. St. Luke’s-Roosevelt Hosp. Ctr. , 96 AD3d 614, 615 (1st Dept. 2012)).

By Jonathan H. Freiberger This Blog has previously addressed the question of whether a binding settlement can be reached through a series of emails as opposed to a fully integrated and formal written settlement agreement.  See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  These important issues bear repeating to avoid being bound to a settlement that one of the parties did not intend to make. Settlement is an efficient and cost-effective way to resolve disputes and is favored by courts.  See, e.g., Forcelli v. Gelco Corp . , 109 A.D.3d 244, 247-48 (2 nd Dep’t 2013).  Section 2104 of the CPLR, which governs “stipulations,” including settlement agreements, provides: An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered.  With respect to stipulations of settlement and notwithstanding the form of the stipulation of settlement, the terms of such stipulation shall be filed by the defendant with the county clerk. “To be enforceable, a settlement agreement must set forth all material terms, and there must be clear mutual accord between the parties.”  Vlastakis v. Mannix Family Market @ Veteran’s Road, LLC , 2023 WL 6854105, *1 (2 nd Dep’t 2023) (citation and internal quotation marks omitted); see also Teixeira v. Woodhaven Center of Care , 173 A.D.3d 1108, 1109 (2 nd Dep’t 2019).  This is because “settlement agreements are subject to the principles of contract law.”  Forcelli , 109 A.D.3d at 248.  “An email that merely confirms a purported settlement is not necessarily sufficient to bring the purported settlement into the scope of CPLR 2104.” Teixeira, 173 A.D.3d at 1109 (citation omitted). Two recent cases from the Appellate Division, Second Department, address these issues.   Teixeira v. Woodhaven Center of Care Teixeira was decided on October 18, 2023, and involved the purported settlement of a personal injury matter.  The defendant in Teixeira moved pursuant to CPLR 2104 to enforce a settlement agreement it alleged was reached by the parties and “memorialized in an email message.”  The motion court determined that “there was no meeting of the minds or the creation of a settlement that is legally enforceable” and denied the motion.  Defendant appealed. In affirming the motion court, the Second Department stated: Here, contrary to the defendant's contention, an email exchange between counsel did not evidence a clear mutual accord. The email dated October 7, 2020, purportedly confirming the settlement agreement, stated that it was memorializing the "tentative resolution" of the case and was sent by counsel for the defendant, which is the party seeking to enforce the agreement. There is no email subscribed by the plaintiff, who is the party to be charged, or by her attorney confirming the agreement ( see Kataldo v Atlantic Chevrolet Cadillac , 161 AD3d 1059, 1060 <2 nd dep’t 1018> nd dep’t 1018>). Alessina v. El Gauchito II, Corp. Alessina was decided on October 4, 2023, by the Appellate Division, Second Department, and involved the settlement of an employment dispute.  The plaintiffs in Alessina were employees of the defendant restaurant.  Plaintiff’s counsel alleged that: the parties agreed to a settlement of an employment dispute during a mediation. Shortly thereafter, the plaintiffs' attorney emailed the defendants' former attorney … asking him "to confirm the terms of the settlement we reached" earlier that day and setting forth the specific terms, which included the defendants' agreement to pay $325,000 to the plaintiffs by May 3, 2021. replied, "Yes, confirmed."   Thereafter, however, defendant’s former attorney advised plaintiff’s counsel that the settlement sum would not be paid by the defendant.   Plaintiff commenced an action “to recover on an instrument for the payment of money only by motion for summary judgment in lieu of complaint pursuant to CPLR 3213.”  [Eds Note: this Blog has addressed CPLR 3213 < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> ,< here =">here"> and < here =">here"> .]  The motion court granted the motion over defendant’s opposition and the instant appeal followed.  In affirming the motion court, the Second Department stated: Here, the material terms of the settlement were set forth in an email by the plaintiffs' counsel, and accepted in a response subscribed by the defendants' former attorney, who had apparent authority to settle the case on their behalf. The exchange of email correspondence between the attorneys for the parties setting forth all the material terms of the settlement and a manifestation of mutual assent was sufficient to constitute an enforceable settlement agreement between the parties. Contrary to the defendants' contention, the agreement was not conditioned on the parties' execution of a formal settlement and release, or any other further occurrences. The plaintiffs established, prima facie, that the defendants failed to make the payment required by the settlement agreement, which was an "instrument for the payment of money only" within the meaning of CPLR 3213. In opposition, the defendants failed to raise a triable issue of fact.  Accordingly, the Supreme Court properly granted the plaintiffs' motion for summary judgment in lieu of complaint.