By: Jeffrey M. Haber New York strongly favors the enforcement of releases. Courts routinely recognize that a valid release serves an important purpose by bringing certainty and finality to disputes, allowing parties to resolve claims and move forward without the threat of future litigation. Indeed, broadly worded releases are often enforced according to their terms, even when they encompass claims that were unknown or unanticipated at the time the agreement was executed. For businesses and litigants alike, the release is one of the most effective tools for managing risk and achieving closure. Notwithstanding, New York courts have long held that a release may be set aside where it was procured through fraud, misrepresentation, concealment, or other inequitable conduct. The law recognizes that while parties are generally free to allocate risk through contract, a release cannot be used as a shield for deceptive conduct that induced the agreement itself. As a result, disputes frequently arise over whether a release reflects a knowing and voluntary surrender of claims or whether it was obtained through misrepresentations, omissions, or active concealment of material facts. The relationship between releases and fraud presents a recurring theme in New York jurisprudence. On one hand, courts seek to uphold the parties’ contractual intent and preserve the certainty that releases are intended to provide. On the other, courts are reluctant to enforce agreements that are the product of fraud. The outcome often turns on questions concerning the language of the release, the sophistication of the parties, the existence of non-reliance provisions, the nature of the alleged misrepresentations, and whether the purported fraud is distinct from the subject matter of the released claims. In today’s article, we examine, through Crane v. WP Strategic Holdings, LLC, 2026 N.Y. Slip Op. 04806 (3d Dept. July 30, 2026), how New York courts navigate these principles. Crane v. WP Strategic Holdings, LLC Crane involved descendants of the founders of Crane & Co. who negotiated with defendants to acquire a stationery business that had passed through several corporate ownership changes before being offered for sale in 2024. Crane & Co., Inc. was founded in 1801 as a paper manufacturer and has long operated in that capacity, although with multiple corporate changes occurring over the last decade. In 2015, the company’s internal stationery business — Crane Special Papers North America, Inc. (hereinafter CSPNA) — became an entirely employee-held company. In 2018, that entity was acquired by Mohawk Fine Papers, Inc., and the assets of Mohawk were subsequently sold to a foreign company, Fedrigoni Group, in 2024. Shortly thereafter, Fedrigoni decided that it would seek to sell CSPNA. Plaintiffs — descendants of the founder of Crane & Co. who had remained employed by CSPNA through these structural changes — began negotiations with defendants for the joint purchase of CSPNA from Fedrigoni. The parties agreed to purchase CSPNA for $3 million, with plaintiffs contributing $600,000 of the purchase price and defendants contributing the remaining $2.4 million. Soon thereafter, plaintiffs agreed that defendant would singularly purchase CSPNA, with plaintiffs’ ownership interests to be determined later. Therefore, WP purchased CSPNA for $3 million. Following the purchase, the business relationship between the parties deteriorated. On May 28, 2024, defendants advised plaintiffs that they did not wish to move forward in the joint venture and offered to return plaintiffs’ capital investment with an additional $60,000 to account for any personal costs incurred. This arrangement was conditioned on the execution of an agreement and release that relinquished plaintiffs from all ownership of CSPNA and released all parties from any claims, both known and unknown. After negotiations regarding the terms of the release, during which versions were exchanged between counsel for each party, plaintiffs, with the advice of counsel, executed the release in early June 2024. In relevant part, the release provided that each party released the other from “all claims, rights, causes of action, suits, debts, dues, units, shares, stock, interests, sums of money . . . and all liability . . . known or unknown.” All affirmed that they “entered into th[e] [a]greement of their own free will and accord, have received independent legal counsel and review of th[e] [a]greement, and they have not been promised any additional future consideration with respect to the transactions contemplated by th[e] [a]greement.” The release specified, among other things, that defendant was permitted to sell CSPNA at any point in the future. One month later, defendant sold CSPNA to an outside company for $9.75 million — more than three times the value the parties had negotiated months before. Plaintiffs brought the action in March 2025, claiming fraud and breach of fiduciary duty and seeking, among other things, to set aside the release. Additionally, plaintiffs sought payment in the amount of $975,000, which, according to them, represented the value of their individual 10% alleged shares in CSPNA at the time of the subsequent sale. In lieu of filing an answer, defendants moved to dismiss the complaint on the basis that the release the parties had executed following the breakdown in negotiations barred the action. Supreme Court agreed, granted defendant’s motion, and dismissed the complaint. Plaintiffs appealed. The Appellate Division, Third Department, affirmed. As an initial matter, the Court found the release to be clear and unambiguous, and that, by its terms, plaintiffs knowingly and voluntarily released defendants of the claims asserted against them — specifically, the claim that defendants fraudulently induced them into accepting payment and executing the release by the failure to disclose the existence of the impending third-party sale of CSPNA.[1] Because plaintiffs’ signature on the release was clear and unambiguous, the Court held that it was “a binding and jural act” that allowed defendants to satisfy their prima facie burden of establishing that the release barred the claims and, therefore, shifted the burden to plaintiffs to establish valid grounds for rescission.[2] In New York, “a party that releases a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.”[3] “[A] general release executed even without knowledge of a specific fraud effectively bars a claim or defense based on that fraud.”[4] The Court held that plaintiffs could not establish fraud based on defendants’ alleged failure to disclose material information because the fiduciary duty on which their fraud theory depended did not exist. Plaintiffs argued that defendants owed them a duty of disclosure arising from their purported status as shareholders of CSPNA. The release, however, established that defendant had acquired all of CSPNA’s stock, that plaintiffs’ capital contributions would only entitle them to shares on terms to be negotiated later, and that the parties had never reached agreement on those terms. Communications after the acquisition similarly showed that the parties were still negotiating the percentage ownership plaintiffs might receive and other material aspects of their relationship. Accordingly, plaintiffs possessed only a prospective right to acquire shares, not an actual ownership interest. Because they were not shareholders when they executed the release, defendants owed them no fiduciary duty, and plaintiffs’ fraud claim failed. “As plaintiffs were not shareholders at the time of the execution of the release,” said the Court, “defendants did not owe plaintiffs a fiduciary duty.” [5] The Court also held that “[p]laintiffs’ separate claim that they were fraudulently induced into entering the release … fail[ed] for lack of justifiable reliance.”[6] The Court noted that “plaintiffs executed the release on the advice of counsel, despite that counsel’s stated belief that defendants were being untruthful and unresponsive.”[7] Additionally, said the Court, plaintiffs had hints of falsity through “an email sent to plaintiffs and their counsel,” in which defendant expressed his belief “that CSPNA could trade at a substantially higher value than they had negotiated.”[8] “The foregoing, as well as defendants’ reluctance to issue plaintiffs their negotiated-for shares, the sudden change in defendants’ willingness to do business with plaintiffs and the release specifically permitting defendants to sell CSPNA at any time were all indications that something was amiss,” observed the Court.[9] “Yet,” concluded the Court, “despite these indicators, plaintiffs failed ‘to make further inquiry or insert appropriate language in the agreement for [their] protection’ and, as such, they ‘willingly assumed the business risk that the facts may not be as represented.’”