By Jonathan H. Freiberger Generally speaking, “term sheets” outline the basic terms of a transaction being negotiated by the parties thereto.  This Blog has previously addressed the enforceability of “term sheets.” See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . On June 15, 2023, the Appellate Division, First Department, decided Parkmerced Investors, LLC v. WeWork Companies LLC , in which the enforceability of a term sheet was decided by the Court.  underlying=">underlying" supreme="supreme" decision="decision" which="which" quoted="quoted" extensively="extensively" complaint.="complaint.">   The plaintiff in Parkmerced was redeveloping a neighborhood in San Francisco.  The president of WeWork contacted an individual involved with the plaintiff’s redevelopment efforts and “urged for WeWork to participate in the redevelopment project.”  After numerous meetings during which the details of WeWork’s potential investment were discussed, “plaintiff and WeWork allegedly entered into an agreement that contained all the material terms for WeWork’s investment.”  However, the “term sheet” was a “‘non-binding indication of terms for a preferred equity investment … of $450 million.’”  The “‘non-binding’” “term sheet” contained a few provisions that were expressly intended to be binding.  One such provision of the “term sheet” required plaintiff to negotiate exclusively with We Work for the right to participate in the redevelopment, a provision for which WeWork paid a “$20 million nonrefundable exclusivity fee.”  Accordingly, plaintiff terminated its discussions with other potential investors.  Ultimately, WeWork “repudiated the agreement.” Plaintiff commenced an action against WeWork, alleging breach of contract, breach of the covenant of good faith and fair dealing and promissory estoppel.  As to the breach of contract cause of action, plaintiff alleged that the “term sheet” was a binding agreement that WeWork breached by failing to perform.  Relying on documentary evidence (i.e., the term sheet) WeWork moved to dismiss all three causes of action pursuant to CPLR 3211 (a)(1). Among other things, as recognized in supreme court’s underlying decision and order , WeWork argued that: the term sheet “explicitly states that it was generally not binding”; “while the exclusivity fee section was binding, it specifically states that WeWork may decline to pursue the transaction”; and, “the $20 million exclusivity fee was to serve as liquidated damages.”  Supreme court generally discussed the law regarding breach of contract and stated: The elements of a breach of contract claim are: (1) existence of a contract, (2) plaintiff’s performance pursuant to the contract, (3) defendant’s breach of contractual obligations, and (4) resulting damages.  The court will enforce a clear and complete written agreement according to the plain meaning of its terms, and not look to extrinsic evidence to create ambiguities within the four corners of the contract.  A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.  Moreover, the court considers the context of the clauses when reading the contract as a whole. Supreme court, citing Keitel v. E*Trade Fin. Corp ., 153 A.D.3d 1181, 1181 (1 st Dep’t 2017), lv. Denied, 31 N.Y.3d 903 (2018), then noted that “ term sheet is non-binding when it sets forth the general intent for the parties to engage in good faith discussions and only be bound by a future written agreement.”  Supreme court found that the term sheet “clearly provides that is non-binding, which is emphasized at the beginning and the end of the Term Sheet.”  Supreme court also found that the “exclusivity fee” was a liquidated damages provision covering the “very breach for which plaintiff seeks recovery in this action: failure to ‘proceed’ or ‘consummate’ in the Term Sheet compared to failure to negotiate or close in the complaint.”  Based on these and other issues, supreme court dismissed the breach of contract cause of action. On plaintiff’s appeal, the First Department unanimously affirmed. As to the contract cause of action, the Court stated: A term sheet that sets forth the general intent of the parties to discuss in good faith the terms and conditions of a deal and states that neither party shall be bound until the parties execute a more formal written agreement, does not constitute an enforceable contract.  Here, the inception sentence of the term sheet stated that what followed was a “non-binding indication of terms for a preferred equity investment” in plaintiff by WeWork …. The final provision, titled “non-binding,” reiterated that the parties understood and agreed that the term sheet was provided “solely for discussion purposes and is not a commitment or agreement of any kind on the part of WeWork . . . .” In addition, since the exclusivity fee, or liquidated damages provision, pertained to the very breach for which plaintiff seeks recovery, i.e., the failure to proceed or consummate the proposed transaction, actual damages are unavailable. The exclusivity fee, however, did not pertain to attorneys’ fees, which were allowed if any party commenced any action against another in connection with the term sheet and prevailed.  As to the remaining two causes of action, the Court stated: The cause of action based upon breach of the covenant of good faith and fair dealing cannot be sustained absent a contractual obligation between the parties. Nor can the claim be used as a substitute for the nonviable breach of contract claim. Furthermore, plaintiff’s vague assertions that WeWork refused to negotiate in good faith were conclusory.  The promissory estoppel claim was correctly dismissed as duplicative of the breach of contract claim.  Moreover, the claim was undercut by the absence of a sufficiently clear and unambiguous promise.  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 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. 1 Collateral estoppel is an equitable defense “grounded in the facts and realities of a particular litigation, rather than rigid rules.” 2 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.” 3 The collateral estoppel doctrine applies to prior arbitration proceedings, 4 as well as prior determinations by state appellate and federal courts. 5 In New York, the Civil Practice Law and Rules (“CPLR”) specifically recognizes collateral estoppel as bases for dismissal. 6 It is also an affirmative defense under the CPLR. 7 In Republic of Kazakhstan v. Chapman , 2023 N.Y. Slip Op. 03211 (1st Dept. June 13, 2023) ( here ), the Appellate Division, First Department consider the foregoing principles. The Republic of Kazakhstan arose in the aftermath of an arbitration award by the Swedish Chamber of Commerce in December 2013, under the Energy Charter Treaty, rendered against plaintiff in favor of nonparties Anatolie Stati, Gabriel Stati, Ascom Group, S.A., and Terra Raf Trans Trading Ltd. (together, the “Statis”), plaintiff’s efforts to annul that award in Sweden, the efforts of the Statis to enforce the award in several jurisdictions, and plaintiff’s efforts to defeat enforcement. 8 Plaintiff alleged that the arbitration was the result of fraud during the underlying transaction — the construction of a liquefied petroleum gas plant — and that the award itself was procured by fraud on the tribunal. Plaintiff also alleged that the Statis committed numerous other acts of fraud, which were not addressed in the arbitration award. Defendants were not alleged to have participated in any of these frauds. Defendants or their predecessors-in-interest held notes issued by a subsidiary company owned by the Statis in Kazakhstan, under which the Statis defaulted on interest payments, and they agreed to a separate agreement while the arbitration was pending to share proceeds from the arbitration in lieu of receiving the principal and interest due on the notes. Plaintiff alleged that defendants did so with knowledge of the Statis’ fraud. Plaintiff further alleged that, following the initial award, defendants funded the Statis’ litigation and assisted them with their litigation strategy. Plaintiff contended that this litigation assistance facilitated the Statis’ fraud. Plaintiff also alleged that defendants communicated with the Statis about government and media relations, that they made false statements to the public through a website and press releases, and that they made or threatened to make false statements to the U.S. Government. Plaintiff commenced the action, seeking relief for defendants’ alleged conspiracy in, and aiding and abetting of, the Statis’ various fraudulent schemes. In particular, plaintiff alleged claims of aiding and abetting fraud, conspiracy to commit fraud, and unlawful means conspiracy under English law. Defendants moved to dismiss. The motion court granted the motion, holding, inter alia , that (1) the action was “predicated on an impermissible collateral attack of a confirmed arbitration award,” and (2) the aiding and abetting claim could not stand because “there can be no action for aiding and abetting fraud without an underlying fraud.”  9 by contrast, a collateral attack occurs when a party challenges an arbitral award through some bases other than the vacatur provisions of the faa or the cplr. 10 for example, a claim that fraud permeated the arbitration is a collateral attack on an arbitral award, 11 as is an attempt to vacate an award through a plenary action. 12 in determining whether a challenge to an award is collateral, courts look at the “relationship between the alleged wrongdoing, purported harm, and arbitration award.” 13 in other words, the courts look at whether the claims would undermine the validity of the underlying arbitral proceedings or frustrate the enforcement of the resulting award.>9 by contrast, a collateral attack occurs when a party challenges an arbitral award through some bases other than the vacatur provisions of the faa or the cplr. 10 for example, a claim that fraud permeated the arbitration is a collateral attack on an arbitral award, 11 as is an attempt to vacate an award through a plenary action. 12 in determining whether a challenge to an award is collateral, courts look at the “relationship between the alleged wrongdoing, purported harm, and arbitration award.” 13 in other words, the courts look at whether the claims would undermine the validity of the underlying arbitral proceedings or frustrate the enforcement of the resulting award.>  The First Department affirmed. The Court held that the action was barred by the collateral estoppel doctrine. 14 The Court noted that “Plaintiff ha litigated the fraud alleged herein before Swedish arbitrators, the Swedish (Svea) Court of Appeal, and the District Court for the District of Columbia, which enforced the arbitral award under the Federal Arbitration Act.” 15 As such, plaintiff had a full and fair opportunity to litigate the issue. 16 The Court rejected plaintiff’s argument that there was new evidence related to the fraud – the “same fraud claim plaintiff has been pursuing for over a decade, including allegations that the Statis diverted funds, inflated construction costs, used funds that should have been sequestered as collateral, and paid their companies inflated prices for drilling services.” 17 In so holding, the Court explained that “well-settled” rules concerning “new” evidence and arbitral awards “cannot undermine the preclusive effect of the earlier decisions.” 18 There is a well-settled rule prohibiting challenges to arbitral awards on the basis of newly discovered evidence … Without such a rule, the arbitration award would be the beginning rather than the end of the controversy and the protracted litigation which arbitration is meant to avoid would be invited. 19 The Court also held that “ ven if collateral estoppel did not apply to all of plaintiff’s claims, those claims would still warrant dismissal for failure to state a cause of action” under CPLR § 3211(a)(7). “The aiding and abetting fraud and conspiracy to commit fraud claims,” said the Court, “fail[] since the complaint does not include detailed allegations of an underlying fraud.” 20 The Court explained that, in particular, the allegations in the complaint did not “support justifiable reliance on the Statis’ misrepresentations of fact or omissions …, as they ‘were undertaken in the course of adversarial proceedings and were fully controverted’ by plaintiff’s own proffered evidence.” 21 The Court also noted that plaintiff failed to allege that it suffered damages by reason of defendants’ misrepresentations to parties other than arbitrator tribunals or courts. 22 The Court further held that the conspiracy to commit fraud and the aiding and abetting fraud claims failed because the allegations of an agreement among the conspirators and the knowledge of the aider and abettor were conclusory. 