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Affinity fraud is a type of investment fraud. In this form of fraud, the person committing the fraud preys upon members of an identifiable group, such as a religious or ethnic community, the elderly, or a professional group. The promoter of an affinity fraud frequently is – or pretends to be – a member or a good friend of the group. The fraudster often enlists respected members of the community or religious leaders from within the group to disseminate information about the scheme by convincing them that a fraudulent investment is legitimate and in their best interests. Many times, those leaders become unwitting victims of the fraudster’s scam. Affinity fraud exploits the trust and friendship that exist in group of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity fraud. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment. Many affinity scams involve Ponzi schemes or pyramid schemes, where new investor money is used to make payments to earlier investors to give the illusion that the investment is successful. New investors are induced to invest in the scheme and existing investors are lulled into believing their investments are profitable. Unfortunately, as is often the case, the promoter of the scheme steals the investor’s money for personal use. Both types of schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of new money stops, the scheme collapses, and investors lose most or all of their money. On October 16, 2023, the Securities and Exchange Commission (“SEC”) announced ( here ) that it obtained a temporary restraining order, asset freeze, and other emergency relief to stop an ongoing fraud targeting the Indian American community that raised nearly $130 million since April 2021.  According to the SEC, defendants 1 raised more than $89 million from more than 350 investors for investments in purported venture capital funds that the Founders managed through Nanban Ventures and more than $39 million from 10 investors that invested directly in the three other entities controlled by the Founders. The SEC alleged that the Founders overstated the profitability of the investments and paid investors at least $17.8 million in fictitious profits that were actually payments pursuant to their Ponzi scheme. The SEC further alleged that defendants misrepresented Krishnan’s expertise and success using his “GK Strategies” options trading method. According to the SEC, Krishnan claimed in a YouTube video that he achieved returns of “more than a hundred percent,” and Nanban Ventures claimed in its venture capital funds’ private placement memorandums that Krishnan would manage the funds to generate returns that would “consistently overperform the S&P 500 Index.” The SEC maintained that the actual trading returns using GK Strategies were, with limited exceptions, lower than the returns of the S&P 500 index, lower than the percentage returns that Krishnan claimed in YouTube videos, and negative on numerous occasions. Commenting on the complaint, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated: “We allege that the defendants engaged in a large-scale affinity fraud that targeted hundreds of investors, largely from the DFW-area Indian American community. Through allegedly false promises of unrealistic returns and lies about the success of their investing strategies, the defendants raised nearly $130 million from investors. But in classic Ponzi fashion, the complaint alleges, the defendants used investor money to make fake profit distribution payments, while allegedly siphoning off millions in investors’ funds for themselves. We urge all investors to confirm the credentials of supposed investment professionals and to view investments that advertise outsized returns skeptically.” In addition to the foregoing, the SEC alleged that Nanban Ventures and the Founders violated their fiduciary duties as investment advisers by causing the venture capital funds to invest more than $70 million into companies the Founders controlled. According to the SEC’s complaint, the Founders commingled that money with more than $39 million from at least 10 other investors and then used the commingled funds to, among other things, make Ponzi payments and pay themselves at least $6 million. Commenting on the affinity fraud aspect of the allegations, Eric Werner, Director of the SEC’s Fort Worth Regional Office, stated: “As we allege in our complaint, the defendants used the ‘Nanban’ branding, a word that means ‘friend,’ when raising nearly $130 million from investors of mostly Indian descent. However, the defendants have been the furthest thing from ‘friends’ to their investors, raising money and paying false returns on a foundation of lies.” The SEC charged all defendants with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC also charged the Founders and Nanban Ventures with violating the antifraud provisions of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 promulgated thereunder. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from all defendants. The SEC also seeks an order prohibiting the Founders from acting as officers or directors of a public company. As copy of the SEC’s complaint can be found here . Footnote The SEC named as defendants Nanban Ventures LLC (“Naban Ventures”), its three founders Gopala Krishnan (“Krishnan”), Manivannan Shanmugam, and Sakthivel Palani Gounder (collectively, the “Founders”), and three other entities that the Founders control. 