[10] Takeaways Crane reinforces New York’s strong policy favoring the enforcement of broad releases negotiated by sophisticated parties represented by counsel. Once a defendant produces a clear and unambiguous release covering known and unknown claims, the burden shifts to the plaintiff to establish a legally recognized basis for rescission. A release is not easily undone simply because subsequent events make the bargain appear unfavorable in hindsight. Crane also underscores the high bar New York courts impose on parties seeking to avoid a release on grounds of fraud. Under New York law, a plaintiff who has released fraud claims cannot later challenge the release unless the plaintiff can identify a fraud that is separate and distinct from the subject of the release itself. The mere discovery of previously unknown facts, or the realization that the opposing party obtained a better outcome than anticipated, will not suffice to invalidate a broad release. Equally significant is the Court’s treatment of fiduciary-duty-based fraud claims. The plaintiffs attempted to establish fraud through an alleged failure to disclose material information, arguing that defendants owed them fiduciary duties as shareholders. The Court rejected that argument, finding that plaintiffs never became shareholders. Their capital contributions gave them only a prospective right to acquire stock on terms that remained unresolved. Because no ownership interest existed when the release was executed, no fiduciary duty arose, and the nondisclosure theory failed at its foundation. Crane further demonstrates the importance of justifiable reliance in fraud cases. Even where a plaintiff suspects that information is being withheld or that a transaction may be more valuable than represented, New York law expects sophisticated parties to protect themselves through inquiry, diligence, and contractual safeguards. Here, plaintiffs executed the release despite alleged concerns about defendants’ candor, despite being represented by counsel, and despite possessing several indications that a larger opportunity may have existed. Under those circumstances, the Court concluded that plaintiffs assumed the risk that the facts were different from what they believed. The Court’s reasoning serves as a reminder that unexplained changes in position, reluctance to provide information, or suspicious circumstances may create a duty to investigate rather than a right to rely. Where hints of falsity exist, a party – especially a sophisticated one – who proceeds without further inquiry may later find it difficult to establish justifiable reliance, an essential element of fraud. From a transactional perspective, the case highlights the importance of documenting ownership rights before capital is invested. Plaintiffs’ claims failed in part because they never secured a definitive agreement granting them an ownership interest in the acquired business. Expectations regarding future ownership, no matter how strongly held, may not create the legal rights necessary to support fiduciary-duty claims. Finally, Crane illustrates a broader lesson frequently seen in New York commercial litigation: courts distinguish between a bad bargain and a legally actionable fraud. The fact that defendants purchased a company for $3 million and sold it only weeks later for $9.75 million may have made plaintiffs regret the settlement they accepted, but a bad deal alone is not a basis to rescind a release. Absent a separate fraud, a fiduciary duty to disclose, or justifiable reliance on a misrepresentation, New York courts will generally hold sophisticated parties to the agreements they freely negotiated and signed. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Slip Op. at *2, citing Silver Point Capital Fund, L.P. v. Riviera Resources, Inc., 198 A.D.3d 432, 432-433 (1st Dept. 2021); Avnet, Inc. v. Deloitte Consulting LLP, 187 A.D.3d 430, 431 (1st Dept. 2020); see also Treistman v. Ulster County Socy. for Prevention of Cruelty to Animals, 235 A.D.3d 1144, 1145 (3d Dept. 2025), lv. denied, 44 N.Y.3d 1020 (2025). [2] Id. at *3, citing Booth v. 3669 Delaware, 92 N.Y.2d 934, 935 (1998); Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93, 98 (1st Dept. 2006), lv. denied, 8 N.Y.3d 804 (2007); see also Stevens v. Town of Chenango (Forks), 167 A.D.3d 1105, 1106 (3d Dept. 2018). [3] Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011); see Columbia Consultants, LLC v. Danucht Entertainment, LLC, 222 A.D.3d 479, 480 (1st Dept. 2023); Avnet, 187 A.D.3d at 431. [4] Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V., 76 A.D.3d 310, 318 (1st Dept. 2010) (internal quotation marks, brackets and citations omitted), aff’d, 17 N.Y.3d 269 (2011). [5] Slip Op. at *3 (citations omitted). [6] Id., citing Centro, 17 N.Y.3d at 276. [7] Id. at *4. [8] Id. [9] Id. [10] Id., citing LLM Capital Partners, LLC v. Mill Point Capital, LLC, 224 A.D.3d 504, 507-508 (1st Dept. 2024) (internal quotation marks and citation omitted); see Silver Point Capital, 198 A.D.3d at 433.

By Jeffrey M. Haber The False Claims Act (“FCA” or the “Act”) prohibits businesses and individuals from defrauding the government by knowingly presenting, or causing to be presented, a false claim for payment or approval. Currently, violations of the Act can result in a judgment equal to three times the losses sustained by the government, plus civil penalties of $5,500 to $11,000 for each false claim. The Act rewards whistleblowers (also known as “relators”) who successfully recover funds on behalf of the government. A person who brings a successful “qui tam” action can receive between 15% and 30% of the government’s recovery depending upon whether the government intervenes in the action. To start a qui tam action, the relator must file a complaint under seal in federal court – i.e., it will be kept from public view. Copies of the complaint are served on the United States Department of Justice (“DOJ”), including the local United States Attorney, and delivered to the judge assigned to the action. The complaint is not served on any of the named defendants until ordered by the court. The complaint must satisfy multiple pleading requirements under the Federal Rules of Civil Procedure (“Fed. R. Civ. P.”). For example, the relator must satisfy Fed. R. Civ. P. 8(a)(2), which requires the complaint to provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” In doing so, the complaint must “possess enough heft” by demonstrating with “sufficient factual matter” that the relator has “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The relator must also plead with particularity the circumstances constituting the alleged fraud on the government. Fed. R. Civ. P. 9(b). See also U.S. ex rel. Lucas Matheny v. Medco Health Solutions, Inc., 671 F.3d 1217 (11th Cir. 2012). This requirement “demands a higher degree of notice than that required for other claims,” and “is intended to enable the defendant to respond specifically and quickly to the potentially damaging allegations.” U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006) (internal citations omitted). “To satisfy the particularity requirement of Rule 9(b), the complaint must plead such facts as the time, place and context of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result.” Id. In other words, the relator must identify the “who, what, where, when and how of the alleged fraud.” Id. See also Hopper v. Solvay Pharms., Inc., 588 F.3d 1318, 1324 (11th Cir. 2009); Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004). In addition to filing a complaint, the relator must serve a disclosure statement on the government containing substantially all the evidence in his/her possession about the alleged fraud. 31 U.S.C. § 3730(b)(2). The disclosure statement is not filed in court, and is not available to the named defendants. The primary purpose of the disclosure requirement “‘is to provide the United States with enough information on alleged fraud to be able to make a well reasoned decision on whether it should participate in the filed lawsuit or allow the relator to proceed alone.’” United States ex rel. Bagley v. T.R.W. Inc., 212 F.R.D. 554, 556 (C.D. Cal. 2003) (quoting United States ex rel. Woodward v. Country View Care Ctr., 797 F.2d 888, 892 (10th Cir. 1986)); United States ex rel. Calilung v. Ormat Indus., Ltd., No. 3:14-cv-00325-RCJ-VPC (D. Nev. Dec. 23, 2015). To many, including government attorneys, the disclosure statement is the most important document submitted at the outset of a qui tam action. As noted, Section 3730(b)(2) requires the relator to provide the government with “substantially all material evidence and information” that the relator possesses. 