23 Finally, the Court found that the claim under English law alleging unlawful means conspiracy conflicted with New York law, in that it allowed for a conspiracy claim without the commission of an underlying tort. 24 “As the conflict pertains to a conduct-regulating rule, the law of the place where the tort occurs will generally apply because that jurisdiction will almost always have the greatest interest in regulating conduct within its borders.” 25 26 an actual conflict exists if the laws in each jurisdiction “provide different substantive rules … that are relevant to the issue at hand and have a significant possible effect on the outcome of the trial.” 27 if an “actual conflict” exists, the court must apply the law of the jurisdiction with the greatest interest in the resolution of the dispute. 28 if no conflict exists, however, the court applies the law of the forum state. 29 > 26 an actual conflict exists if the laws in each jurisdiction “provide different substantive rules … that are relevant to the issue at hand and have a significant possible effect on the outcome of the trial.” 27 if an “actual conflict” exists, the court must apply the law of the jurisdiction with the greatest interest in the resolution of the dispute. 28 if no conflict exists, however, the court applies the law of the forum state. 29 >  “Here,” said the Court, “the vast conspiracy alleged concerning unlawful means did not occur in England, save for the Statis’ proceeding seeking to enforce the arbitration award there and defendants’ funding of an appeal in that proceeding.” 30 Moreover, said the Court, “insofar as the claim applies, the complaint not identify an unlawful act in England that defendants agreed to commit.” 31 Footnotes E.g. , Parker v. Blauvelt Volunteer Fire Co. , 93 N.Y.2d 343, 349 (1999). Buechel v. Bain , 97 N.Y.2d 295, 303 (2001). Ryan v. New York Tel. Co. , 62 N.Y.2d 494, 501 (1984). Mahler v. Campagna , 60 A.D.3d 1009 (2d Dept. 2009); see also Rembrandt Ind. v. Hodges Intl. , 38 N.Y.2d 502, 504 (1976); Lopez v. Parke Rose Mgt. Sys. , 138 A.D.2d 575, 577 (2d Dept. 1988). Milone v. City University of New York , 153 A.D.3d 807, 808-809 (2d Dept. 2017); see also Emmons v. Broome County , 180 A.D.3d 1213 (3d Dept. 2020). See CPLR § 3211(a)(5). See CPLR § 3018(b). See Stati v. Republic of Kazakhstan , 302 F. Supp. 3d 187, 191-193 (D.DC. 2018), aff’d , 773 F. App’x 627 (2d Cir. 2019), cert. denied , 140 S.Ct 381 (2019); see also Republic of Kazakhstan v. Stati , 380 F. Supp 3d 55, 59-65 (D.DC 2019), aff’d , 801 F. App’x 780 (D.C. Cir. 2020). See CPLR § 7511; 9 U.S.C. §§ 9, 10. See , e.g. , Kramer-Wilson Co. v. Nat’l Gen. Mgmt. Corp. , 213 A.D.3d 557, 558 (1st Dept. 2023); Monterey Sportswear Corp. v. Charma Mills, Inc. , 43 A.D.2d 523, 523 (1st Dept. 1973); Oppenheimer & Co. Inc. v. Pitch , 129 A.D.3d 621, 622 (1st Dept. 2015); Pena v. Off. of the Comm’r of Baseball , 125 A.D.3d 461, 461 (1st Dept. 2015); Rutter v. Julien J. Studley, Inc. , 244 A.D.2d 239, 239 (1st Dept. 1997). E.g. , Clarke-St. John v. City of New York , 164 A.D.3d 743, 745 (2d Dept. 2018). See , e.g. , Abrams v. Macy Park Constr. Co. , 282 A.D. 922, 923 (1st Dept. 1953) (arbitration award “may not be attacked in a plenary action” because it “is a final determination as to the matters embraced in it, unless it is vacated” under the statute). Tex. Brine Co., L.L.C. v. Am. Arb. Ass’n, Inc. , 955 F.3d 482, 488 (5th Cir. 2020). Slip Op. at *1. Id. Id. ; See also Parker , 93 N.Y.2d at 349. Id. at *1-*2. Id. at *2. Id. (citations and quotation marks omitted). Id. (citing, CPLR § 3016(b); Habberstad v. Revere Sec. LLC , 183 A.D.3d 532, 533 (1st Dept. 2020); Kovkov v. Law Firm of Dayrel Sewell, PLLC , 182 A.D.3d 418, 419 (1st Dept. 2020)). Id. (citing, Sammy v. Haupel , 170 A.D.3d 1224, 1226-1227 (2d Dept. 2019); Shaffer v. Gilberg , 125 A.D.3d 632, 635 (2d Dept. 2015) (the plaintiff “always maintained that he knew” promissory notes were fake); Zappin v. Comfort , 2022 WL 6241248, at *15 (S.D.N.Y. 2022) (“In the context of an adversarial proceeding, Plaintiff is hard-pressed to assert reliance on claims that he constantly disputed.”)). Id. Id. at *2-*3. Id. at *3 (citations omitted). Id. (citations and internal quotation marks omitted). TBA Glob., LLC v. Proscenium Events, LLC , 114 A.D.3d 571, 572 (1st Dept. 2014). Id. (quoting, Elmaliach v. Bank of China Ltd. , 110 A.D.3d 192, 200 (1st Dept. 2013)). Elmaliach , 110 A.D.3d at 201. TBA Glob. , 114 A.D.3d at 572. Slip Op. at *3. 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 A common theme in commercial litigation is the assertion of a breach of contract claim and a fraudulent inducement claim. Where both claims are asserted, more times than not, the fraud claim is dismissed under the duplication of claims doctrine – a principle of law that stands for the proposition that a fraud claim cannot stand side-by-side with a breach of contract claim when there is “a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. 1 However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can be litigated with “a simple breach of contract” claim. 2 Today, we examine Offenbach v. Ohlbaum , 2023 N.Y. Slip Op. 02979 (1st Dept. June 6, 2023) ( here ), a case in which the duplication of claims doctrine served as the basis for the dismissal of a fraud claim asserted by one plaintiff but not the fraud claim asserted by the other plaintiff. In early 2012, Plaintiff and Defendant Gary Ohlbaum (“Defendant” or “Ohlbaum”) met to discuss a film that Plaintiff was producing by the name of “Original Provisionals.” Following numerous meetings and discussions, along with the exchange of information about the film, its expected costs, etc., Defendant agreed to invest in the film.  To memorialize their agreement, the parties entered into a subscription agreement (the “Subscription Agreement”). Pursuant to the Subscription Agreement, among other things, the parties formed Plaintiff, Original Provisionals LLC (the “Company”), and Defendant received membership interests in the Company. In exchange for the membership interests, Defendant agreed to “contribute” $2,532,790.00 “to the capital of the Company.” Notably, the Subscription Agreement contained a merger clause, pursuant to which the terms therein constituted the entire agreement between the parties. The parties further agreed that funding for the project would commence when Defendant approved the cash flow projections for the film. As alleged, Defendant never delivered the subscription payment despite months and years of promises to do so. According to Plaintiffs, Defendant never intended to fund the film.  Plaintiff sued, alleging, among other things, breach of the Subscription Agreement and fraud. On summary judgment, the motion court denied Plaintiffs’ motion for summary judgment on their claims for breach of contract, fraud, and intentional infliction of emotional distress and granted Defendant’s cross-motion to dismiss the claims pursuant to CPLR §§ 3211 and 3212.  The First Department modified the motion court’s order to deny Defendant’s cross-motion as to the breach of contract claim as asserted by the Company, and to grant the Company’s motion for summary judgment as to the breach of contract claim, and otherwise affirmed. The Court held that “Defendant was entitled to dismissal of breach of contract claim … because Offenbach was not a party to the subscription agreement, which obligated defendant to provide funding to plaintiff Original Provisionals LLC (the Company) for its film project in exchange for an interest in the Company.” 3 The Court explained that “Offenbach executed the subscription agreement on behalf of Original Provisionals, and nothing indicated that Offenbach was an intended third-party beneficiary of the agreement.” 4 [Eds. Note: “ third party may sue as a beneficiary on a contract made for benefit. However, an intent to benefit the third party must be shown, and, absent such intent, the third party is merely an incidental beneficiary with no right to enforce the particular contracts.” 5 Thus, “ arties asserting third-party beneficiary rights under a contract must establish (1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for benefit and (3) that the benefit to is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate if the benefit is lost.” 6 “One is an intended beneficiary if one’s right to performance is appropriate to effectuate the intention of the parties to the contract and either the performance will satisfy a money debt obligation of the promisee to the beneficiary or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.” 7 ]  The Court also held that the motion court “should not have dismissed the breach of contract claim as asserted by the Company.” 8 The Court explained that dismissal was not appropriate because the “plain terms of the subscription agreement” provided that “defendant agreed to pay $2,532,790 in exchange for membership in the Company.” 9 The Court noted that “ t undisputed that the Company performed under the subscription agreement, but defendant failed to pay the specified amount due thereunder.” 10 The Court rejected Defendant’s attempt to inject extra-contractual evidence into the interpretation of the Subscription Agreement. 11 The Court explained that defendant’s “statements that the parties’ actual agreement was different than that reflected in the contract, even if true, immaterial because the contract specifically state that it constitute the entire agreement between the parties and could only have been amended by a writing executed by the parties.” 12 Turning to the Company’s fraud claim – i.e. , that it was fraudulently induced to enter into the Subscription Agreement by Defendant’s misrepresentations that he would provide the promised financing – the Court held that it “was properly dismissed as duplicative of the breach of contract claim. 13 However, Offenbach’s fraud claim was a different story. “Because Offenbach ha no claim for breach of the subscription agreement,” said the Court, “her cause of action for fraud should not have been dismissed as duplicative of the breach of contract claim.”14 “Nevertheless,” said the Court, “Offenbach’s fraud claim should be dismissed” because she “failed to allege or show that she suffered damages separate from those recoverable by the Company under the subscription agreement.”15 The Court explained that the “fraud alleged by Offenbach individually is that defendant promised but failed to pay the subscription agreement amount to the Company and subsequently misrepresented that payment was forthcoming.”16  Takeaway In the First Department, the Court has dismissed fraud claims in which the damages sought by the fraud claim are the same as those sought by the breach of contract claim. This is so even where the plaintiff successfully demonstrates that the alleged misrepresentation is collateral to the contract at issue. 17 This Blog wrote about this scenario  here ,  here , and  here .  In Offenbach , although plaintiff’s fraud claim was not duplicative of the breach of contract claim, her fraud claim was, nevertheless, duplicative of the Company’s breach of contract claim because the damages that she sought were the same as those allegedly incurred by the Company. In addition to the Court’s examination of Plaintiffs’ fraud claims, it is important to note its holding with respect to Defendant’s attempt to inject parol evidence into the analysis.  As a general matter, when parties negotiate an agreement in a clear and unambiguous document, their writing will be enforced according to its terms. Evidence outside the four corners of the document as to what the parties really intended ( i.e. , parol evidence) is generally inadmissible. Among the reasons for this rule is to give “stability to commercial transactions,” and other types of commercial interactions. 18 As the New York Court of Appeals observed, such a rule can safeguard “against fraudulent claims, perjury, death of witnesses … infirmity of memory.…” 19 Notwithstanding, questions about the enforceability of promises and commitments that were made at the time of contract formation are often injected into a contract dispute. These questions are typically raised in connection with the meaning and effect of a contract, where one party advances the extra-contractual statements of the other ( e.g. , in correspondence, emails and text messages; telephone calls; or in-person meetings) to support a claim or defense. One way in which parties address such disputes before they happen is to include a “merger clause” or “integration clause,” in their contract or agreement. A merger clause provides that the contract represents the complete and final agreement between the parties.  In New York, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement. 20 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. 21 In Offenbach , the merger clause at issue was specific enough for the Court to prevent Defendant from using extra-contractual statements to show that “the parties’ actual agreement was different than that reflected in the .” 