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 Negligent misrepresentation and fraudulent inducement are, to some extent, cut from the same cloth. Both causes of action involve false statements. Often, though not always, the failure to satisfy the elements of one of the claims will result in the failure to satisfy the elements of the other.  In Borovina v. ACAP Fund GP, LLC , 2023 N.Y. Slip Op. 05115 (2d Dept. Oct. 11, 2023) (here), the Appellate Division, Second Department affirmed the dismissal of a fraud claim on the ground that it mirrored the plaintiff’s negligent misrepresentation claim and was otherwise conclusory and violative of CPLR 3016(b). “A claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information.” 1 “‘ iability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.’” 2 Notably, the relationship “requires a closer degree of trust than an ordinary business relationship.” 3 For this reason, arm’s-length transactions between sophisticated parties do not give rise to privity. 4 A claim for fraudulent inducement requires the plaintiff to demonstrate that the defendant made a misrepresentation or omission of a material existing fact, which was false and known to be false by the defendant when made, for the purpose of inducing the plaintiff’s reliance thereon; that the plaintiff justifiably relied on such misrepresentation or omission; and that the plaintiff was injured thereby. 5 Borovina v. ACAP Fund GP, LLC According to the complaint, in January 2021, plaintiff registered with defendant The Loan Source, Inc. (“TLS”), and received access to the TLS online portal for the purposes of obtaining services to submit an application for a loan through the Payroll Protection Program (“PPP”). Plaintiff alleged that TLS and defendant ACAP Fund GP, LLC (“ACAP”), conducted business together as “ACAP + The Loan Source Team.” After plaintiff uploaded all documentation to the TLS online portal, TLS sent plaintiff a notice that there was an error or mismatch in the reporting of plaintiff’s social security and tax identification numbers with documentation previously submitted by plaintiff in support of a prior PPP loan application. In response, plaintiff provided TLS documentation to fix the error. TLS informed plaintiff that it had received the additional documentation and that his PPP loan application “should be all set.”  Thereafter, plaintiff continued to receive error notices regarding his social security and tax identification numbers. TLS advised him to disregard those notices as they were “out of date.”  Subsequently, in April 2021, TLS informed plaintiff that it was unable to obtain approval of his PPP loan application and that it could no longer provide PPP-related services to him. Plaintiff commenced the action to recover damages for negligent misrepresentation and fraud against ACAP, TLS, and defendant Sterling National Bank. ACAP and TLS moved to dismiss the complaint, pursuant to CPLR 3211(a)(7), insofar as asserted against them.  In an order dated October 19, 2021, the motion court, inter alia , granted the motion, finding that plaintiff failed to plead negligent misrepresentation and fraud with particularity. Plaintiff appealed. As noted, the Second Department affirmed the dismissal of the complaint. The Court held that plaintiff did not demonstrate the existence of a special relationship with TLS and ACAP. Noting that a special relationship does not arise from an arm’s-length business transaction, the Court found that plaintiff failed to allege facts sufficient to “support an inference that a special relationship was created or existed between the plaintiff and ACAP or TLS.” 6 “Further,” held the Court, “the Supreme Court properly granted that branch of the motion of ACAP and TLS … to dismiss the cause of action sounding in fraud insofar as asserted against them.” 7 The Court found that the fraud allegations “were merely a recitation of the negligent misrepresentation cause of action.” 8 In addition, said the Court, plaintiff failed to plead the claim with particularity, alleging in a “conclusory” way “that the defendants’ representations ‘were so reckless and wanton as to constitute fraud.’” 9 Footnotes J.A.O. Acquisition Corp. v. Stavitsky , 8 N.Y.3d 144, 148 (2007); see also Mandarin Trading Ltd. v. Wildenstein , 16 N.Y.3d 173, 180 (2011). Fresh Direct, LLC v. Blue Martini Software, Inc. , 7 A.D.3d 487, 489 (2d Dept. 2004) (quoting Kimmell v. Schaefer , 89 N.Y.2d 257, 263 (1996). Fleet Bank v. Pine Knoll Corp. , 290 A.D.2d 792, 795 (3d Dept. 2002) (internal quotation marks and citation omitted). See Greenberg, Trager & Herbst v. HSBC Bank USA , 17 N.Y.3d 565, 579 (2011). Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996); see also New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318 (1995). Slip Op. at *2 (citations omitted). Id. 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 As previously noted in this Blog, there are two “components and constitutional predicates of personal jurisdiction.”  Keane v. Kamin , 94 N.Y.2d 263, 265 (1999). “One component involves service of process, which implicates due process requirements of notice and opportunity to be heard.”  Id. (citations omitted). Even though a defendant may be subject to the jurisdiction of the Court, dismissal may be sought “based on the claim that service was not properly effectuated.”  Id. (citations omitted).  “The other component of personal jurisdiction involves the power, or reach, of a court over a party, so as to enforce judicial decrees.”  Id. (citations omitted).  This requires a “constitutionally adequate connection between the defendant, the State and the action” ( Id. (citations omitted)) and is beyond the scope of this article.  [Personal jurisdiction and service of process have been discussed, inter alia , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .] The CPLR provides numerous methods for the service of process on, inter alia , individuals, business entities and governmental entities.  See CPLR §§ 307 to 318.  CPLR 308 addresses service of process on individuals.  The failure to serve process in “strict compliance” with the “statutory methods,” “leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void.”  Nationstar Mortgage, LLC v. Gayle , 191 A.D.3d 1002 (2 nd Dep’t 2021) (citations omitted).  Accordingly, proper service of process, and proof thereof, is of the utmost importance.  In order to serve process on an individual, for example, process servers and attorneys need to know, inter alia , the defendant’s “dwelling place or usual place of abode” to serve by substituted service under CPLR 308(2) or (4).  Accordingly, public records such as DMV records are frequently used to locate potential defendants.  Vehicle and Traffic Law § 505(5) requires licensees to notify the DMV of changes of address within ten days of such change.  Similarly, Vehicle and Traffic Law 401(3) requires the same thing for vehicle registrations.  What happens, however, if a licensee or registrant fails to update an address with the DMV, and a process server relies on the erroneous information to serve process?  The law in this regard was inconsistent within and amongst the Appellate Division Departments.  The Second Department, however, recently clarified the law (in the Second Department at least). On September 13, 2023, the Appellate Division, Second Department, addressed this important issue in Castillo-Florez v. Charlecius .   The plaintiff in Castillo-Florez was hit by a bus owned by the MTA and operated by the individual defendant.  Plaintiff commenced a personal injury lawsuit.  The individual defendant was served with process upon a person of suitable age and discretion at an address indicated in the individual defendant’s DMV records.  When the individual defendant failed to appear, the plaintiff moved for a default judgment.  In support of the motion, the plaintiff submitted the process server’s affidavit which contained copies of the relevant DMV records showing the outdated address.  The individual defendant opposed the motion and argued that he did not default because he was never served with process and that the presumption of service arising from the process server’s affidavit was rebutted by the individual defendant’s “affidavit, in which he denied receipt of service and denied residing at the at the time service allegedly was made.”   The motion court granted the plaintiff’s motion holding that “while may not have resided at the as of June 2019, service upon him at that address was nevertheless permissible because had failed to update his mailing address with the DMV as required by VTL § 505(5). Additionally, the court determined that 's failure to update his address with the DMV precluded a challenge to the diligence of the process server in ascertaining 's correct address.”  The individual defendant appealed, and the Second Department reversed. As stated by the Castillo-Florez Court, the “principal question presented on this appeal is whether an individual defendant's failure to fulfill the statutory obligation to timely notify the New York State Department of Motor Vehicles … of a change of address, standing alone, estops that defendant from contesting service of the summons and complaint made at his or her former address.”  In answering the question in the negative, the Court held that “while there are circumstances where a defendant may be estopped from contesting service of process based in part on the failure to update his or her address with the DMV, such as where the defendant engages in a deliberate attempt to avoid service, the mere failure to update one's address with the DMV, standing alone, does not automatically warrant application of the estoppel doctrine.” In reaching its decision, the Castillo-Florez Court surveyed the varied case law on this issue.  The Court noted that estoppel may be employed to “preclude a defendant 'from challenging the location and propriety of service of process if that defendant has engaged in affirmative conduct which misleads a party into serving process at an incorrect address’” (c iting Hudson Val. Bank, N.A. v. Eagle Trading , 208 A.D.3d 648, 650 (2 nd Dep’t 2022), quoting Everbank v. Kelly , 203 A.D.3d 138, 145 (2 nd Dep’t 2022)).  [Eds. Note: this Blog discussed Everbank < here =">here"> .]   As an integral part of its analysis, the Court discussed Feinstein v. Bergner , 48 N.Y.2d 234 (1979), a motor vehicle accident case.  There the defendant provided an address at the scene of an accident and was served with process at that location 30 months later.  The defendant, however, moved 10 months after the accident.  The Court of Appeals failed to sustain service and declined to apply estoppel because the plaintiff “failed to demonstrate that engaged in conduct which was calculated to prevent them from learning of his new address.” (Internal quotation marks omitted, brackets in original.)   