31 U.S.C. § 3730(b)(2). However, there are “few reported decisions constru[ing] the nature and extent of the relator’s disclosure obligation under section 3730(b)(2).” Bagley, 212 F.R.D. at 556 (citing United States ex rel. Made in the USA Found. v. Billington, 985 F. Supp. 604, 608 (D. Md. 1997)). “As such, the statute affords the drafter the discretion to include a recitation of facts that support an allegation or analysis of how the facts coalesce to support an allegation—or both—as long as it contains ‘substantially all material evidence and information the person possesses.’” Bingham v. Baycare Health Sys., Case No. 8:14-cv-73-T-23JSS (M.D. Fla. Apr. 15, 2016) (citing Bagley, 212 F.R.D. at 556). Given the discretion afforded to a relator under Section 3730(b)(2), it is generally recommended that the relator do more than provide a basic overview of the alleged fraud. See generally Robert Salcido, The Government Declares War on Qui Tam Plaintiffs Who Lack Inside Information: The Government’s New Policy to Dismiss These Parties in False Claims Act Litigation, 13 Health Law 1, 4 (2000) (explaining the pros and cons of filing a full disclosure statement versus a sparse disclosure statement). As a practical matter, a threadbare disclosure statement will more likely be rejected by the government – that is, the government will more likely decline to intervene in the action. However, the DOJ will be more likely to intervene when the relator provides documentary evidence supporting the allegations of fraud. Consequently, relators are “encourage[d] … to make [disclosure statements] as complete, detailed, and thoughtful as possible.” Bagley, 212 F.R.D. at 557. How then does a relator provide the government with the quantum of evidence needed to support his/her allegations of fraud and increase the likelihood of government intervention in the action? One method often used is self-help discovery. Self-help discovery occurs when an employee uses his/her position to access company files for the purpose of collecting documents and information relating to his/her qui tam claims. Often, the documents and information that a whistleblower takes are confidential. Sometimes, the documents include trade secrets, and other times attorney-client privileged information. Almost always, the self-help discovery violates company policy and/or a confidentiality agreement. Consequently, self-help discovery exposes the employee to a counterclaim for breach of contract, sanctions, or worse. Whether such claims can survive depends on the court in which the claim is brought and the facts underlying the self-help discovery. Some courts have dismissed claims against a relator holding that in the context of a qui tam action, public policy voids confidentiality agreements and company policies. E.g., United States v. Cancer Treatment Centers of America, 350 F. Supp. 2d 765, 773 (N.D. Ill. 2004); Head v. Kane Co., 668 F. Supp. 2d 146 (D.D.C. 2009); Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1039 (C.D. Cal. 2012). Cf. X Corp. v. John Doe, 805 F. Supp. 1298, n.24 (E.D. Va. 1992) (noting that a confidentiality agreement would be void as against public policy if, when enforced, it would prevent “disclosure of evidence of a fraud on the government”). Other courts have held that claims against a relator who has availed himself/herself of documents and information through self-help discovery turn on the reasonableness of the relator’s conduct in relation to the need for the documents and information. E.g., Aldrich v. Rural Health Servs., 579 Fed. Appx. 335 (6th Cir. 2014); U.S. v. Boston Scientific Neuromodulation Corp., 2014 WL 4402118 (D.N.J. Sept. 4, 2014); Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) (recognizing “some merit” in a public policy exception, but finding that such an exception would have limits); JDS Uniphase Corp. v. Jennings, 473 F. Supp. 2d 697, 702-03 (E.D. Va. 2007); Niswander v. Cincinnati Ins. Co., 2007 WL 1189350 (N.D. Ohio Apr. 19, 2007); Laughlin v. Metropolitan Washington Airport Auth., 149 F.3d 253 (4th Cir. 1998). These courts balance the need of the relator to provide the government with substantially all the evidence in his/her possession (see 31 U.S.C. § 3730(b)(2)) against the company’s expectation that its confidential and privileged information will be protected. Courts that engage in the balancing approach often note that there is a strong public policy that protects whistleblowers from retaliation for actions taken in connection with their qui tam complaint. But in doing so, they also note that this policy has its limits, stating that relators cannot purloin documents for reasons other than in pursuit of their qui tam action. Consequently, these courts examine whether the self-help discovery went beyond the scope of what was necessary to demonstrate qui tam liability by considering a number of factors, including, but not limited to: (1) the manner in which the employee obtained the evidence; (2) whether the evidence contained trade secrets, proprietary information or attorney-client privileged information; (3) what the employee did with the evidence; (4) whether the employee’s conduct was prohibited by a company policy or confidentiality agreement; (5) the impact on the company of the disclosure of the evidence – that is, whether disclosure of the evidence was made public or to competitors; (6) whether the evidence is relevant to the relator’s qui tam claims; (7) the effect of allowing or disallowing use of the evidence on the rights of the employee and the employer; and (8) whether there was a risk that the evidence would be destroyed if the employee did not remove or retain it. Often, the courts using the balancing approach have found that the factors mentioned above favor the company rather than the public policy interest. E.g., Cafasso, 637 F.3d at 1062 (public policy exception “would not cover [Cafasso’s] conduct given her vast and indiscriminate appropriation of [GDC4S] files.”); U.S. ex rel. Wildhirt v. AARS Forever, Inc., No. 1:09-cv-01215, 2013 WL 5304092 (N.D. Ill. Sept. 19, 2013) (finding that the public policy exception did not shield the relator from liability since the relator took documents with no intention of filing a qui tam action and disclosed them to the public); U.S. ex rel. Walsh v. Amerisource Bergen Corp., No. 2:11-cv-07584, 2014 WL 2738215 (E.D. Pa. June 17, 2014) (denying a relator’s motion to dismiss counterclaims and emphasizing that the relator “took ‘a large variety of [company] confidential, proprietary and privileged information…’”) (citation omitted). Sometimes, however, the factors mentioned above favor the relator. One such case is discussed below. Recent Use of the Balancing Approach On May 9, 2016, the U.S. District Court for the Northern District of Illinois dismissed a counterclaim brought by a defendant company against a whistleblower for providing the government with confidential information in violation of the company’s privacy policy and a confidentiality agreement. In United States ex rel. Cieszynski v. Lifewatch Services, Inc., No. 13 CV 4052, 2016 WL 2771798 (N.D. Ill. May 13, 2016), the court balanced the public policy and company interests and found that the whistleblower had not taken any more information than necessary to report the alleged fraud to the government. The Facts Matthew Cieszynski (“Cieszynski”), a certified technician for the defendant LifeWatch Services, Inc. (“LifeWatch”), brought a qui tam action against LifeWatch under the Act and related state false claims statutes, alleging that LifeWatch collected reimbursements for medical services that were performed by non-U.S.-based technicians and/or non-certified technicians, in violation of Medicare and other federal and state insurance laws and regulations. After the court denied LifeWatch’s motion to dismiss, LifeWatch answered the complaint and filed a one-count counterclaim alleging that Cieszynski breached both a confidentiality agreement and privacy policy he signed as part of his employment with LifeWatch. According to LifeWatch, Cieszynski took and disclosed to his attorney and the government confidential information in connection with the pursuit of his qui tam action. All parties agreed that the information taken was covered by the confidentiality agreement and privacy policy. The Court’s Decision Breach of Contract Must Be Independent from Any FCA Investigation After balancing the public policy that protects whistleblowers from retaliation for the actions they take to investigate and report a fraud on the government against the privacy rights of companies that claim independent damages from the theft of confidential information, the court held that LifeWatch “failed to state a claim for breach of contract.” In dismissing the counterclaim, the court found that LifeWatch failed to “create a plausible claim that plaintiff’s actions deprived him of the public policy protections afforded qui tam relators who must collect and disclose documentary evidence to support their suspicions of fraud against the government.” At the heart of the dismissal was the court’s conclusion that LifeWatch’s claim derived from the FCA claims Cieszynski alleged against it. LifeWatch did not contend that Cieszynski had retained or disclosed the information “for any reason other than to support his FCA claim.” Nor did LifeWatch contend that Cieszynski provided the documents to anyone “other than the government or his counsel.” In fact, LifeWatch did not allege any “damages resulting from relator’s actions other than the fees and costs associated with pursuing the counterclaim” – which the court considered to be “a self-inflicted wound.” According to