22 In that regard, as shown by the Court’s analysis, the subject matter of the Subscription Agreement was the investment of money in exchange for membership interests in the Company. Any other description of the parties’ agreement, whether oral or in writing, was specifically “replaced” by the terms of the Subscription Agreement. 23 Footnotes Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Slip Op. at *1. Mandarin Trading Ltd. v. Wildenstein , 16 N.Y.3d 173, 181-182 (2011). Dormitory Auth. , 30 N.Y.3d at 710 (internal quotation marks omitted); Airco Alloys Div. v. Niagara Mohawk Power Corp. , 76 A.D.2d 68, 79 (4th Dept. 1980). Matter of Coalition for Cobbs Hill v. City of Rochester , 194 A.D.3d 1428, 1436 (4th Dept. 2021) (internal quotation marks omitted); Mendel v. Henry Phipps Plaza W., Inc. , 6 N.Y.3d 783, 786 (2006). Cole v. Metropolitan Life Ins. Co. , 273 A.D.2d 832, 833 (4th Dept. 2000) (internal quotation marks omitted); see generally Salzman v. Holiday Inns , 48 A.D.2d 258, 261 (4th Dept. 1975), mod. on other grounds , 40 N.Y.2d 919 (1976). Slip Op. at *1. Id. (citations omitted). Id. Id. Id. Id. (citing, Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 62-63 (1st Dept. 2017)). Id. at *1-*2 (citing, Richbell Info. Servs. v. Jupiter Partners , 309 A.D.2d 288, 305 (1st Dept. 2003)). Id. at *2 (citing, Financial Guar. Ins. Co. v. Morgan Stanley ABS Capital 1 Inc. , 164 A.D.3d 1126, 1127 (1st Dept. 2018)). Id. E.g. , Salamone v. EIP Global Fund LLC , 2021 N.Y. Slip Op. 02372 (1st Dept. 2021). W.W.W. Assoc. v Giancontieri , 77 N.Y.2d 157, 162 (1990). Id. See Hobart v. Schuler , 55 N.Y.2d 1023, 1024 (1982) (deeming merger clause to be insufficient to bar parol evidence of fraudulent misrepresentation where clause states “all representations, warranties, understandings and agreements between the parties are set forth in the agreement”); LibertyPointe Bank v. 75 E. 125th St., LLC , 95 A.D.3d 706, 706 (1st Dept. 2012) (concluding that merger clause is insufficient to bar claim for fraudulent inducement where it fails to reference particular misrepresentations allegedly made by former president). Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 320-21 (1959) (holding that fraudulent inducement claim premised upon representations as to building’s operating expenses and expected profits was barred by merger clause that specifically disclaimed plaintiff’s reliance on representations regarding building’s “physical condition, rents, leases, expenses, operation”); Laduzinski v. Alvarez & Marsal Taxand LLC , 132 A.D.3d 164, 169 (1st Dept. 2015) (holding that merger clause was mere boilerplate that was “too general to bar plaintiff’s claim since it makes no reference to the particular misrepresentations allegedly made here by .”) (internal quotation marks and citation omitted) (alteration in original). Slip Op. at *1. The merger clause in the Subscription Agreement was not a typical, boilerplate provision. It specifically identified “ orrespondence, memoranda, and oral or written agreements that originated before the date of Agreement” as being “replaced in total by Agreement.” 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 frequently written about RPALP 1304 .  By way of background, and as previously noted in this Blog, RPAPL 1304 requires that at least ninety days before commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a “lender, assignee or mortgage loan servicer” must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  here=">here" and="and" numerous="numerous" other="other" articles="articles" related="related" to="to" this="this" issue="issue" are="are" hyperlinked="hyperlinked" therein.="therein."> In one such article , we wrote about Wells Fargo Bank, N.A. v. Yapkowitz , 199 A.D.3d 126 (2 nd Dep’t 2021), in which the Court held that if there are more than one borrower, each one must receive a separate RPAPL 1304 notice because the “practice is insufficient to satisfy the requirements of RPAPL 1304, and that the plaintiff is required to mail a 90–day notice addressed to each borrower in separate envelopes as a condition precedent to commencing the foreclosure action.”  Yapkowitz , 199 A.D.3d at 128.  In our February 11, 2022, Blog article , we discussed U.S. Bank National Ass’n v. Gordon , 202 A.D.3d 872 (2022), in which the Second Department held that the lender did not strictly comply with the requirements of RPAPL 1304 because it failed to demonstrate that the 90-day notices it sent to the borrowers contained the requisite list of five housing counseling agencies serving the county in which the subject property is located. In another case, Bank of America, N.A. v. Kessler , 202 A.D.3d 10 (2021), rev’d , 39 N.Y.3d 317 (2023), the Second Department affirmed the supreme court’s strict construction of RPAPL 1304 and dismissed a complaint because the lender, in the same envelope as the RPAPL 1304 notice,  included “two notices pertaining to the rights of a debtor in bankruptcy and in military service.”  Kessler , 202 A.D.3d at 19.  In other cases, complaints were dismissed because lenders included notices under the Federal Fair Debt Collection Practices Act.  See, e.g., Ocwen Loan Servicing, LLC v. Sirianni , 202 A.D.3d 702, 705 (2 nd Dep’t 2022).  The Court of Appeals reversed the Kessler Second Department, holding that, inter alia , its “bright-line rule would also lead to nonsensical results.”   Kessler , 39 N.Y.3d at 325.  [Eds. Note: this Blog discussed the Court of Appeals’ decision in Kessler < here =">here"> .] On May 31, 2023, the Second Department decided HSBC Bank USA, N.A. v. Schneider .  In 2013, the lender in Schneider commenced a residential foreclosure action against the borrowers, a husband and wife.  The lender moved for summary judgement and the borrowers cross-moved for summary judgment dismissing the complaint for failure to comply with RPAPL 1304.  The borrowers appealed the denial of their cross-motion.  In reversing the supreme court, the Second Department stated: RPAPL 1304(1) provides that, “at least ninety days before a lender … commences legal action against the borrower, ... including mortgage foreclosure, such lender … shall give notice to the borrower.” “The statute further provides the required content for the notice and provides that the notice must be sent by registered or certified mail and also by first-class mail to the last known address of the borrower” ( Citibank, N.A. v. Conti–Scheurer, 172 A.D.3d 17, 20, 98 N.Y.S.3d 273; see RPAPL 1304<2> ). Strict compliance with RPAPL 1304 notice to the borrower is a condition precedent to the commencement of a foreclosure action ( see Citibank, N.A. v. Conti–Scheurer, 172 A.D.3d at 20, 98 N.Y.S.3d 273; Citimortgage, Inc. v. Banks, 155 A.D.3d 936, 936–937, 64 N.Y.S.3d 121 ). Here, the defendants established, prima facie, that the plaintiff did not comply with RPAPL 1304, since the 90–day notice was jointly addressed to both of the defendants ( see Deutsche Bank Natl. Trust Co. v. Loayza, 204 A.D.3d 753, 755, 166 N.Y.S.3d 654; Wells Fargo Bank, N.A. v. Yapkowitz, 199 A.D.3d 126, 134, 155 N.Y.S.3d 163). Moreover, while the plaintiff contends that two identical copies of the notice were included in the mailing, one for each of the defendants, the plaintiff concedes that they were mailed in the same envelope, which was also improper ( see Duetsche Bank Natl. Trust Co. v. Loayza, 204 A.D.3d at 755, 166 N.Y.S.3d 654; Wells Fargo Bank, N.A. v. Yapkowitz, 199 A.D.3d at 134, 155 N.Y.S.3d 163). In opposition, the plaintiff failed to raise a triable issue of fact. I do not recall how much it cost to mail a letter in, or prior to, 2013 when the RPAPL 1304 notices were sent in the HSBC action, but the lender probably should have sprung for a second stamp and mailed the RPAPL 1304 notices in separate envelopes.  “For want of a postage stamp, the foreclosure action was lost” after ten years of litigation.  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 Haber Section 3211(a)(8) of the Civil Practice Law and Rule (“CPLR”) allows a party to “move for judgment dismissing one or more causes of action asserted against him on the ground that … the court has not jurisdiction of the person of the defendant.”  Whether the court has personal jurisdiction over a non-domiciliary involves a two-part inquiry: (1) the exercise of jurisdiction must be permissible under New York’s long-arm statute; and (2) the exercise of jurisdiction must comport with due process. 1 “Due process requires that a nondomiciliary have ‘certain minimum contacts’ with the forum and ‘that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.’” 2 The minimum contacts test requires an examination of “whether a defendant’s ‘conduct and connection with the forum State’ are such that it ‘should reasonably anticipate being haled into court there.’” 3 When analyzing whether “ he prospect of defending a suit in the forum State … comport with traditional notions of ‘fair play and substantial justice,’” the court must ask what is reasonable. 4 Specifically, the court must consider “‘the burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies.’” 5 “If either the statutory or constitutional prerequisite is lacking, the action may not proceed.” 6 CPLR § 302(a)(2) provides for personal jurisdiction over a non-domiciliary who “in person or through an agent … commits a tortious act within the state.” For the purposes of conspiracy jurisdiction, “ sing a New York bank account for a fraudulent scheme constitutes a tort within New York.” 7 A co-conspirator’s actions in New York as the agent for an out-of-state co-conspirator can provide a basis for personal jurisdiction under CPLR § 302(a)(2). 8 To establish jurisdiction predicated upon a civil conspiracy theory, the plaintiff must establish a prima facie case of conspiracy and that the defendant was a member. 9 The plaintiff must also “demonstrate the commission of an overt act in New York during, and pursuant to, the conspiracy.” 10 A prima facie case of civil conspiracy requires the plaintiff to “demonstrate the primary tort, plus the following four elements: an agreement between two or more parties; an overt act in furtherance of the agreement; the parties’ intentional participation in the furtherance of a plan or purpose; and resulting damage or injury.” 11 The plaintiff must plead factual allegations sufficient to infer that a corrupt agreement exists. 12 The facts alleged must “support[] a meeting of the minds, such that defendants entered into an agreement, express or tacit, to achieve the unlawful end,” 13 or show that the defendant “took ‘common action for a common purpose by common agreement or understanding … from which common responsibility derives.’” 14 Intentional participation may be inferred from the overt acts a defendant takes in furtherance of a conspiracy. 15 “Bare, conclusory allegations of conspiracy are insufficient.” 16 Membership in a conspiracy is established by demonstrating that “(a) the defendant had an awareness of the effects in New York of its activity; (b) the activity of the co-conspirators in New York was to the benefit of the out-of-state conspirators; and (c) the co-conspirators acting in New York acted at the direction or under the control, or at the request of or on behalf of the out-of-state defendant.” 17 In Bangladesh Bank v. Rizal Commercial Banking Corp. , 2023 N.Y. Slip Op. 02844 (1st Dept. May 30, 2023) ( here ), plaintiff sought to obtain jurisdiction over certain defendants based on allegations that they were co-conspirators. In particular, Bangladesh Bank concerned whether the court could exercise personal jurisdiction over defendants Bloomberry Resorts and Hotels, Inc. (“BRHI”) d/b/a Solaire Resort & Casino and Eastern Hawaii Leisure Company, Ltd. (“EHL”) d/b/a Midas Hotel & Casino under, inter alia , CPLR § 302(a)(2). Bangladesh Bank arose from an international money laundering scheme where the participants stole more than $101 million from an account plaintiff maintained at the Federal Reserve Bank of New York (“New York Fed”). Unknown North Korean hackers allegedly infiltrated plaintiff’s computer network in Bangladesh and issued multiple unauthorized payment orders to transfer funds from plaintiff’s New York Fed account to various bank accounts in the Philippines and elsewhere. The stolen funds were then laundered through two gambling casinos in the Philippines operated by defendants BRHI and EHL. Plaintiff sued, pleading nine causes of action against defendants.  BRHI and defendant Kam Sin Wong a/k/a Kim Wong (“Wong”), the owner of EHL, moved to dismiss on, inter alia , jurisdictional grounds. We examine BRHI’s motion as it pertained to civil conspiracy jurisdiction.  