The Second Department then noted that it has applied estoppel inconsistently over the years.  It has done so in motor vehicle accident cases solely because the defendant failed to timely notify the DMV of an address change.  In other cases, the Court noted, a defendant’s address was not updated with the DMV and “the defendant had also engaged in affirmative conduct that court viewed as a deliberate attempt to avoid notice of the action, making estoppel appropriate.”  The Court also noted that it “has, at times, declined to apply estoppel where there was no evidence that the defendants had engaged in any conduct which could be viewed as a deliberate attempt to avoid service.”  The Court also analyzed similar cases from other Departments. The Second Department then recognized that: certain of this Court's jurisprudence in this area drifted from the original intent of Feinstein . Although Feinstein did not focus on Vehicle and Traffic Law § 505(5), nothing in that decision suggests that an individual defendant's failure to timely update his or her address with the DMV, standing alone, mandates precluding a defendant from challenging service made at a former address. Rather, as discussed, the Court of Appeals declined to apply estoppel because the plaintiffs had failed to demonstrate that the defendant engaged in conduct calculated to prevent them from learning of his new address ( see Feinstein v Bergner , 48 NY2d at 241). We find that the failure to update one's address, by itself, should not equate with affirmative or deliberate conduct designed to avoid service, even when coupled with a defendant's direct involvement in an accident.   The Second Department then held “that the mere failure to update one's address with the DMV, standing alone, does not automatically equate with a deliberate attempt to avoid service and warrant estopping a defendant from challenging the propriety of service at a former address o the extent our prior decisions, including those previously cited herein, conflict with this principle, they should no longer be followed for that proposition .”  (Emphasis supplied.) As to the specific facts of Castillo-Florez, the Court found that the individual defendant did nothing to prevent the plaintiff “from learning his new address”.  Nor was there any basis to conclude that the individual defendant “neglected to update his address with the DMV as part of a deliberate attempt to avoid service”.  Finally, while the process server’s affidavit of service was prima facie evidence of proper service, the individual defendant “sufficiently rebutted the presumption of proper service n opposition to the plaintiff's motion, a detailed, sworn affidavit from was submitted, in which he, inter alia , denied receipt of service, denied residing at the at the time service allegedly was made, and set forth the location of his address at the time of service”.  Thus, the Court determined that under the circumstances, “a hearing to determine whether was properly served pursuant to CPLR 308(2) was required.” 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 Gold v. Rothfeld , 2023 N.Y. Slip Op. 05006 (2d Dept. Oct. 4, 2023) ( here ), the Appellate Division, Second Department affirmed the dismissal of a fraud complaint on two grounds: collateral estoppel and failure to plead fraud with particularity. We examine the decision and the principles underpinning the holding below. The Requirement To Plead Fraud With Particularity To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” The claim must be pleaded with particularity. Conclusory allegations will not suffice. Neither will allegations based on information and belief. If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed. The requirement that a fraud claim be pleaded with particularity can be found in Section 3016(b) of the Civil Practice Law and Rules (“CPLR”). Under CPLR § 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”   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. Notwithstanding, in Pludeman v.Northern Leasing Systems, Inc. , the Court of Appeals held that CPLR § 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.” Thus, as noted, a plaintiff will satisfy CPLR 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct. Collateral Estoppel The doctrine of collateral estoppel prevents a party from relitigating an issue that was “raised, necessarily decided and material in the first action,” provided the party had a full and fair opportunity to litigate the issue. The doctrine applies when: “(1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was actually litigated and decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits.” Collateral estoppel “is a doctrine intended to reduce litigation and conserve the resources of the court and litigants and it is based upon the general notion that it is not fair to permit a party to relitigate an issue that has already been decided against it.” The doctrine is an equitable defense “grounded in the facts and realities of a particular litigation, rather than rigid rules.” The proponent of collateral estoppel has the burden of demonstrating “the identicality and decisiveness of the issue,” while the opponent has the burden of establishing “the absence of