the court, Cieszynski’s actions were far different than in other cases in which the plaintiffs had taken documents with no intention to file a qui tam action, made the documents public, disclosed trade secrets that could damage the business, and/or convinced other employees to take documents. The Retention and Disclosure Did Not Go Beyond the Scope of Necessity Next, the court rejected LifeWatch’s argument that Cieszynski “took many more documents than were necessary to support his claim.” In doing so, the court declined to impose a burden on relators to know in hindsight “precisely how much information to provide the government” in order to support their case, fearing that to do so would have a chilling effect on their “willingness to report suspected fraud.” “It is unrealistic to impose on a relator the burden of knowing precisely how much information to provide the government when reporting a claim of fraud, with the penalty for providing what in hindsight the defendant views as more than was needed to be exposed to a claim for damages. Given the strong public policy encouraging persons to report claims of fraud on the government, more is required before subjecting relators to damages claims that could chill their willingness to report suspected fraud.” Takeaway Cieszynski is a good decision for relators. It represents a fair and reasonable approach to evaluate self-help discovery in furtherance of a qui tam action. It firmly recognizes the importance of protecting whistleblowers against retaliation and incentivizes them to investigate and report fraud against the government as intended by the Act. But, it also recognizes that whistleblowers cannot overreach by haphazardly and indiscriminately taking documents that are unrelated to their qui tam action, disclosing them to the public, or disclosing trade secrets, proprietary information and/or attorney-client privileged documents to competitors and/or third parties. Counsel on both sides of the case should consider this approach in their qui tam representation. This article was written by Jeffrey M. Haber, a partner at 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 An agency relationship occurs when a principal gives legal authority to an agent to act on the principal’s behalf when dealing with a third party, and obtains the agent’s consent to be subject to the principal’s control. See Restatement (Third) of Agency §1.01. An agency relationship is a fiduciary one, meaning the agent, acting within the scope of his/her authority, has to act in the best interests of the principal. Under such circumstances, the acts and deeds of the agent will bind the principal, making the principal liable for the consequences of the acts that the agent has been authorized to perform. There is a significant body of law governing the principal-agent relationship, including liability for wrongs committed against third parties. As a general matter, the liability of an agent for wrongs committed against a third party depends upon a number of factors, including whether the agent discloses the existence of the principal. The inquiry is often focused on the type of principal that is present in the deal or transaction: (1) a “disclosed” principal; (2) a “partially disclosed” principal; or (3) an “undisclosed” principal. Disclosed Principal A disclosed principal is a person whose existence and identity is made known to the third party through words or the performance of an authorized act. As explained in the Restatement (Third) of Agency, the “third party has notice that the agent is acting for a principal and has notice of the principal’s identity.” Restatement (Third) of Agency § 104(2)(a). Under these circumstances, any contract or agreement executed between the agent and a third party is deemed to be a contract or agreement between the principal and the third party. The agent is not a party to the contract or agreement. Therefore, in the event the contract or agreement is breached in any way by the principal, the agent cannot be held personally liable for any damages incurred by reason of the breach. Partially Disclosed Principal A partially disclosed principal or “unidentified principal” is a person whose existence but not identity is made known to the third party through words or the performance of an authorized act. As explained in the Restatement (Third) of Agency, the “third party has notice that the agent is acting for a principal but does not have notice of the principal’s identity.” Restatement (Third) of Agency § 104(2)(c). Under these circumstances, any contract or agreement executed between the agent and a third party is deemed to be a contract or agreement between the agent and the third party unless the parties agree otherwise (i.e., the principal is responsible for performing under the contract or agreement). Without the third party’s consent and agreement that the principal is the contracting party, the agent may be held personally liable for any breach of the contract or agreement. Undisclosed Principal An undisclosed principal is a person whose existence and identity are not made known to the third party through words or the performance of an authorized act. As explained in the Restatement (Third) of Agency, the “third party has no notice that the agent is acting for a principal.” Restatement (Third) of Agency § 104(2)(b). Under these circumstances, any contract or agreement executed between the agent and a third party is deemed to be a contract or agreement between the agent and the third party. Thus, the agent may be held personally liable for any breach of the contract or agreement. Holding the Agent Liable It goes without saying that an agent does not want to be held liable for the transactions he/she enters on behalf of another person. With this truism in mind, let’s consider the following scenario: Jane buys a condo that needs renovation. After two months of research, Jane meets with John, a contractor and home designer. John tells Jane that he is the owner of XYZ Design and Renovation, maintains an affiliation with ABC Home Designs (a high-end home design company), and can handle the work required to renovate the apartment. Jane tells John that she will think it over and get back to him if she decides to go forward. A few weeks later, Jane emails John to express her interest in hiring him. Over the next few months, Jane and John exchange emails about designs and construction plans. Thereafter, John sends Jane a contract, which lists all of the improvements to be done and the corresponding cost for supplies and labor. Jane finds the terms and conditions acceptable and hires John. Not long after John begins the work, Jane becomes concerned with John’s workmanship and the quality of the supplies that John is using for the renovation. After paying over $25,000 in parts and labor, Jane fires John and files suit against him for breach of contract. John denies any liability, arguing that he is not a party to the contract with Jane. John claims that the actual contracting party is Bella Inc. d/b/a XYZ Design and Renovation and that XYZ Design and Renovation is a trade name for Bella Inc. Can Jane sue John personally for breach of contract? In Tecchia v. Bellati, 2016 NY Slip Op. 31311(U), the case upon which the foregoing fact pattern is based, Justice Scarpulla of the Supreme Court, New York County, Commercial Division, answered the question with an unequivocal yes. The Facts Sara Tecchia (“Tecchia”) purchased an apartment in lower Manhattan that needed substantial home improvements. Tecchia met with Bartolomeo Bellati (“Bellati”) in his New York showroom, “where he represented that he was the owner of Minimal USA, that he was affiliated with Minimal Cucine, an Italian bespoke kitchen designer, and that he could perform the construction improvements that Tecchia sought.” During the following year, Tecchia and Bellati met and exchanged multiple emails concerning the construction plans. Bellati sent a contract (the “Contract”) to Tecchia, which Tecchia countersigned several months later. Among other things, the Contract listed the work to be performed and the corresponding price for parts and labor. Tecchia was not satisfied with the work that Bellati performed and the quality of the supplies that he installed. Consequently, Tecchia terminated the Contract, after paying Bellati $593,808.29 under the Contract, and sued for, among other things, breach of contract. Bellati moved to dismiss the complaint on the grounds that he was the agent for another company, Canova Inc. (“Canova”), and that Canova was responsible for any damages Tecchia claimed she incurred. The Holding Justice Scarpulla denied the motion, finding that Bellati failed to disclose Canova as the principal: Here, the Contract was signed by individual defendant Bellati over a line that bore the name “Minimal USA” and there is no indication that it was disclosed to Tecchia that Bellati was acting on behalf of corporate entity Canova instead of individually or on behalf of non-corporate entity Minimal USA. None of the documents submitted by Defendants “conclusively” establish a defense to the claims asserted against Bellati. (Internal quotations and citations omitted.) In rejecting Bellati’s argument, Justice Scarpulla made it clear that the third party must have actual knowledge of the principal. Mere suspicion is insufficient “to relieve the agent from liability”: Defendants argue that an invoice bearing the name “Canova Inc.” gave reason to suspect that Bellati was acting on Canova’s behalf. However, the fact that a plaintiff has reason to suspect that an individual is acting as an agent in and of itself is insufficient to relieve the agent from liability. Knowledge of the real principal is the test, and this means actual knowledge, not suspicion. Indeed, nothing short of full disclosure of the principal’s status will relieve an agent from personal liability. (Internal quotations and citations omitted.) TAKEAWAY Tecchia teaches that disputes between principals/agents and third parties can be avoided through the use of a well-written contract. Such agreements can be drafted to make it clear who the transacting parties are ( e.g. , a third party and the principal) and who will be responsible for any breaches of the agreement. A business lawyer and/or a commercial litigator can help draft such an agreement and/or represent the principal or agent in a dispute with a third party. This article was written by Jeffrey M. Haber, a partner at 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 New York, New York — July 21, 2016 Jeffrey M. Haber, Esq., an attorney with over twenty-five years of experience litigating complex matters on behalf of institutions and individuals at law firms having a national practice, is proud to announce the opening of his new law firm, The Law Office of Jeffrey M. Haber. The Law Office of Jeffrey M. Haber is dedicated to the representation of corporations, small businesses and high net worth individuals involved in a broad range of complex business and commercial litigation, as well as individuals who want to blow the whistle on fraud and other wrongdoing against the government. “I wanted to create a law firm in which we could put my experience to use for the benefit of corporations, small businesses and high net worth individuals,” said Jeffrey M. Haber, principal of the new law firm. “I'm excited to begin this new chapter in my career.” Although the type of matters the firm will handle differs, the approach to resolving them will not. The Law Office of Jeffrey M. Haber will involve his clients in the planning and decision-making of their matters so that he can recommend a course of action that meets his client's needs and objectives. “I will not advocate ‘litigation for the sake of litigation,’” said Mr. Haber. “I understand that litigating complex business and commercial matters is expensive and disruptive. For this reason, I will explore all available means to achieve a favorable resolution to disputes, whether through direct negotiation or alternative dispute resolution, such as mediation or arbitration. If litigation is necessary, I will represent my clients as efficiently as possible,” Mr. Haber said. For over twenty-five years, Mr. Haber has successfully represented plaintiffs in complex commercial litigation, securities fraud litigation, and shareholder and derivative litigation. He has litigated against some of the largest and most prominent defense firms in the country and has earned a reputation for being a tenacious litigator and zealous advocate. Mr. Haber is recognized as a leading lawyer in securities litigation by Super Lawyers Magazine (2008–2010; 2012–2015) and by Super Lawyers Business Edition (2011, 2013, and 2014). He has also been repeatedly recommended in The Legal 500 (2011–2012; 2014–2016) and was recognized as a “local litigation star” for his securities work in the 2013–2015 editions of Benchmark Plaintiff. For more information about The Law Office of Jeffrey M. Haber, visit www.fhnylaw.com. The Law Office of Jeffrey M. Haber 708 Third Avenue, 5th Floor New York, N.Y. 10017 Tel: (212) 209-1005 Fax: (212) 209-7071 This article was written by Jeffrey M. Haber, a partner at 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 death of a litigant during the pendency of a lawsuit is not uncommon. In this BLOG’s “Death of a Litigant,” we discussed the ramifications of such a death. As noted in prior BLOG articles, CPLR § 1015 – Substitution Upon Death – is instructive and provides: (a) Generally. If a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties. (b) Devolution of rights or liabilities on other parties. Upon the death of one or more of the plaintiffs or defendants in an action in which the right sought to be enforced survives only to the surviving plaintiffs or against the surviving defendants, the action does not abate. The death shall be noted on the record and the action shall proceed. The procedure for the substitution of a party, whether due to death or otherwise, is set forth in CPLR § 1021 and the extensions of time necessary to tend to the procedural steps involved with the substitution of a party are governed by CPLR § 1022. Significantly, the “death of a party divests the court of jurisdiction and stays the proceedings until a proper substitution has been made pursuant to CPLR 1015(a). Moreover, any determination rendered without such substitution will generally be deemed a nullity.” Hayden v. Brown, 230 A.D.3d 657, 658 (2nd Dep’t 2024) (citations and internal quotation marks omitted); see also Fazilov v. Acosta, 228 A.D.3d 910, 911 (2d Dep’t 2024); Nationstar Mortgage, LLC v. Persaud, 231 A.D.3d 842, 843-45 (2d Dept. 2024) (citations and internal quotation marks omitted).[1] The proceedings are generally stayed “pending the substitution of a personal representative for the decedent.” Wells Fargo Bank, N.A. v. Miglio, 197 A.D.3d 776, 777 (2d Dep’t 2021) (citations and internal quotation marks omitted); see also Champion Mortgage v. Williams, 249 A.D.3d 826, 826 (2d Dept. 2026) (citations and internal quotation marks omitted). This rule, however, is not set in stone. For example, “if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.” Wells Fargo, 197 A.D.3d at 777 (citation and internal quotation marks omitted). In Wells Fargo, the mortgagor/property owner died intestate, and the mortgagee/lender was not seeking a deficiency judgment. Under those circumstances, the Court determined that the mortgagor/property owner's death did “not affect the merits of a case, [and] there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.” Id. (citations and internal quotation marks omitted). Similarly, the Court in Nationstar Mort., LLC v. Harrilall, 244 A.D.3d 985, 986 (2d Dept. 2025), relying on Wells Fargo, supra, determined that proceedings need not be stayed because the decedent was in default in appearing for several years at the time of death. Against this backdrop, today’s article discusses Deutsche Bank Nat. Trust Co. v. Unknown Heirs to the Estate of Jacinto Ortiz, a case decided on July 29, 2026, by the Appellate Division, Second Department. In 2013, the lender in Deutsche Bank commenced a mortgage foreclosure action against the borrower (the “Decedent”), among others. Thereafter, the lender served an amended complaint in which it alleged that the Decedent died prior to the commencement of the action. The Decedent died intestate. One of the Decedent’s heirs moved to dismiss the action as against her pursuant to CPLR 1021 and 3211(a)(8) because the mortgagor died prior to the commencement of the action. The motion court granted the motion and the lender appealed. The Second Department reversed. First, the Court stated that an “action commenced against a deceased defendant is a nullity only insofar as asserted against that defendant, not insofar as asserted against other defendants.” (Citation and internal quotation marks omitted.) Thus, the court concluded that the action was a nullity against the decedent only and not any other defendant, including the movant heir. Further, because the Decedent died intestate and no deficiency judgment was sought against the estate, the estate was not a necessary party to the action. In this regard, the Court stated: Moreover, where a property owner dies intestate, title to real property is automatically vested in his or her distributes. Thus, where a mortgagor/property owner dies intestate and the mortgagee does not seek a deficiency judgment, generally a foreclosure action may be commenced directly against the distributees. Here, because the decedent died intestate, and because the plaintiff no longer seeks a deficiency judgment, the decedent’s estate was not a necessary party, and the plaintiff could proceed directly against the distributees of the decedent’s estate. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] In addition, the “death of a party terminates his or her attorney's authority to act on behalf of the deceased party.” Hayden, 230 A.D.3d at 658 (citations and internal quotation marks omitted); see also Ford v. Luckain, 247 A.D.3d 990, 991-92 (2d Dept. 2026) (citations omitted).