BRHI argued that plaintiff failed to plead the elements of a civil conspiracy. BRHI contended that plaintiff failed to allege that BRHI was aware of the effect in New York of its actions, that the New York co-conspirators’ activity was for BRHI’s benefit, or that the New York co-conspirators’ acted at BRHI’s request, direction or control. The motion court agreed, holding that plaintiff failed to plead a conspiracy in which BRHI was a participant. First, the motion court held that plaintiff failed to allege facts sufficient to plausibly infer a common agreement. The motion court rejected plaintiff’s “information and belief” allegation that BRHI entered into an agreement to convert and launder plaintiff’s money, stating that such allegations were conclusory. Moreover, said the motion court, there were no allegations to infer that BRHI was a knowing participant in a conspiracy. Noting that circumstantial evidence could suffice to establish the existence of a conspiracy, the motion court found that plaintiff’s allegations were insufficient to do so. For example, said the motion court, the fact that BRHI and Wong enjoyed a professional relationship was not enough to conclude that BRHI agreed to participate in the scheme because “financial self-interest is not the same as furthering a conspiracy.” 18 Second, explained the motion court, plaintiff failed to plead “independent culpable behavior” linking BRHI to the conspiracy, 19 or that BRHI “‘planned and perpetrated’ the acts in concert” with the other defendants. 20 Third, the motion court found that plaintiff failed to adequately allege that BRHI knowingly or intentionally participated in the scheme by way of an overt act or acts. The motion court explained that simply because BRHI allowed gambling in its casino did not necessarily equate to its intentional participation in an illicit scheme. Given the absence of facts alleging that anyone employed by BRHI was aware that plaintiff’s stolen funds were being laundered through its casino, and BRHI’s failure to stop the conspirators from gambling after press reports, said the motion court, did alone not constitute intentional participation.  Fourth, the motion court found that plaintiff failed to connect BRHI to the New York activities of the alleged co-conspirators. The complaint, said the motion court, did not contain a specific allegation that BRHI knew of the theft of plaintiff’s funds in New York. The motion court noted that plaintiff only alleged, upon information and belief, that BRHI knew or should have known that the junkets were being used to launder stolen funds. Finally, the motion court found that the complaint did not contain an allegation that BRHI was aware its conduct would have an effect in New York. The motion court explained that plaintiff did not plead facts suggesting that the North Korean hackers or anyone else acted at the behest of or on behalf of, or under the control of BRHI.  Because the complaint provided no facts suggesting that BRHI conspired with any actor, the motion court held that plaintiff did not sustain its burden of demonstrating that CPLR § 302(a)(2) conferred jurisdiction over BRHI. The Appellate Division, First Department affirmed the dismissal of the complaint against BRHI, holding that the motion court “did not have personal jurisdiction over BRHI pursuant to CPLR 302(a)(2).”21 The Court found that “plaintiff fail to adequately allege that BRHI was aware or should have been aware that it was funds stolen from New York that were laundered at the Solaire casino, such that BRHI could be deemed to have been aware of the effects of its activities in New York.” 22 The Court also found that plaintiff “fail to allege that the conspirators’ conduct in New York was at BRHI’s direction or on its behalf.” 23 Takeaway New York recognizes a conspiracy theory as the basis for exercising personal jurisdiction over a non-domiciliary under CPLR § 302(a)(2). To meet the burden required to satisfy this theory, the party asserting jurisdiction must allege (1) a tortious act committed by any co-conspirator in New York and a prima facie showing of conspiracy, and (2) facts raising an inference that the non-domiciliary defendant is a member of the conspiracy. A prima facie showing of conspiracy requires (a) a corrupt agreement, (b) an overt act furthering the agreement, (c) the conspirators’ intentional participation furthering the plan, and (d) resulting damage.  A non-domiciliary co-conspirator is a “member[] of the alleged conspiracy” if (a) he/she knew of the effects of the New York activity, (b) the co-conspirators’ activity in New York was for the benefit of the out-of-state conspirator, and (c) the co-conspirators acted in New York at the behest of or on behalf of, or under the control of the non-domiciliary co-conspirators. Both inquiries are consider together since the same facts generally support both. Importantly, conclusory allegations will not suffice. In Bangladesh Bank the motion court held that plaintiff could not satisfy many of the elements of a conspiracy to warrant the exercise of personal jurisdiction over BRHI. As noted, the motion court found that plaintiff failed to demonstrate that, among other things, BRHI was a knowing participant in the conspiracy, BRHI had prior knowledge of the theft in New York, BRHI knew of the theft of plaintiff’s funds in New York, and BRHI was aware its conduct would have an effect in New York. Without sufficient factual evidence, whether direct or circumstantial evidence, plaintiff could not satisfy its burden of demonstrating that CPLR § 302(a)(2) conferred jurisdiction over BRHI. Looking at the record in its totality, the First Department agreed with the motion court and affirmed the dismissal of the complaint as to BHRI on jurisdictional grounds. Footnotes Williams v. Beemiller, Inc. , 33 N.Y.3d 523, 528 (2019). Id. (citations omitted). LaMarca v. Pak-More Mfg. Co. , 95 N.Y.2d 210, 216 (2000) (citations omitted). Id. at 217 (internal quotation marks and citation omitted). Rushaid v. Pictet & Cie , 28 N.Y.3d 316, 331 (2016) (citation omitted). Williams , 33 N.Y.3d at 528. FIA Leveraged Fund Ltd. v. Grant Thornton LLP , 150 A.D.3d 492, 495 (1st Dept. 2017) (citation omitted). See Wimbledon Fin. Master Fund, Ltd. v. Weston Capital Mgt. LLC , 160 A.D.3d 596, 596 (1st Dept. 2018). See Small v. Lorillard Tobacco Co. , 252 A.D.2d 1, 17 (1st Dept. 1998), aff’d , 94 N.Y.2d 43 (1999). Best Cellars, Inc. v. Grape Finds at Dupont, Inc. , 90 F. Supp. 2d 431, 446 (S.D.N.Y. 2000) (citations omitted). Cohen Bros. Realty Corp. v. Mapes , 181 A.D.3d 401, 404 (1st Dept. 2020) (citation omitted). FIA Leveraged Fund , 150 A.D.3d at 495 (citing, Abrahami v. UPC Constr. Co. , 176 A.D.2d 180, 180 (1st Dept. 1991)). Chen Gang v. Zhao Zhizhen , 799 Fed. Appx. 16, 19 (2d Cir. 2020) (quoting, Webb v. Goord , 340 F.3d 105, 110-111 (2d Cir. 2003)). IDX Capital, LLC v. Phoenix Partners Group LLC , 83 A.D.3d 569, 571 (1st Dept. 2011), aff’d , 19 N.Y.3d 850 (2012) (quoting, Goldstein v. Siegel , 19 A.D.2d 489, 493 (1st Dept. 1963)). See Cleft of the Rock Found. v. Wilson , 992 F. Supp. 574, 582 (E.D.NY. 1998). Kovkov v. Law Firm of Dayrel Sewell, PLLC , 182 A.D.3d 418, 418 (1st Dept. 2020). Lawati v. Montague Morgan Slade Ltd. , 102 A.D.3d 427, 428 (1st Dept. 2013) (quoting, Best Cellars , 90 F. Supp. 2d at 446)). Charles Schwab Corp. v. Bank of Am. , 883 F.3d 68, 87 (2d Cir. 2018); see also BHC Interim Funding, L.P. v. Bracewell & Patterson, LLP , 2003 WL 21467544, at *6, 2003 US Dist. LEXIS 10739, at *17 (S.D.N.Y. June 25, 2003). Schwartz v. Society of the N.Y. Hosp. , 199 A.D.2d 129, 130 (1st Dept. 1993). Callahan v. Gutowski , 111 A.D.2d 464, 465 (3d Dept. 1985). Slip Op. at *1. 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.

Query: does the recipient of an assignment via a contract or a note automatically have the right to assert tort claims, including fraud claims, arising from that contract or note? In SureFire Dividend Capture, LP v. Industrial & Commercial Bank of China Financial Services LLC , 2023 N.Y. Slip Op. 02841 (1st Dept. May 25, 2023) ( here ), the Appellate Division, First Department answered the question in the negative. The reason, as one would expect, depends on the language used by the parties and their intention in making the assignment. Under New York law, the assignment of the right to assert contract claims pursuant to a contract or note does not automatically give the recipient of the assignment the right to assert tort claims arising from that contract. 1 This rule dates back to Fox v. Hirschfeld , 2 where the First Department held that the assignment of fraud claims must be explicit in the contract being assigned. Fox involved the assignment of real property from the plaintiff-assignor to his wife. The First Department held that the plaintiff had not relinquished his right to pursue any claims for rescission or fraudulent misrepresentation because there was nothing in the assignment that explicitly stated that those claims were being assigned.  Since Fox was decided, it has been construed to mean that, in the absence of an explicit assignment of a cause of action based on fraud, “only the ... assignor may rescind or sue for damages for fraud and deceit the representations were made to and alone had the right to rely upon them.” 3 Notably, no specific words are required to effect the assignment of a fraud claim. 4 Accordingly, where an assignment of fraud or other tort claims is intended in conjunction with the conveyance of a contract or note, there must be some language that evinces that intent and effectuates the transfer of such rights. 5 In Sure Fire Dividend , the agreement at issue lacked any language sufficient to evince an intent to convey the right to assert a fraud claim.  Sure Fire Dividend arose from an alleged fraud that was perpetuated by non-party Brenda Smith. Smith, the owner of CV Brokerage, controlled two separate hedge funds – TA1 and Broad Reach Capital, LP (“Broad Reach”) – that she allegedly used in connection with a Ponzi scheme to defraud people of their investments. Smith pled guilty for this fraud.  Defendant Industrial and Commercial Bank of China Financial Services LLC (“ICBC”) worked with Smith as the clearing broker for both hedge funds and was allegedly the only clearing broker that would execute Smith’s options strategy. Plaintiff, SureFire Dividend Capture, LP (“SureFire”), alleged that it was both a direct investor in Broad Reach and the successor-in-interest of non-parties Aalii Fund, LP and Alpha Capital Partners, LP (collectively, the “A Funds”), which allegedly invested tens of millions of dollars in the Broad Reach fund. The A Funds’ interest was assigned to SureFire in February 2019, pursuant to a subscription agreement (the “In-Kind Subscription Agreement”). That agreement provided that the assignors were transferring the full balance of their interests in Broad Reach to SureFire and that the purpose of the agreement was to facilitate the transfer. Plaintiff alleged that defendant ICBC aided and abetted Smith’s fraud and breach of fiduciary duty. ICBC moved to dismiss both claims pursuant to CPLR § 3211(a)(3) for lack of standing. ICBC argued that SureFire lacked standing to assert claims to recover for the A Funds’ investments because the In-Kind Subscription Agreement did not evince an intent to assign any fraud-based claims as required under New York law. ICBC based its argument on, inter alia , the language of the In-Kind Subscription Agreement, which it maintained was clear and unambiguous.  SureFire opposed, claiming that the In-Kind Subscription Agreement transferred all “rights, title and interests, including all contract, fraud and tort claims, in Broad Reach to SureFire.” That language, however, did not appear in the In-Kind Subscription Agreement.  The motion court dismissed the action with prejudice to the extent it was “based on allegations that the A Funds assigned its fraud claims to plaintiff SureFire.” Among other things, the motion court held that “the plain language of the In-Kind Subscription Agreement unambiguous and not contain language that evince any intent to assign any legal claims to SureFire.” 6 On appeal, the First Department unanimously affirmed. The Court held that “plain language” of the In-Kind Subscription Agreement “was unambiguous and did not evince an intent to assign the fraud-based claims.” 7 The Court noted that “the one-paragraph subscription agreement provided only for the transfer of the ‘full balance of interest in Broad Reach Capital LP to Sure Fire Dividend Capture SPV5 … for the purposes of facilitating an in-kind subscription to the Fund in the amount of its 2/28/19 balance.’” 8 That language, said the Court, “plainly refer to the transfer of the amount invested in the fund, with nothing more.” 9 Since the language was clear and unambiguous on its face, the Court rejected SureFire’s attempt to show intent through “extra-contractual allegations.” 10 Takeaway The rule discussed above makes sense in the context of fraud claims. In a fraud action, the party alleging fraud must demonstrate reliance on the alleged misstatement or omission. When an assignment is made, the assignee must be in a position to allege reliance. As the courts have made clear, “ ithout a valid assignment, ‘only the … assignor may rescind or sue for damages for fraud and deceit’ because ‘the representations were made to and alone ha the right to rely upon them.’” 11 Footnotes Banque Arabe et Internationale D’Investissement v. Maryland Natl. Bank , 57 F.3d 146, 152 (2d Cir. 1995). Fox v. Hirschfeld , 157 App. Div. 364, 142 N.Y.S. 261 (1st Dept. 1913). Nearpark Realty Corp. v. City Investing Co. , 112 N.Y.S.2d 816, 817 (Sup. Ct., N.Y. County 1952). Commonwealth of Pennsylvania Pub. Sch. Employees’ Retirement Sys. v. Morgan Stanley & Co., Inc. , 25 N.Y.3d 543, 550 (2015); State of Cal. Pub. Employees’ Retirement Sys. v. Shearman & Sterling , 95 N.Y.2d 427, 432 (2000); see also Banque Arabe , 57 F.3d at 151-152. E.g. , State of Cal. Pub. Employees’ Retirement Sys. , 95 N.Y.2d at 432. Citing, Commonwealth of Pennsylvania , 25 N.Y.3d at 550, and State of Cal. Pub. Employees’ Ret. Sys. , 95 N.Y.2d at 432. A copy of the motion court’s decision and order can be found here . Slip Op. at *1 (citations omitted). Id. Id. Id. (citing, Ark Bryant Park Corp. v. Bryant Park Restoration Corp. , 285 A.D.2d 143, 150 (1st Dept. 2001)). Commonwealth of Pennsylvania , 25 N.Y.3d at 550 (quoting, Nearpark Realty , 112 N.Y.S2d at 817); see also Fox , 157 App. Div. at 365-368; Banque Arabe , 57 F.3d at 151.