a full and fair opportunity to litigate the issue in prior action or proceeding.” In New York, the CPLR specifically recognizes collateral estoppel as a basis for dismissal. It is also an affirmative defense under the CPLR. Gold v. Rothfeld In Gold , plaintiff brought an action for damages against defendant, claiming fraud and conspiracy to commit fraud. In particular, plaintiff claimed damages in connection with certain alleged improprieties in, among other things, the preparation of certain estate planning instruments for his mother, Grace K. Gold, and father, Eugene Gold, the administration of their estates, and communications with him regarding the foregoing. Background On November 8, 2011, Grace died, survived by Eugene and their three children (plaintiff, Cheryl Gold and Amy Gold Kaufman). Under Grace’s last will and testament, dated February 4, 2011, Eugene was appointed executor of the estate. Among other things, Grace created a trust in her will that provided income to Eugene during his lifetime, and which was to terminate (and did terminate) upon Eugene’s death. Grace’s will also provided, in pertinent part, that Eugene had a limited power of appointment over the corpus of the trust exercisable in favor of one or more of Grace’s descendants. On November 15, 2011, plaintiff signed a waiver and consent to the probate of Grace’s will. Eugene died on November 8, 2013, leaving a last will and testament and codicils for which Cheryl was the nominated executor. With respect to the trust, Eugene’s will provided, among other things, that $2 million was to be distributed to Cheryl and Amy each, with the balance to be distributed to Eugene’s descendants per stirpes. Eugene’s will also contained an in terrorem clause. After Cheryl sought to probate Eugene’s will, plaintiff sought to rescind his previously filed waiver and consent with respect to Grace’s will and moved to stay the probate of Eugene’s will, based on his assertion, inter alia , that Grace lacked capacity at the time she executed her will and that her will was the product of undue influence. In a decision dated July 31, 2014, the Surrogate’s Court determined, in pertinent part, that plaintiff failed to show that Grace lacked capacity at the time she executed her will or that she was subject to undue influence. Thereafter, plaintiff petitioned the Surrogate’s Court for, inter alia , letters of limited administration with respect to Grace’s estate, based upon his assertions that Grace lacked capacity and was subject to undue influence at the time she executed the subject trust and a settlement agreement with the Internal Revenue Service. Cheryl and Amy moved, inter alia , for summary judgment dismissing the amended petition. The Surrogate’s Court granted the the branch of the motion to dismiss the amended petition and denied plaintiff’s demand for an order compelling an accounting without prejudice to renewal at a later date. On November 10, 2017, plaintiff commenced the action in Supreme Court. Defendant moved to dismiss the complaint with prejudice. That motion was withdrawn after plaintiff filed an amended complaint. In the amended, plaintiff alleged, in sum and substance, that defendant made material representations that were false regarding Eugene’s intention to exercise certain powers of appointment under Grace’s will, and the impact that would occur to plaintiff’s rights by executing the waiver and consent for probate; false and misleading testimony offered by defendant during his examination in the probate proceeding of Eugene’s will; knowing and willful participation in false and misleading statements and submissions made by co-counsel to the Surrogate’s Court in order to induce the court to amend the probate decree; knowingly false material representations to deceive plaintiff; reliance by plaintiff to his detriment on defendant’s advice regarding the non-exercise of certain powers of appointment, the impact of executing the waiver and consent prepared by the defendant; reliance on defendant’s representations as an officer of the court, who was required to refrain from engaging with plaintiff and, instead, advise him to retain independent counsel; the prohibition on ex parte communications with the Surrogate’s Court and the prohibition on obtaining substantive relief without providing the plaintiff with notice and an opportunity to be heard; damages plaintiff sustained because of the waiver of plaintiff’s right to conduct examinations in the estate of Grace; and by increased and unnecessary legal fees related to the foregoing. Defendant filed a new motion to dismiss pursuant to CPLR § 3211(a)(1), CPLR § 3211(a)(5) and CPLR § 3211(a)(7). Among other things, defendant argued that the allegations in the amended complaint concerned acts that were previously decided by the Surrogate’s Court and therefore barred by the doctrine of collateral estoppel and the cause of action for fraud was not sufficiently pleaded with specificity. The Motion Court’s Decision and Order The motion court held that the action was barred by the doctrine of collateral estoppel “because this action essentially no different from the plaintiff’s prior attempts to vacate his waiver and consent in the Surrogate’s Court.” “Distilled to its essence,” said the motion court, “the complaint amounts to nothing more than a rehashing of the same theory of fraudulent misrepresentations and conspiracy which was explicitly considered and rejected by the Surrogate’s Court as well as the Second Department.” The motion court held that “plaintiff failed to show that he did not have a full and fair opportunity at the Surrogate Court proceedings or subsequently at the Appellate Division to litigate the matters alleged herein.” Accordingly, the motion court concluded that the fraud claim was barred on collateral estoppel grounds. The motion court also held that plaintiff failed to state a fraud cause of action. The motion court explained that plaintiff failed to plead any of the elements of the claim, stating “plaintiff has not identified any specific instances of misconduct or any misrepresentation by the defendant.