By: Jonathan H. Freiberger Because litigation can be a long and drawn-out process, it is not uncommon for litigants to die during the pendency of a lawsuit. In today’s BLOG article we address the problems that may arise when a litigant dies. This BLOG has previously addressed this issue. See, e.g., [here] and [here]. As previously noted in prior BLOG articles, in this context CPLR § 1015 – Substitution Upon Death – is instructive and provides: (a) Generally. If a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties. (b) Devolution of rights or liabilities on other parties. Upon the death of one or more of the plaintiffs or defendants in an action in which the right sought to be enforced survives only to the surviving plaintiffs or against the surviving defendants, the action does not abate. The death shall be noted on the record and the action shall proceed. The procedure for the substitution of a party, whether due to death or otherwise, is set forth in CPLR § 1021 and the extensions of time necessary to tend to the procedural steps involved with the substitution of a party are governed by CPLR § 1022. Significantly, the “death of a party divests the court of jurisdiction and stays the proceedings until a proper substitution has been made pursuant to CPLR 1015(a). Moreover, any determination rendered without such substitution will generally be deemed a nullity.” Hayden v. Brown, 230 A.D.3d 657, 658 (2nd Dep’t 2024) (citations and internal quotation marks omitted); see also Fazilov v. Acosta, 228 A.D.3d 910, 911 (2nd Dep’t 2024).[1] The proceedings are generally stayed “pending the substitution of a personal representative for the decedent.” Wells Fargo Bank, N.A. v. Miglio, 197 A.D.3d 776, 777 (2nd Dep’t 2021) (citations and internal quotation marks omitted). It should be noted, however, that “if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.” Wells Fargo, 197 A.D.3d at 777 (citation and internal quotation marks omitted).[2] Against this backdrop, today’s article discusses Nationstar Mortgage, LLC v. Persaud, a case decided on October 9, 2024, by the Appellate Division, Second Department. The plaintiff/lender in Nationstar, commenced a residential mortgage foreclosure action on real property owned by the defendant/borrower. The borrower answered the foreclosure complaint and asserted counterclaims. Subsequently, in 2017, the motion court entered a judgment of foreclosure and sale. The borrower died in May of 2020, and, in November of the same year, his wife was appointed the administrator of his estate. The lender’s motion to extend its time to conduct a foreclosure sale was granted, and it later served a notice of sale on the deceased borrower. The borrower’s estate administrator, however, was neither substituted in the action nor served with any relevant papers – including the notice of sale. In May of 2022, the subject property was “knocked down” to BH at the foreclosure sale pursuant to “Terms of Sale,” which provided, inter alia, that closing was on a “time of the essence” basis. BH’s title report, however, provided that the “Foreclosure Action must be amended and all heirs of the Estate named and served.” As a result, BH failed to close and, accordingly, the lender “determined that BH … was in default of the terms of sale and, thus, forfeited its down payment.” The motion court granted BH’s motion to rescind its bid because the title report revealed that the title to the property was “unmarketable”. On appeal, the Second Department affirmed. After discussing legal issues addressed below, the Court stated: Here, [the borrower] answered the complaint and asserted counterclaims. As such, he was entitled to service of all papers in the action, including the notice of sale. [The borrower]’s death triggered a stay of all proceedings in the action pending substitution of a legal representative. Following his death, [the borrower]’s wife was appointed the administrator of his estate. Under these circumstances, contrary to the [lender]’s contention, [the borrower]’s death affected the merits of this action, and any determinations made by the Supreme Court after his death were a nullity, including the order extending the time to hold the foreclosure sale and the foreclosure sale itself. [Citations omitted.] A court may exercise its inherent equitable power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice. Marketability of title is concerned with impairments on title to a property, i.e., the right to unencumbered ownership and possession. As a general rule, a purchaser at a foreclosure sale is entitled to a good, marketable title. A purchaser at a judicial sale should not be compelled by the courts to accept a doubtful title, and, if it was bad or doubtful, he or she should, on his or her application, be relieved from completing the purchase. A sale of land in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire. Here, because the foreclosure sale after [the borrower]’s death was a nullity, [the borrower]’s estate retained its interest in the property even after BH … made a successful bid. A judgment of foreclosure and sale does not divest the mortgagor of its title and interest in the property until the sale is actually conducted. Since [the borrower]’s estate retained an interest in the property, title was not marketable. As such, the Supreme Court providently exercised its equitable powers in granting those branches of [BH’s] motion which were to rescind its successful bid at the foreclosure sale and to direct the referee to return its down payment. [Citations internal quotation marks and ellipses omitted.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] In addition, the “death of a party terminates his or her attorney's authority to act on behalf of the deceased party.” Id. (citations and internal quotation marks omitted). [2] For example, where a mortgagor/property owner dies intestate, and the mortgagee does not seek a deficiency judgment, the mortgagor/property owner's death “does not affect the merits of a case, [and] there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.” Id. (citations and internal quotation marks omitted).