By: Jeffrey Haber Commercial contracts typically include a liquidated damages provision that allows for the payment of a predetermined amount of damages in the event of a breach by one of the parties. Courts will sustain such a provision if the liquidated amount is reasonably proportionate to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. If, however, the amount fixed is grossly disproportionate to the probable loss, then the provision amounts to nothing more than a penalty and will not be enforced.  Similar to a liquidated damages clause is a penalty provision that fixes damages in the event of a breach of the contract. Penalty provisions in a contract are essentially no different from liquidated damages clauses and, therefore, are treated the same regardless of the nomenclature used by the parties. As the New York Court of Appeals stated, “ n interpreting a provision fixing damages, it is not material whether the parties themselves have chosen to call the provision one for ‘liquidated damages’ . . . or have styled it as a penalty.” 1 What are Liquidated Damages? A liquidated damages clause specifies a predetermined amount of damages owed by a party in breach of a contract. The amount is determined by the parties at the time they execute the agreement and is intended to be their best estimate of the damages that would be incurred in the event of a breach of the agreement. 2 Are Liquidated Damages Clauses and Penalty Provisions Enforceable? If the predetermined amount of damages “is manifestly disproportionate to the actual” harm suffered, courts will not enforce the provision on the grounds that it is a penalty instead of an estimate of actual damages. 3 Whether a contractual provision is “an enforceable liquidation of damages or an unenforceable penalty is a question of law, giving due consideration to the nature of the contract and the circumstances.” 4 Although the party challenging the liquidated damages provision has the burden to prove that the liquidated damages are, in fact, an unenforceable penalty, 5 the party seeking to enforce the provision must have been damaged in order for the provision to apply. 6  The burden is on the party seeking to avoid liquidated damages to show that the stated liquidated damages are, in fact, a penalty. A liquidated damages clause is unenforceable in two circumstances: (1) if the damages flowing from a breach of the contract were easily ascertainable at the time of execution; or (2) if the damages fixed were “conspicuously disproportionate” to the probable losses. 7 New York courts often strike liquidated damage clauses when they fail to meet the foregoing. 8 In addition, a liquidated damages clause will not be enforced “if it is against public policy to do so and public policy is firmly set against the imposition of penalties or forfeitures for which there is no statutory authority” based on the principle of just compensation for loss. 9 “Where the court has sustained a liquidated damages clause the measure of damages for a breach will be the sum in the clause, no more, no less. If the clause is rejected as being a penalty, the recovery is limited to actual damages proven.” 10 In Atlantis Management Group II LLC v. Nabe , 2023 N.Y. Slip Op. 02737 (1st Dept. May 18, 2023) ( here ), the Appellate Division, First Department examined the foregoing principles in affirming the dismissal of a breach of contract claim that was based on an enforceable penalty provision in four similar operating agreements. Atlantis Management Group II LLC v. Nabe Atlantis involved four limited liability companies (the “Companies”), each of which operated a gas station in New York City. Plaintiff was an “Investor Member” and defendants Rajan Nabe and Rahul Nabe were the “Managing Member” of the Companies.  Beginning in 2008, the Companies made monthly profit distributions to plaintiff based on monthly profit and loss statements from gasoline and merchandise sales. Defendants alleged that in 2011, the parties orally agreed (the “Oral Agreement”) that plaintiff would accept a fixed sum of $10,000 each month from the Companies and that defendants were no longer required to provide plaintiff with financial information. Plaintiff disputed whether any financial disclosure could be withheld and asserted that this payment arrangement was to continue until defendants improved their accounting methodology for the Companies. In 2016, plaintiff verbally and in writing demanded financial statements and an accounting from the Companies, urging that it was entitled to its share of profits. Defendants contended that, pursuant to the Oral Agreement, plaintiff waived its rights to a percentage of profits and to the Companies’ books and records. Plaintiff sent notices of default and notices to cure to defendants for violations of the Companies’ operating agreements (the “Notices”). The Notices further provided that if the defendants failed to cure, then plaintiff would exercise its buy-back rights pursuant to the operating agreements. Under Section 6.3 of the operating agreements, if, among other things, defendants “ reach any provision of this ”, then plaintiff had the right “to Buy-Back all of the Membership Interests of the Managing Members < i.e. , defendants> i.e., defendants> in consideration for the sum of One ($1.00) Dollar U.S ….”  In 2017, plaintiff commenced the action, asserting causes of action for (1) an accounting, (2) breach of fiduciary duty against defendants, (3) breach of contract, (4) specific performance (based on the buy-back provision), (5) declaratory judgment (as to ownership of Companies) and (6) fraud. Defendants moved for leave to amend their answer to assert additional counterclaims based on breach of fiduciary duty relating to 2020 events. Plaintiff opposed the motion and cross-moved for summary judgment on its remaining causes of action. 11 The motion court held that plaintiff was entitled to summary judgment as to liability only with regard to its claim for the failure to provide the Companies’ books and records. The motion court dismissed the breach of contract and specific performance claims as they pertained to the buy-back right under Section 6.3 of the operating agreements. The motion court held that the buy-back clauses were grossly disproportionate, unreasonable, unenforceable penalty provisions. By their terms, explained the motion court, the breach of any provision however trivial triggered “the draconian $1-buy-out consequence without regard to the magnitude of the breach or actual value of the interest surrendered.” The motion court further explained that Section 6.3 “was ‘conspicuously disproportionate to [] foreseeable losses’ because the same drastic remedy applie to an immaterial technical breach as it a material one.” 12 “By punishing any breach, however minor, with forfeiture of valuable interests in exchange for a mere dollar,” concluded the motion court, “the intent of the provision purely punitive.” “In no way was it intended to remotely correspond with the magnitude of any loss or injury,” said the motion court. Accordingly, the motion court dismissed the causes of action for breach of contract and specific performance and declared that § 6.3 of the operating agreements constituted an unenforceable penalty. The First Department unanimously affirmed. The Court held that the motion court “correctly concluded that § 6.3 of the parties’ operating agreements (OAs) … was an unenforceable penalty.” 13 The Court explained that “Section 6.3 was not a reasonable measure of the anticipated harm arising from a breach but was instead punitive in nature, serving to propel performance by the rather than to merely compensate for a loss.” 14 Moreover, the Court found that the liquidated amount not only did not bear a reasonable proportion to the probable loss, but the amount of the actual loss could be determined. 15 In fact, noted the Court, “the amount of actual damages was ascertainable, as evinced by the affidavit of plaintiff’s certified public accountant.” 16 “In addition,” said the Court, “the buyback clause in § 6.3 violated public policy, as it grossly overcompensated plaintiff for any loss it may have sustained from a breach of contract.” 17 As such, “the principle that parties have freedom of contract” could “be overridden” by such a “significant countervailing public policy.” 18 here,=">here," >here=">here" and="and" >here.=">here."> Takeaway Atlantis stands as a reminder that the courts of New York will not hesitate to strike a penalty provision or a liquidated damages clause that punishes as opposed to compensates. Atlantis is also notable in that the Court struck the penalty provision as violative of New York public policy. Although parties are free to contract, 19 they may not enter agreements that are unconscionable or contrary to public policy. 20 As noted by the First Department, liquidated damages that constitute a penalty, violate public policy and may override this countervailing policy principle. Footnotes Truck Rent-A-Ctr. v. Puritan Farms 2nd , 41 N.Y.2d 420, 425 (1977). Id. at 424 (Liquidated damages are “an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement.”). J.R. Stevenson Corp. v. Westchester Cty. , 113 A.D.2d 918, 920 (2d Dept. 1985) (“If the amount stipulated in the liquidated damage clause is manifestly disproportionate to the actual damage, then its purpose is not to ‘provide fair compensation but to secure performance by the compulsion of the very disproportion,’” and the clause is unenforceable) (quoting, Truck Rent-A-Ctr. , 41 N.Y.2d at 424). 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass’n, Inc. , 24 N.Y.3d 528, 536 (2014). JMD Holding Corp. v. Congress Fin. Corp. , 4 N.Y.3d 373, 380 (2005); Parker v. Parker , 163 A.D.3d 405, 406 (1st Dept. 2018). See , e.g. , J. Weinstein & Sons, Inc. v. City of New York , 264 App. Div. 398, 400 (1st Dept.) (“The proof establishes that no claims were made against defendant and that defendant suffered no financial damage whatsoever”), aff’d , 289 N.Y. 741 (1942). Truck Rent-A-Ctr ., 41 N.Y.2d at 425 (explaining that the “actual loss incapable or difficult of precise estimation” and the amount liquidated must bear “a reasonable proportion to the probable loss.”); JMD Holding , 4 N.Y.3d at 380. See , e.g. , Sina Drug Corp. v. Mohyuddin , 122 A.D.3d 444, 445 (1st Dept. 2014) (holding that liquidated damages clause providing that defendants would pay $1 million if they refused to indemnify plaintiffs was an unenforceable penalty); Motichka v. Cody , 5 A.D.3d 185, 187 (1st Dept. 2004) (holding that a provision requiring payment of $1,000 per day if defendant failed to pay within 60 days was an unenforceable penalty, since damages were easily ascertainable by calculating interest accrued from the time of the breach); LeRoy v. Sayers , 217 A.D.2d 63, 69-70 (1st Dept. 1995) (invalidating lease term in which the tenant forfeited $63,500 in deposits regardless of whether the tenant terminated agreement with several months’ notice). Truck Rent A-Ctr. , 41 N.Y.2d at 424; Beltway 7 Props., Ltd. v. Blackrock Realty Advisors, Inc ., 167 A.D.3d 100, 106-107 (1st Dept. 2018); Matter of Krodel v. Amalgamated Dwellings Inc. , 166 A.D.3d 412, 414 (1st Dept. 2018) (parties may contract for attorneys’ fees so long as they are not in the nature of a penalty or forfeiture). Brecher v. Laikin , 430 F. Supp. 103, 106 (S.D.N.Y. 1977) (citations omitted). Plaintiff was awarded partial summary judgment on its accounting claim. Citing, JDM Holding Corp ., 4 N.Y.3d at 380. Slip Op. at *1. Id. Id. (citing, Trustees of Columbia Univ. in the City of N.Y. v D’Agostino Supermarkets, Inc. , 36 N.Y.3d 69, 75 (2020)). Id. Id. (citing, New England Mut. Life Ins. Co. v. Caruso , 73 N.Y.2d 74, 81 (1989)). Id. (citing, 172 Van Duzer Realty. , 24 N.Y.3d at 536). Freedom of contract is a “deeply rooted” public policy of the State of New York ( 159 MP Corp. v. Redbridge Bedford, LLC , 33 N.Y.3d 353, 359 (2019); see also New England Mut. Life Ins. Co. v Caruso , 73 N.Y.2d 74, 81 (1989)) and a right of constitutional dimension (U.S. Const, art I, § 10(1)). New York courts have long deemed the enforcement of contracts according to the terms adopted by the parties to be a pillar of the common law. Id. Thus, “ reedom of contract prevails in an arm’s length transaction between sophisticated parties ..., and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain.” Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. , 86 N.Y.2d 685, 695 <1995> ). “By disfavoring judicial upending of the balance struck at the conclusion of the parties’ negotiations, public policy in favor of freedom of contract both promotes certainty and predictability and respects the autonomy of … parties in ordering their own business arrangements.” 159 MP Corp. , 73 N.Y.2d at 359-360. Truck Rent-A-Ctr. , 41 N.Y.2d at 424 (citing, Mosler Safe Co. v. Maiden Lane Safe Deposit Co. , 199 N.Y. 479, 485 (1910)). 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 The question of when parties must close title on a real estate transaction is often answered by another question – has either party sent a “time of the essence” letter?  [Eds. Note: this Blog has previously addressed “time of the essence” letters < here =">here"> .] The law is settled that when “a contract for the sale of real property does not make time of the essence, the law permits a reasonable time in which to tender performance, regardless of whether the contract designates a specific date for performance.”  Revital Realty Group, LLC v. Ulano Corp . , 112 A.D.3d 902, 904 (2 nd Dep’t 2013) (citations omitted); see also Lashley v. BDL Real Estate Dev. Corp . , 212 A.D.3d 800, 800-01 (2 nd Dep’t 2023).  “A party need not state specifically that time is of the essence, as long as the notice specifies a time on which to close and warns that failure to close on that date will result in default.”  Point Holding, LLC v. Crittenden , 119 A.D.3d 918, 920 (2 nd Dep’t 2014) (citation omitted). The reasonableness of the time of performance “depends upon the facts and circumstances of the particular case.”  Ben Zev v. Merman , 73 N.Y.2d 781, 783 (1988) (citation omitted); see also Lee v. Robertson , 165 A.D.3d 639,.640 (2 nd Dep’t 2018).  Factors to be considered in making a “reasonableness” determination include “the nature and object of the contract, the previous conduct of the parties, the presence or absence of good faith, the experience of the parties and the possibility of prejudice or hardship to either one, as well as the specific number of days provided for performance.”  Id. (citations omitted).  “‘The determination of reasonableness must by its very nature be determined on a case-by-case basis.’”  Rodrigeus NBA, LLC v. Allied XV, LLC , 164 A.D.3d 1388, 1389 (2 nd Dep’t 2018) ( quoting Ben Zev , 73 N.Y.2d at 783). If a time of the essence letter does not “clearly and unambiguously set a specific date for the closing” a party to a real estate contract cannot be held in default for failing to close.  Krishna v. Jasper Old Westbury 66 LLC , 175 A.D.3d 600, 602 (2 nd Dep’t 2019) (citations omitted).  In Krishna , after purchaser failed to obtain financing within the time set forth in the contract, the seller sent a purported time of the essence letter providing that “‘a closing has been scheduled for December 19, 2016 , at 2:00 p.m.,’ and that ‘ nless this transaction is closed by the end of business day on December 15, 2016 , Purchaser will be held in default of the Contract.’”  (Emphasis in original.) Supreme court denied purchaser’s motion for summary judgment seeking the return of the down payment and granted seller’s cross-motion permitting it to retain the down payment.  The Second Department reversed; finding that purchaser could not be held in default for failing to appear at closing because the date for closing in seller’s time of the essence letter was not clear. On May 17, 2023, the Appellate Division, Second Department, decided LG723 v. Royal Dev., Inc . , a case addressing time of the essence letters.  In LG723 , seller and purchaser executed a contract for the sale/purchase of real property that set a closing date but did not make that date time of the essence.  Purchaser failed to appear at the closing date set forth in the contract.  On April 11, 2019, seller’s counsel sent a time of the essence letter scheduling a closing for May 15, 2019, and advising that buyer would be held in default if it failed to appear.  Purchaser averred (in the subsequently filed complaint) that, after receiving the time of the essence letter, purchaser’s managing member “had a telephone conversation with the 's president who assured that the would not be held in default if it failed to appear for the closing on May 15, 2019.”  Purchaser failed to appear at the closing on May 15, 2019, and, later that day, seller’s attorney sent a letter to purchaser’s attorney stating that “the closing had taken place as scheduled, the had defaulted, the 's deposit was being retained as liquidated damages, and the contract was deemed terminated.” Thereafter, purchaser commenced an action for, inter alia , specific performance of the real estate contract.  [Eds. Note: this Blog addressed specific performance of real estate contracts < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .]  After seller interposed an answer, but before any discovery had taken place, seller moved for summary judgment on the specific performance cause of action.  Purchaser opposed the motion by reiterating the averment in the complaint that it was told by seller’s president that purchaser would not be defaulted if it failed to appear for the May 15 closing.  Purchaser appealed supreme court’s grant of summary judgment in favor of seller. The Second Department reversed.  After discussing the general law on time of the essence letters, the Court noted that seller’s April 11, 2019, letter satisfied all of the requirements “by unequivocally setting May 15, 2019, as the closing date, expressly stating that time was of the essence, and advising the plaintiff that if it failed to appear for the closing on that date, it would be deemed in default of the contract of sale and the down payment would be retained by the defendant.”  However, the Court, relying on the “well settled” law that “oral waiver of the time for the sale of real property will be given effect,” stated: 's assertion, made under the penalties of perjury, that was assured by the 's president that the would not be held in default in the event that it failed to close the transaction on May 15, 2019, was sufficient to raise a triable issue of fact as to whether the 's president made a statement to that operated as a waiver of the 's right to enforce the May 15, 2019 deadline for the closing. Contrary to the 's contention, in order for such a waiver to occur, it was not necessary that the April 2019 letter be withdrawn in a formal communication from the 's attorney. A waiver of the right to timely performance under a contract "need not be in writing in order to be valid and enforceable" ( Kistela v Ahlers, 22 AD3d 641, 643 ). Such a waiver may occur even without an oral statement, such as the one that was allegedly made in this case, and may instead be inferred solely from a party's conduct ( see Chaves v Kornfeld, 83 AD3d 522, 523 ). Accordingly, the Court found that supreme court should have denied seller’s motion for summary judgment because there were triable issues of fact “as to whether the waived the deadline for closing the transaction, and thus whether the had a right to declare the in default and to terminate 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 This Blog has previously written about the benefits of forming a corporation or a limited liability corporation and the perils of ignoring the corporate formalities that are attendant thereto ( see , e.g. , here , here , here , here , and here ). In today’s article, we examine the alleged use of the corporate entity to commit a wrong on another and the court’s unwillingness to pierce the corporate veil to hold the owner personally liable for that wrongful conduct. Matter of Small v. Estate of Landesman , 2023 N.Y. Slip Op. 02628 (1st Dept. May 16, 2023) ( here ). Small involved an attempt to enforce a monetary judgment entered against Platinum Management (NY) LLC (“PMNY”) following confirmation of an arbitration award in favor of petitioner, finding he was owed bonus compensation for three years in which he acted as a portfolio manager responsible for a related investment fund, Platinum Partners Value Arbitrage Fund LP (“PPVA”). PPVA was founded in 2003 by David Bodner (“Bodner”), Murray Huberfeld (“Huberfeld”) and Mark Nordlicht (“Nordlicht”). By October 2014, PPVA had over 300 investors with $801 million of assets under management invested across 10 investment strategies. Platinum Management (NY) LLC (“PMNY”) was the general partner of PPVA, with exclusive control and authority over PPVA, including the management of its assets and the hiring of employees to assist in the management of assets. Additionally, PMNY was the investment manager of PPVA pursuant to an investment management agreement. Petitioner maintained that PMNY had the exclusive authority to, among other things, cause PPVA to reimburse PMNY for its operating expenses including the compensation of its employees. In 2010, Uri Landesman (“Landesman”) 1 joined Bodner, Huberfeld and Nordlicht as a principal and 25% percent owner of PMNY. Landesman succeeded Nordlicht as the sole designated managing member of PMNY. He served as the president of PMNY, as well as president and general managing partner of PPVA. Petitioner, a professional investment manager hired by PMNY, claimed, that pursuant to an investment management agreement with PMNY (“employment agreement”), he was entitled to a salary, plus a bonus payable annually equal to a specified percentage of the net profits his investment account generated. Petitioner alleged that Landesman, the individual in control of PMNY and PPVA, failed to authorize the payment of his 2012, 2013 and 2014 bonuses. He further claimed that Landesman paid himself and his partners tens of millions of dollars while failing to establish any reserves for petitioner’s compensation. According to petitioner, PMNY was a shell corporation with insufficient assets to meet its obligations. Petitioner claimed that PMNY’s assets came from PPVA, which transferred only enough money into PMNY’s bank account to meet its monthly expenses and pay management fees to Landesman and his partners.  Petitioner filed an arbitration claim for breach of contract against PMNY. In July 2016, the arbitrator found in favor of petitioner, to wit: that PMNY owed petitioner bonus compensation. In February 2020, the court confirmed the arbitration award, and judgment was entered in favor of petitioner and against PMNY in the amount of $12,703,558.00, plus post judgment interest at nine (9%) percent per annum on the principal amount of $9,566,327.00. The judgment remains outstanding and PMNY is allegedly insolvent with no cash, securities, or income.  Petitioner filed an order to show cause, pursuant to CPLR 5225(b) and 5227, for an order piercing the corporate veil and holding respondent Landesman’s estate jointly and severally liable for the judgment against PMNY, premised on the allegation that Landesman was an alter ego of PMNY who abused its corporate form to enrich himself to the detriment of petitioner. In opposition, respondent argued that petitioner’s application should be denied because petitioner relied on nothing more than conclusory allegations of domination and control over PMNY, premised on Landesman’s position as president of the same.  Respondent also argued that the equitable doctrines of in pari delcito and unclean hands precluded petitioner from collecting the judgment against the estate because he remained under indictment in the United States District Court for the Eastern District of New York for his participation in alleged frauds executed at Platinum Partners. Additionally, petitioner was named as a defendant in an brought by the Securities and Exchange Commission , also pending in the Eastern District of New York. Since a significant portion of the judgment rested on compensation for work subject to those pending cases, respondent claimed that petitioner was seeking to recover ill-gotten gains and, thus, the application should be dismissed. Under New York law, a plaintiff who attempts to pierce the corporate veil must demonstrate that “(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff's injury.” 