…” The motion court also explained that plaintiff “failed to properly plead the elements of misrepresentation of a material fact and justifiable reliance with specificity.” Moreover, said the motion court, “plaintiff has not, and cannot plead identifiable, actionable damages.” Plaintiff appealed. As noted, the Second Department affirmed. The Second Department’s Decision As to the dismissal on collateral estoppel grounds, the Court held that the motion court “properly concluded that so much of the fraud cause of action as was predicated upon allegations that the defendant made misrepresentations to induce the plaintiff to sign a waiver and consent to the probate of Grace’s will and concerning Grace’s personal property was barred by the doctrine of collateral estoppel.” The Court explained that “ hose allegations were raised by the plaintiff in a petition he filed in the Surrogate’s Court, seeking to rescind the waiver and consent, and, after a full and fair opportunity to litigate, were necessarily decided against him in a 2014 order of that court granting dismissal of the petition.” Regarding the dismissal of the fraud claim for failing to state a claim, the Court held that the motion court properly granted the motion. The Court explained that the “amended complaint … failed to sufficiently allege recoverable, nonspeculative damages with respect to the allegations that the defendant made certain misrepresentations regarding the plaintiff’s inheritance in November 2011.” The Court also explained that plaintiff “failed to sufficiently set forth the alleged misrepresentations made, and justifiable reliance thereon, concerning the defendant’s purported participation in a fraudulent scheme in September 2016. Takeaway In a prior article, we quoted Stephen King as saying “the truth is in the details. No matter how you see the world …, the truth is in the details.” ( Here .) We said that the “quote fairly sums up the pleading requirement that all plaintiffs must satisfy when alleging a fraud.” The reason: courts require plaintiffs to provide sufficient details of the alleged misconduct to support a reasonable inference that the allegations of fraud are true. For this reason, conclusory allegations will not suffice. Plaintiffs must describe the “who, what, when, where, and how” of the fraud, or “the first paragraph of any newspaper story.”   In the absence of such detail, as in  Gold , even under the reasonable inference standard of the CPLR, plaintiff could not maintain a fraud claim. As discussed above, the collateral estoppel doctrine will preclude a party from relitigating an issue that has been previously decided against him/her in a prior proceeding where he/she had a full and fair opportunity to litigate such issue. In Gold , both the motion court and the Second Department found that plaintiff’s amended complaint was simply a reiteration of the same theory that was litigated, considered, and rejected by the Surrogate’s Court and the Second Department. Since plaintiff had a full and fair opportunity to be heard in those proceedings, the courts dismissed the action on collateral estoppel grounds. ________________________________ 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. Lama Holding Co. v. Smith Barney Inc. , 88 N.Y.2d 413, 421 (1996). Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009). Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). RKA Film Fin., LLC v. Kavanaugh , 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC , 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi , 120 A.D.3d 447 (1st Dept. 2014). Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). Id. at 491 (internal quotation marks and citation omitted). Id. at 492. Id. E.g. , Parker v. Blauvelt Volunteer Fire Co. , 93 N.Y.2d 343, 349 (1999). Conason v. Megan Holding, LLC , 25 N.Y.3d 1, 17 (2015) (internal quotation marks omitted). Kaufman v. Eli Lilly & Co. , 65 N.Y.2d 449, 455 (1985) Buechel v. Bain , 97 N.Y.2d 295, 303 (2001). Ryan v. New York Tel. Co. , 62 N.Y.2d 494, 501 (1984). See CPLR § 3211(a)(5). See CPLR § 3018(b). An in terrorem clause is a provision in a will that prohibits a beneficiary from disputing any provisions of a will. People use such clauses to discourage challenges to a will and avoid long probate proceedings. Under an in terrorem clause, a beneficiary’s interest or inheritance under the will is revoked if the beneficiary violates the clause. Most states enforce in terrorem clauses, though they are disfavored and subject to strict construction, such that they do not grant or hold absolute authority over the distribution of the testator’s interests. Many states