By: Jeffrey M. Haber For years, litigation funding companies have attempted to distinguish their products from traditional loans by labeling them “investments” contingent on the outcome of a lawsuit. A recent decision from the Appellate Division, First Department – Denemark v. New Ch. Capital, Inc., 2026 N.Y. Slip Op. 04553 (1st Dept. July 23, 2026) – underscores that courts will look beyond contractual labels and examine the substance of the transaction. If a funder is effectively guaranteed repayment regardless of the litigation outcome, the agreement may be treated as a loan, and subject to New York’s usury laws. In Denemark, a litigation funder advanced approximately $200,000 to finance a matrimonial action in exchange for a purported assignment of a portion of any future divorce recovery. Although the agreement provided that it was “not a loan” and that repayment depended on a successful recovery, the First Department concluded that the transaction’s substance told a different story. By securing repayment through a UCC filing, escrow arrangements, personal guarantees, and provisions requiring payment in the event of reconciliation, death, or bankruptcy, the funder materially eliminated the risk that ordinarily distinguishes an investment from a loan. Applying the long-standing principle that substance prevails over form, the Court held that the funding agreement was, in reality, a loan carrying an annual interest rate of nearly 19%, well above New York’s 16% civil usury prohibition. As a result, the agreement was declared usurious, void, and unenforceable as a matter of law. Denemark v. New Ch. Capital, Inc. In May 2018, while plaintiff’s divorce action was pending, plaintiff and defendant entered into a litigation funding agreement styled as a Purchase and Sale Agreement (“PSA”). Under the PSA, defendant advanced approximately $200,000 to fund plaintiff’s legal expenses in the matrimonial proceeding. In exchange, plaintiff assigned to defendant an interest in any proceeds recovered from the divorce action. The PSA defined “proceeds” as “the total recovery from the Claim,” which was defined as plaintiff’s right, title, and interest in and to any amount granted to plaintiff in connection with his pending divorce action, any appeal or settlement with respect thereto, and any related action. Although the PSA stated that it was “not a loan” and that repayment was contingent on plaintiff obtaining a successful recovery, the agreement required repayment that increased over time at a rate equivalent to 1.58% per month, or 18.96% annually. The amount due escalated at regular intervals, meaning that the longer the matrimonial litigation continued, the greater plaintiff’s repayment obligation became. Pursuant to the PSA, defendant was permitted to file a UCC financing statement to protect its interest. While the divorce action remained pending, defendant exercised that right by filing a UCC-1 financing statement against plaintiff’s real property located in Wallkill, New York. When plaintiff later sought to sell that property, defendant refused to remove the lien absent additional protections. As a result, the parties entered into an escrow agreement under which sale proceeds would be held (“Escrow Agreement”) and, upon defendant’s demand, distributed to defendant up to the amount allegedly owed under the PSA. The Escrow Agreement further provided that more than $318,000 was already owed to defendant, notwithstanding that the divorce action had not yet concluded. The PSA and related Sweetheart Guaranty also provided defendant with multiple avenues for repayment independent of any successful recovery in the matrimonial action. The agreements required repayment in circumstances such as reconciliation between plaintiff and his spouse, plaintiff’s death, and certain bankruptcy-related events. In those situations, defendant remained entitled to recover the principal advanced together with accrued interest, even if plaintiff never obtained any recovery in the underlying divorce proceeding. The matrimonial action ultimately settled in October 2022. Thereafter, defendant claimed that plaintiff owed more than $408,000 under the PSA. Plaintiff disputed the enforceability of the agreement and commenced the action seeking, among other relief, a declaration that the PSA was usurious, void, and unenforceable. Defendant counterclaimed for breach of the PSA and Escrow Agreement and sought recovery of the outstanding balance together with attorneys’ fees. On March 7, 2023, plaintiff commenced the action against defendant seeking a declaration that defendant’s actions of usury, duress, and undue influence rendered the PSA void and unenforceable as a matter of law. Plaintiff also asserted that defendant breached the PSA by improperly interfering with the divorce action. Defendant answered and asserted counterclaims alleging plaintiff breached the PSA and escrow agreement and sought judgment of the balance owed under the PSA and an award of attorneys’ fees. Plaintiff subsequently moved for summary judgment on his claims and defendant cross-moved for summary judgment to dismiss the complaint and on its counterclaims for breach of contract and for attorneys’ fees. The motion court denied both motions and found that there were questions of fact as to whether the repayment provisions of the PSA were truly contingent and whether the usury laws applied to the case. Further, the motion court found that there were issues of fact as to whether defendant inappropriately played an active role in the underlying divorce action by, among other things, filing the UCC financing statement. It also found issues of fact as to plaintiff’s economic duress claim because it was based on the UCC filing and “it [was] unclear if defendant was entitled to file a UCC while the possibility of payment was still contingent.” On appeal, the First Department modified the decision and order to grant plaintiff’s motion for summary judgment on his usury claim, and to declare that the parties’ litigation funding agreement was void and unenforceable as a matter of law, and otherwise affirmed the order. The Court’s Decision As noted, plaintiff sought a declaration that, among other things, the PSA was usurious and void as a matter of law. The Court noted that “[t]o determine whether the agreement [was] usurious, [it had to] first consider whether, under the totality of the circumstances, the agreement was truly an investment contingent on plaintiff’s successful recovery in his divorce action, or if the transaction was, in reality, a loan.”[1] “Upon careful review of the particular facts of this case,” the Court “conclude[d] that the parties’ litigation funding agreement constituted a loan.”[2] The Court explained that the “loan imposed an interest rate in excess of the maximum permitted under New York’s usury laws, rendering the agreement unenforceable as a matter of law.”[3] Accordingly, said the Court, “plaintiff’s motion for summary judgment on his usury claim seeking a declaration that the parties’ funding agreement [was] usurious and unenforceable should have been granted.”[4] “A fundamental component of usury is the existence of a loan, ‘and where there is no loan, there can be no usury,” noted the Court.[5] “Litigation funding agreements are not loans,” said the Court, “where ‘repayment of principal is entirely contingent on the success of the underlying lawsuit’ and where the litigant ‘received [the advance] with no guaranteed obligation to repay, except from the proceeds, if any, recovered in [the lawsuit].’”[6] When faced with the question whether an agreement is a loan, explained the Court, “the court must consider the transaction ‘in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it.’”[7] Therefore, said the Court, “the nature of the underlying litigation, whether the agreement provides for recourse in the event the recipient files for bankruptcy, and whether there was a personal guaranty, among other factors, may be considered to determine whether a purported contingent agreement is in truth, a loan.”[8] Based upon the foregoing principles, the Court held that “the subject transaction [was] characteristic of a loan, not an investment.”[9] “First,” said the Court, “paragraph 3 of the PSA permit[ted] defendant to ‘file a [UCC] financing statement in any jurisdiction it [chose] to protect its lien’ on plaintiff’s property.”[10] This provision did not expressly bar defendant from filing the UCC financing statement prior to plaintiff’s recovery on his claim, noted the Court. Defendant therefore filed its UCC-1 financing statement on the property, while plaintiff’s divorce action was pending. “The filing secured defendant’s lien on the covered property.”[11] From these facts, the Court concluded that the transaction was a loan: “The fact that defendant was permitted under the PSA to file a UCC-1 financing statement, a device used by lenders to secure collateral, presents the hallmark of a loan.”[12] The Court found that the escrow agreement “entered into by the parties in connection with the UCC-1 filing [also] suggest[ed] that the PSA was a loan.”[13] The Court noted that the Escrow Agreement required that no more than 50% of the property sale proceeds be distributed to plaintiff’s then-wife, with the remaining proceeds paid to defendant, up to the amount owed under the PSA, thereby effectively earmarking the sale proceeds for repayment of defendant’s claim. “Further, the PSA tellingly declared that ‘the amount presently owed to [defendant] under the [PSA] [was] $318,309.52 through June 11, 2021,’ at a time when the Property sale had to yet to occur and the divorce action remained pending.”