2 “While complete domination of the corporation is the key to piercing the corporate veil, especially when the owners use the corporation as a mere device to further their personal rather than the corporate business …, such domination, standing alone, is not enough; some showing of a wrongful or unjust act toward plaintiff is required.” 3 Thus, “ he party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene.” 4 The determination whether to pierce the corporate veil is a fact-intensive one. And, because it is fact-intensive, the courts have held that it is not appropriate to make the determination “on a pre-answer, pre-discovery motion to dismiss.” 5 Significantly, because the analysis is so fact dependent, it “eschews mechanical interpretation.” 6 Accordingly, the courts consider the totality of the facts and evidence, as well as the public policy of “protect those who deal with the corporation.” 7 The motion court held that petitioner failed to meet “the very high standard required for piercing the corporate veil.” 8 The court found that petitioner failed to show that Landesman, a part owner of PMNY, exercised complete domination and control over the entity such that, as a matter of law, he was liable for its debt.  The motion court rejected petitioner’s allegations that Landesman engaged in activities that rendered PMNY insolvent and unable to satisfy its debts:  To the extent plaintiff maintains Landesman failed to establish any reserve for petitioner's unpaid bonus compensation; undercapitalized PMNY; paid himself and his partners millions of dollars in distributions rather than paying petitioner's unpaid compensation; and entered into the self-dealing Fraudulent Employee Liability Transaction to enrich himself and his partners, leaving PMNY insolvent and defrauding its creditors, there is no competent proof that Landesman actually directed and controlled the alleged transfer of funds between PMNY, PPVA and any other related entities.  The motion court noted that “petitioner’s own proof suggest that other partners, i.e., Nordlicht, exercised at least some degree of discretion with respect to compensation,” thereby “belying petitioner’s claim that Landesman exercised complete control over PMNY.” On appeal, the Appellate Division, First Department affirmed. The Court held that the motion court “properly found that, … , petitioner failed to present sufficient facts to raise a triable issue that warrants invoking the equitable doctrine of piercing the corporate veil to allow petitioner to recover his judgment against PMNY from respondent estate.”9 Referencing the motion court’s decision, the Court noted that “the evidence submitted by petitioner indicate that decedent by himself did not dominate and control PMNY in that, at a minimum, he consulted with others, including Nordlicht, on financial and employee matters, notwithstanding the provisions of PMNY’s operating agreement.” 10 “Notably,” observed the Court, “decedent owned only 25% of PMNY, while Nordlicht and his grantor trust owned the other 75% and had the power to remove decedent at any time.” 11 The Court also found that “ etitioner … provided scant evidence of disregard of the corporate form, overlapping officers, managers and employees with PPVA, or common offices and telephone numbers.” 12 Additionally, said the Court, “ nsufficient evidence was … presented to raise a triable issue of fact as to whether either was a sham entity …, or whether the challenged transfers from PMNY or PPVA to decedent, Nordlicht and others were part of a fraud directed at petitioner.” 13 Finally, the Court noted that “respondent’s invocation of the doctrines of in pari delicto and unclean hands, which are implicated by the broader fraud charges surrounding the Platinum entities, not persuasive, as the criminal charges against petitioner not been finally resolved.” 14 Takeaway As noted, courts will pierce the corporate veil and impose liability on the company’s owners or members when: (1) they exercise complete domination over the corporation or LLC; and (2) their domination of the corporation or LLC is used to commit a fraud or wrong that injured another. Merely tracking the elements of veil piercing is not enough to withstand a motion to dismiss. A plaintiff must do more; he/she must proffer facts. When the plaintiff fails to provide factual support for the allegations, as both courts found in Small , the veil piercing claim will fail. Footnotes Landesman died on September 14, 2018. Morris v. State Dept. of Taxation & Fin. , 82 N.Y.2d 135, 141 (1993); see also Doe v. Bloomberg, L.P. , 178 A.D.3d 44, 50 (1st Dept. 2019). Morris , 82 N.Y.2d at 141-142. Id. at 142. See also Sutton 58 Assocs. LLC v. Pilevsky , 189 A.D.3d 726, 729 (1st Dept. 2020). BT Ams. Inc. v. ProntoCom Mktg. Inc. , 859 N.Y.S.2d 893 (Sup. Ct., N.Y. County 2008) (holding that veil piercing “is not well suited for resolution on a pre-answer, pre-discovery motion to dismiss”). LiquidX v. Brooklawn Capital, LLC , 1:16-cv-05528-WHP (S.D.N.Y. May 23, 2017) (quoting, Morris , 82 N.Y.2d at 141). Wm. Passalacqua Builders Inc. v. Resnick Developers South, Inc. , 933 F.2d 131, 139 (2d Cir. 1991). A copy of the motion court’s decision and order can be found here . Slip Op. at *1 (citing, Matter of Gonzalez v. City of New York , 127 A.D.3d 632, 633 (1st Dept. 2015)). Id. Id. Id. Id. (citations omitted). Slip Op. at *1-*2. As a general matter, the doctrine of in pari delicto prevents a plaintiff who participated in an alleged wrongdoing from recovering damages from that very same wrongdoing. The doctrine mandates that in such circumstances the courts will not intercede to resolve a dispute between two wrongdoers. Kirschner v. KPMG LLP , 15 N.Y.3d 446, 464 (2010). This Blog wrote about the in pari delicto doctrine 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: Jeffrey M. Haber To plead a fraud cause of action, a plaintiff must allege: (1) a misrepresentation of material fact; (2) falsity; (3) scienter; (4) justifiable reliance; and (5) damages. 1 Each element of the claim must be satisfied for the plaintiff to prevail on the cause of action. The failure to satisfy each element will result in dismissal of the claim. In Hayes v. Martinez , 2023 N.Y. Slip Op. 02587 (1st Dept. May 11, 2023) ( here ), the Appellate Division, First Department reversed the denial of a summary judgment motion involving a fraud claim because the plaintiff failed to show the making of a misrepresentation and/or an omission on which she relied. Plaintiff, Donna Hayes, alleged that, on July 20, 2016, defendant, Tommy Montalvo (“Montalvo”), with whom she had carried on a romantic relationship, induced her to write a $48,000 check to defendant Ululy Rafael Martinez (“Martinez”), Montalvo’s first cousin, so that Martinez could buy and sell stocks on Montalvo’s behalf. Hayes further alleged that between March 20 and May 1, 2017, Montalvo induced her to give Montalvo $114,000 in cash to buy and renovate Martinez’s vacant three-family property in Waterbury, Connecticut. Plaintiff maintained that the foregoing opportunities were non-existent and intended to scam her out of $162,000. In her complaint, plaintiff asserted claims against Montalvo and Martinez for common law fraud, conversion, breach of contract, and unjust enrichment.  On May 7, 2021, Martinez moved for summary judgment and dismissal of all causes of action against him. Martinez argued that he was not involved in Montalvo’s schemes and had no knowledge of them until after plaintiff demanded repayment of the monies she had paid and threatened suit. Martinez further argued that during discovery plaintiff admitted that she had no communications with Martinez regarding either of the two allegedly false investment opportunities that Montalvo presented to her, and that she never even tried to communicate with Martinez regarding those matters. Martinez claimed that plaintiff relied exclusively on the representations Montalvo had made to her regarding the purpose of the funds he allegedly induced her to give to him. Martinez further claimed that he relied solely on his communications with Montalvo regarding the purpose of the $48,000 check that Montalvo caused plaintiff to issue in July 2016, and that he disposed of the funds exactly as Montalvo had directed. Moreover, until plaintiff threatened suit, Martinez claimed that he did not know Montalvo had allegedly induced plaintiff to give him $114,000 in cash under the false pretense of purchasing and renovating Martinez’s property.  Plaintiff opposed Martinez’s motion and cross-moved for partial summary judgment in her favor as to the unjust enrichment claim. Plaintiff argued that Martinez and Montalvo made affirmative, misrepresentations of material facts, knowing those statements to be false, with the intention that the statements be communicated by Montalvo on Martinez’s behalf, and that plaintiff relied on those statements to her detriment. The motion court denied Martinez’s motion as to plaintiff’s fraud, conversion, and unjust enrichment claims, and denied the motion in part as to plaintiff’s breach contract claim. Although there was no dispute that plaintiff and Martinez never directly communicated with each other about the allegedly non-existent investment opportunities that Montalvo presented to her, the motion court found issues of fact sufficient to preclude the grant of summary judgment on all of plaintiff’s claims. Martinez appealed. The First Department modified the motion court’s order to dismiss the causes of action for fraud and breach of contract and to dismiss the cause of action for conversion insofar as plaintiff alleged that Martinez failed to return $48,000 to her, and to dismiss the cause of action for unjust enrichment with respect to the $48,000, and otherwise affirmed. We discuss the portion of the First Department’s decision concerning plaintiff’s cause of action for fraud. The Court held that “Martinez was entitled to dismissal of the cause of action for fraud, as he established that he never communicated with Hayes regarding either the $48,000 or the $114,000, and therefore never communicated a false statement to her.” 2 In so holding, the Court noted that during discovery, “Plaintiff admitted … that her direct communications with Martinez were limited to matters unrelated to the transactions at issue here.” 3 The Court also found that there were no indirect statements – i.e. , statements made “from Montalvo that Montalvo claimed came from Martinez” – which could show the making of a misstatement of fact: “As to whether Martinez indirectly communicated a false statement to plaintiff, she identifies no statement from Montalvo that Montalvo claimed came from Martinez, nor does she even allege facts suggesting that any statements to her were made at Martinez’s request.” 4 Accordingly, the Court held that “plaintiff failed to raise an issue of fact” necessary to defeat defendant’s motion for summary judgment. 5 Takeaway As discussed at the outset of this article, a plaintiff alleging fraud must show that the defendant made a statement on which the plaintiff relied. In the typical case, the defendant makes a false or misleading statement directly to the plaintiff. In Hayes , defendant did not make any statement about the alleged non-existent transactions directly to plaintiff. In the less frequent case, the misrepresentation of fact is made to a third party that relied on the alleged fraudulent statement. In that circumstance, the question is whether the plaintiff can state a fraud cause of action, despite the absence of direct reliance by the plaintiff on the alleged misrepresentation?  In  Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817 (2016), the New York Court of Appeals held that third-party reliance does not satisfy the reliance element of a fraud claim unless the third party “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to his detriment.” 6  In other words, the alleged misrepresentation or omission does not need to be made directly to the plaintiff so long as the statement was made with the intent that it be communicated to the plaintiff by a third party and the plaintiff relied on the representation or omission to his or her detriment. Hayes shows that satisfying rule the articulated in Pasternack can be difficult. As noted, a plaintiff must allege that the misrepresentation was made for the purpose of being communicated to the plaintiff in order to induce his/her reliance thereon or that the misrepresentation was relayed to the plaintiff, who then relied upon it. The failure to allege either will, as Hayes learned, result in dismissal of a fraud cause of action.This Blog examined fraud and third-party reliance  here , here . Footnotes Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817, 827 (2016). Slip Op. at *1. Id. at *2. Id. (citing, Pasternack , 27 N.Y.3d at 828). Id. at *1-*2. 