limit the enforceability of in terrorem clauses to ensure beneficiaries can challenge fraudulent conduct or other conduct against public policy. In New York, for example, courts have held that in terrorem clauses that attempt to preclude a beneficiary from questioning the eligibility or conduct of a fiduciary are not enforceable as against public policy and the intentions of the testator. For a more in-depth discussion of in terrorem clauses, see here (from where the foregoing discussion is taken). Citations omitted. See Matter of Gold , 170 A.D.3d 1174 (2d Dept. 2014). Citation omitted. Citations omitted. Slip Op. at *1. Id. (citations omitted). Id. Id. Id. (citations omitted). United States ex rel. Lubsy v. Rolls-Royce Corp. , 570 F.3d 849, 853 (7th Cir. 2009) (internal quotation marks omitted).

By Jonathan H. Freiberger This Blog frequently addresses complex substantive and procedural issues.  Today, however, we return to basics.  In New York, an “action is commenced by the filing of a summons and complaint or a summons with notice in accordance with rule twenty-one hundred two ” of the CPLR.  CPLR 304(a) .  “Filing” means “the delivery of the summons with notice summons and complaint … to the clerk of the court in the county in which the action … is brought ….”  CPLR 304(c).  The filing of a summons is necessary to invoke the jurisdiction of the court.  Wesco Ins. Co. v. Vinson , 137 A.D.3d 1114, 1115 (2 nd Dep’t 2016); Ghiazza v. Anchorage Mirina, Inc. , 210 A.D.3d 1328, 1329 (3 rd Dep’t 2022).  “The failure to file the papers required to commence an action constitutes a nonwaivable, jurisdictional defect, and such a defect is not subject to correction under CPLR 2001.”  Ghiazza , 210 A.D.3d at 1329 (citations and internal quotation marks omitted). The CPLR also provides that a court can dismiss an action, without prejudice, if, inter alia , a summons and complaint are not served on the defendant within 120 days “of the commencement of the action.”  CPLR 306-b .  Similarly, a notice of pendency is “effective only if, within thirty days after filing, a summons is served upon the defendant or first publication of the summons against the defendant is made pursuant to an order and publication is subsequently completed.”  CPLR 6512 .  Also, a notice of pendency is subject to “mandatory cancellation” if “service of a summons has not been completed within the time limited by section 6512….”  CPLR 6514 . The failure of the plaintiff to file a summons was an issue decided on October 4, 2023, by the Appellate Division, Second Department, in Park Premium Enterprises v. Norben Lofts, LLC .   The plaintiff in Park was a general contractor hired by the defendant to convert a commercial building into residential apartments.  The plaintiff alleged that it performed under the parties’ contract but was never paid.  The plaintiff filed a mechanic’s lien against the property and, subsequently, filed a complaint and a notice of pendency.  [This blog has discussed mechanic’s liens < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> and notices of pendency < here =">here"> and < here =">here"> .] The defendant moved to, inter alia , dismiss the complaint pursuant to CPLR 3211(a) due to the plaintiff’s failure to file a summons, and to vacate the notice of pendency for failure to comply with CPLR 6511 and 6512.  The Plaintiff filed a summons seven months after filing its complaint and over one month after the defendant filed its motion to dismiss.  The plaintiff opposed the motion by arguing, inter alia , that the Governor’s COVID related executive orders tolled the time in which the plaintiff had to commence the action.  The motion court granted the defendant’s motion and the plaintiff appealed. The Second Department affirmed, holding that the supreme court was without jurisdiction, and the action was a “nullity,” due to the plaintiff’s failure to file a summons.  The Court rejected plaintiff's COVID related arguments.  Thus, the Court held that: The contention of that the time in which to commence an action was tolled by a series of executive orders issued by Governor Andrew Cuomo is misplaced, as no time period is at issue. Rather, in order to commence an action, was required to file a summons and complaint, and the failure to do so warranted dismissal of the complaint.  The Court also rejected the plaintiff’s argument that “the failure to file a summons should have been disregarded pursuant to CPLR 2001 ,” which allows a court, under certain circumstances, to permit the correction of “a mistake, omission, defect or irregularity including … mistake in the filing process.”  In so doing, the Court stated: The contention of that the failure to file a summons should have been disregarded pursuant to CPLR 2001 is improperly raised for the first time on appeal, and, in any event, without merit, as the complete failure to file the initial papers necessary to institute an action is not the type of error that falls within the court's discretion to correct under CPLR 2001. The contention of that it filed a summons after submitting its opposition to the subject motion is based upon matter outside of the record on appeal and is not properly before this Court.  Finally, the Court canceled the notice of pendency due to the dismissal of the action pursuant to CPLR 6514(a). 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.