27 N.Y.3d at 828. 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 previously discussed issues related to whether a binding agreement (a settlement agreement or otherwise) was formed by parties to a dispute.  See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .  In our prior articles we discussed, inter alia , the elements of contract formation and whether emails suffice to satisfy signing requirements. Such issues were relevant to the Appellate Division, First Department’s, May 9, 2023, decision in Go New York Tours, Inc. v. Tour Central Park Inc.   [Eds. Note: much of the information set forth herein was derived from the supreme court decision appealed from < here =">here"> available on the Court’s NYSCEF system, and from which most of the unascribed quotes are taken.]  The parties both operate bicycle rental and tour businesses in New York City’s Central Park.  Plaintiff commenced a trademark infringement action against defendant in the United States District Court for the Southern District of New York (the “Federal Action”).  The Court in the Federal Action referred the matter for mediation.  The mediation appeared successful as defendant’s counsel sent plaintiff’s counsel the following email: It is hereby agreed by the parties that subject to a formalized Settlement Agreement, subsequent to Mediation, the parties have agreed to resolve the matter styled Go New York Tours Inc. v Tour Central Park Inc., SDNY Docket No. 19- cv-09803 (VEC)(KNF) as follows: • Defendant shall not use the term “Bike Rental Central Park” in Defendant’s business capacity; • Plaintiff shall not use the term “Bike Rent NYC” in Plaintiff’s business capacity; • Both Plaintiff and Defendant may use the terms “Central Park Bike Rent” and “Central Park Rent Bike”;  • Both parties shall absolutely disavow any professional affiliation or relationship with the other; • Tour Central Park shall pay Go New York Tours Ten Thousand Dollars ($10,000.00); • Neither Plaintiff nor Defendant admits any liability or wrongdoing. The parties agree that each side participated in the subject Mediation with the assistance of and representation by counsel. The parties understand and agree to the terms of the settlement as contemplated at Mediation and consent that said terms are subject to the execution of a formal Settlement Agreement. Plaintiff’s counsel subsequently sent a confirmatory email as to the agreement’s terms.  A joint letter was submitted to the Court in the Federal Action advising of the settlement and requesting the adjournment of an upcoming status conference “‘with the expectation that the above settlement will be finalized in the interim and the action discontinued.’” Shortly thereafter, defendant sought to open the Federal Action due to its principal’s “misunderstanding” as to the meaning of a settlement term that his own attorney included in the settlement email.  Defendant’s principal claimed he did not agree that both parties “may use the terms ‘Central Park Bike Rent’ and ‘Central Park Rent Bike’”.  After an additional mediation session failed to resolve the outstanding issue, the Court in the Federal Action issued an order indicating that is did not have subject matter jurisdiction to determine whether the parties “settlement agreement” was enforceable.  Accordingly, the plaintiff in the Federal Action commenced an action in supreme court to enforce the settlement.  Defendant moved for summary judgment dismissing the action and plaintiff cross-moved for summary judgment. Essentially, defendant argued that there was no meeting of the minds because its principal, whose first language was not English, understood that defendant would retain exclusive rights to the use of the names “Central Park Bike Rent” and “Central Park Rent Bike.”  Supreme court found defendant’s position “utterly contradicted” by the settlement email language, which “cannot plausibly” be deemed ambiguous.   Defendant also contended that because the settlement email indicated that it was “subject to the execution of a formal Settlement Agreement,” no settlement agreement was reached by the parties.  Supreme court then discussed the law in this area.    The court explained that “the law distinguishes between “a preliminary agreement contingent on and not intended to be binding absent formal documentation, which is not enforceable, and a binding agreement that is nevertheless to be further documented, which is enforceable with or without the formal documentation.”  (Citations and internal quotation marks omitted.)  The former, the court noted, requires an explicit reservation that there would be no contract until the full formal document is completed and executed the mere fact that the parties intended to draft formal settlement papers is not alone enough to imply an intent not to be bound except by a fully executed document.”  (Citations and internal quotation marks omitted.) Specifically, where agreements contain “subject to a signed writing” language, supreme court stated that “it may indicate that the writing is a condition precedent that must occur before obligations under the agreement become binding” but “in other instances, ‘subject to’ language has been held to fall short of an express reservation of the right not to be bound absent an executed agreement.”  After analyzing numerous cases, supreme court concluded that: “subject to” or other similar language in an agreement is not a talisman against enforceability, as the defendant suggests. Rather, it is one factor, among several, that the court must consider in determining whether the defendant intended to be bound. In this regard, courts assess whether the parties’ conduct evidenced an intent to be bound, whether all material terms of the contract have been agreed upon, whether the agreement at issue is the type of contract usually committed to writing, and whether there has been partial performance of the contract. Supreme court went on to explain, inter alia , that defendant’s “own counsel memorialized the material terms of the parties’ settlement, including the amount to be paid by the defendant and a clear agreement as to usage of disputed terms in the parties’ respective businesses, in an email sent during the mediation, with the subject line, ‘Go New York v. Tour Central Park – Term Sheet – For review.’”  Further, plaintiff’s counsel confirmed the terms were “fine” and counsel to both parties agreed to the additional term that the “documentation be completed and payment made within 30 days.”  Additionally, no writings suggested that the agreement was “proposed,” “preliminary” or otherwise “tentative”. Finally supreme court noted that “the format of settlement agreements is governed by CPLR 2104” and the “email correspondence submitted here suffices to meet CPLR 2104’s requirements for enforceability.” Thus, supreme court denied defendant’s motion for summary judgment and granted, in part, plaintiff’s motion for summary judgment as to liability on its sole cause of action (breach of contract).  However, supreme court left plaintiff’s entitlement to specific performance and compensatory damages to be determined at trial.  On defendant’s appeal, the First Department unanimously affirmed and stated: The court properly found that the parties entered into a binding settlement agreement at the conclusion of mediation, the terms of which were embodied in an email agreement. The email correspondence is sufficient to embody a settlement agreement since it was authentic and sets forth all material terms.  The settlement agreement specifically stated that it would be "subject to a formalized Settlement Agreement." In analyzing these types of phrases, courts must determine whether the parties have merely come to a preliminary agreement to agree (which is not enforceable), or a binding agreement, by determining whether there has been an explicit reservation that there would be no contract until the full formal document is completed and executed. Here, the parties' use of the phrase "subject to," standing alone, did not amount to an express reservation of the right not to be bound or a condition precedent to the formation of a binding contract. Under these circumstances, the court properly found that the "subject to" language was indicia of the parties' expectation that they would come to a final agreement as a mere formality, not as a condition precedent to a binding settlement agreement. The parties' subsequent actions — including their correspondence with each other, their cocounsel and the court — all indicate their respective understandings that the parties had come to a final settlement agreement resolving the related action in federal court.  Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Pursuant to CPLR 3014 , inter alia , “ copy of any writing which is attached to a pleading is part thereof for all purposes.”  Where “a copy of the agreement is annexed to and made a part of the complaint, the rights and duties of the parties must be determined by the terms of the contract annexed to the complaint, and not by the plaintiff’s characterization or construction thereof in his pleading he rights of the parties thereunder must be determined by the terms of that instrument without the aid of such conclusions as the plaintiff has set up respecting its legal effect.”  Miglietta v. Kennecott Copper Corp. , 25 A.D.2d 57, 58 (1 st Dep’t 1966) (citation and internal quotation marks omitted); see also 805 Third Ave. Co. v. M.W.Realty Assoc. , 58 N.Y.2d 447, 451 (1983) (citing, inter alia, Miglietta ). The import of CPLR 3014 was an issue, among others, addressed on May 2, 2023, by the Appellate Division, First Department, in Carey v. Toy Industry Ass’n TM, Inc. , which, at its core, was a personal injury matter.    The plaintiff in Carey , a carpenter, was injured when he slipped and fell.  Carey sued Toy Industry, which, in turn, brought a third-party complaint against Freeman Expositions, Inc. (“Freeman”) in which Toy Industry sought indemnity and contribution against Freeman for Carey’s injuries.   Freeman moved for summary judgment dismissing the third-party claims.  In its motion, Freeman argued, among other things, that indemnification language from the contract between Toy industry and Freeman was inapplicable because the accident was caused by the negligence of “any other party not under Freeman’s direct control,” which was an exception to Freeman’s indemnification obligations under the contract.  The operative contracts were annexed as exhibits to the affidavit of Freeman’s counsel, and not a representative of Freeman with first-hand knowledge of the contracts. Supreme court denied Freeman’s motion in a decision and order which, in its substantive entirety as it relates to Freeman’s motion, states:  ORDERED that third-party defendant Freeman Expositions, Inc.’s motion for summary judgment is denied as the Freeman/TIA Contract and the TIA/NYCCOC License Agreement upon which it relies are not authenticated as required by CPLR 4518(a) and thus are inadmissible and cannot form the basis to grant summary judgment (Clarke v. American Truck & Trailer, 171 A.D.3d 405, 406 <1st dep’t 2019> )…. Freeman’s counsel then moved for renewal/reargument and that motion was denied. On Freeman’s appeal, the Second Department “unanimously modified, on the law, to grant that portion of Freeman’s motion for summary judgment dismissing the common-law indemnification and contribution claims asserted against it, and otherwise affirmed.”  In so doing, the Court determined, among other things, that copies of the operative contracts were annexed to the third-party complaint, and stated: The motion court should not have denied Freeman’s motion for summary judgment on the basis that its contract with third-party plaintiff Toy Industry Association, Inc. (TIA) was not in admissible form. The copy of the contract on which Freeman relied in support of its motion was annexed to TIA’s third-party complaint. The contract, therefore, was part of the complaint “for all purposes” (CPLR 3014), and facts admitted in the complaint constitute formal judicial admissions, and are conclusive of the facts admitted. Thus, TIA’s rights arise out of the contract annexed to its complaint and it is bound by the contract provisions. The contract was also admissible for the independent reason that TIA both did not object to its admissibility before the motion court (rather, plaintiff did) and relied on the same contract in support of its cross motion.  In view of the foregoing, we dismiss as academic Freeman’s appeal from the order denying its motion for leave to renew, the purpose of which was to tender the contract in admissible form to the motion court’s satisfaction.  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.