[14] “Plainly,” concluded the Court, “if the amount due to defendant was truly based on a contingent award in the divorce matter, there would be no funds ‘presently owed’ to defendant because the amount due would be based upon a future award.”[15] Paragraph 9 of the PSA further undermined defendant’s characterization of the transaction as a contingent investment, said the Court.[16] It provided that a reconciliation between plaintiff and his spouse, or the discontinuance of the divorce action through alternative dispute resolution, would constitute a resolution of the claim requiring repayment of all amounts advanced by defendant. Consistent with that provision, the separately executed Sweetheart Guaranty required plaintiff, upon a “Trigger Event” – defined to include a voluntary reconciliation – to unconditionally repay the principal advanced under the PSA together with accrued interest. Thus, under this paragraph of the PSA, even if the divorce action ended without any recovery whatsoever, defendant remained entitled to repayment. “This potential outcome present[ed] yet another indicator that the transaction was a loan and not contingent on the divorce award,” concluded the Court.[17] Furthermore, said the Court, Paragraph 12 of the PSA, titled “Death of Seller,” required plaintiff’s estate to satisfy any amounts due under the PSA and expressly provided that the death of either plaintiff or his spouse constituted a triggering event under the Sweetheart Guaranty. The PSA did not limit that obligation to circumstances in which a divorce settlement or judgment had already been obtained. “Thus, as with a reconciliation, if plaintiff dies, the Sweetheart Guaranty is triggered, and his estate must promptly pay defendant the principal amounts advanced to plaintiff under the PSA plus accrued interest.”[18] “This provision,” concluded the Court, “as well as the provision in the PSA providing defendant with recourse in the event plaintiff files for bankruptcy, further demonstrate[d] how the agreement [lost] its contingent recovery cloak and assume[d] the characteristics of a loan.”[19] “Finally,” the Court concluded that “considering the nature of the underlying litigation, the substantial assets involved in the divorce litigation as reflected in the record, and the matrimonial parties’ rights to equitable distribution in New York, the likelihood that the principal advanced would be ‘put in hazard’ was low if not nonexistent.”[20] “This is not to mention,” added the Court, “any influence the existence of the PSA, Sweetheart Guaranty, UCC-1 financing statement, and Escrow Agreement may have had on the outcome of the matrimonial settlement agreement as plaintiff allege[d].”[21] “In short,” held the Court, “it is difficult to imagine any scenario in this case where defendant would not be entitled to repayment of the full principal amount plus accrued interest.”[22] Having found the transaction to be a loan, the only remaining question, said the Court, was whether the loan was usurious. The Court answered the question in the affirmative: “It is undisputed that under the PSA, interest accrued at 18.96% annually, which exceeds the legal limit.”[23] In so holding, the Court rejected defendant’s argument that Paragraph 27 of the PSA cured any usury concern. Although that provision stated that, if a court or arbitrator determined the PSA to be a loan rather than a purchase of an interest in the claim, interest would be reduced to the highest rate permitted by law, such a savings clause could not retroactively render an otherwise usurious transaction lawful.[24] Accordingly, the Court held that Paragraph 27 did not save the PSA from being declared usurious and unenforceable.[25] Takeaway Denemark reinforces several important principles governing contingent transactions under New York law. First, courts will look beyond contractual labels and examine the substance of a transaction. An arrangement described as an investment, purchase agreement, or contingent advance may nevertheless be treated as a loan if repayment is effectively assured. Second, provisions that substantially reduce or eliminate the lender’s risk of nonpayment, such as security interests, escrow requirements, personal guarantees, bankruptcy protections, or repayment obligations triggered by events unrelated to the underlying recovery, weigh heavily in favor of characterizing the transaction as a loan rather than a true contingent investment. Third, courts apply a substance-over-form analysis and evaluate the totality of the circumstances. The critical inquiry is whether the lender’s principal was genuinely placed at risk or whether the transaction was structured to secure repayment regardless of the success of the underlying claim or event giving rise to the funding arrangement. Finally, Denemark serves as a reminder that once a transaction is determined to be a loan, it becomes subject to New York’s usury laws. If the effective rate of return exceeds the statutory maximum, the agreement may be declared void and unenforceable notwithstanding contractual language intended to avoid a usury finding. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Slip Op. at *1. [2] Id. [3] Id. [4] Id. [5] Id. at *3, quoting LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664, 664 (2d Dept. 2020); see Seidel v. 18 E. 17th St. Owners, 79 N.Y.2d 735, 744 (1992). [6] Id., quoting Cash4Cases, Inc. v. Brunetti, 167 A.D.3d 448, 449 (1st Dept. 2018). [7] Id., quoting Abir v. Malky, Inc., 59 A.D.3d 646, 649 (2d Dept. 2009) see Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320, 334 (2021) (“When determining whether a transaction is a loan, substance — not form — controls”); In re Greenwich Retail Group LLC, 2026 WL 482170, 17, 2026 Bankr LEXIS 417, 50 (Bankr. S.D.N.Y., Feb. 20, 2026) (“If substance (not form) is to be determinative, as it is supposed to be, then a court must consider the scope and likelihood of the ‘risks’ that a party has allegedly taken, and whether such risks are real or instead are just disguised efforts to evade the usury laws”). [8] Id., citing Kapitus Servicing, Inc. v. Ragtime Gourmet Corp./Joe-Le Holding Corp., 242 A.D.3d 638, 638-639 (1st Dept. 2025); Echeverria v. Estate of Lindner, 7 Misc. 3d 1019(A), 2005 N.Y. Slip Op. 05675(U), *9 (Sup. Ct., Nassau County 2005). [9] Id. at *4. [10] Id. [11] Id. (citations omitted). [12] Id. [13] Id. [14] Id. [15] Id. [16] Id. at *5. [17] Id. [18] Id. [19] Id. [20] Id., citing Cash4Cases, 167 A.D.3d at 449; Echeverria, 7 Misc. 3d 1019(A) at *9. [21] Id. (footnote omitted). [22] Id. [23] Id. at *6 (citation omitted). [24] Id. [25] Id. (citation omitted).

By: Jonathan H. Freiberger Sometimes a party makes a mistake in the course of litigating its case. Absent prejudice to the other party, the Court is free to disregard the mistake and proceed as if the mistake never occurred. CPLR 2001 provides, in relevant part that: At any stage of an action, including the filing of a summons with notice, summons and complaint or petition to commence an action, the court may permit a mistake, omission, defect or irregularity, including the failure to purchase or acquire an index number or other mistake in the filing process, to be corrected, upon such terms as may be just, or, if a substantial right of a party is not prejudiced, the mistake, omission, defect or irregularity shall be disregarded provided that any applicable fees shall be paid. In Smith v. Maines Paper & Food Service, Inc., 2026 WL 1579767 (2d Dept. June 3, 2026), a personal injury matter, the defendants opposed plaintiffs’ motion for summary judgment on the issue of liability by submitting three unsworn expert reports and one unsworn expert report. Plaintiffs, in its reply, argued that the submissions were not in evidentiary form and, therefore, inadmissible. Thereafter, the motion court requested that plaintiffs submit a statement of material facts, which plaintiffs neglected to serve with their summary judgment motion.[1] Defendants submitted a counterstatement of material facts that included sworn expert affidavits in which, inter alia, the substance of the previously unsworn expert report was reaffirmed. The motion court accepted the affirmations and denied plaintiffs’ summary judgment motion. In affirming the motion court’s decision, relying on CPLR 2001, the Second Department recognized that the submissions made by defendants with their counterstatement of material facts “cured the defects contained in the defendants' opposition papers, and the plaintiffs suffered no prejudice, as they had an opportunity to address the opinions of the defendants' expert witnesses in their reply papers.” In Henriquez v. New York City Housing Authority, 249 A.D..3d 414 (1st Dept. 2026), the motion court denied defendant’s motion to strike claims in a bill of particulars because, contrary to the requirements of CPLR 2214(a), the defendant’s notice of motion indicated it was seeking relief pursuant to CPLR 3211. The First Department, relying on CPLR 2001, modified the order and stated that the motion court, “should have disregarded this technical deficiency because the notice of motion and affirmation made clear that it sought to strike claims in the bills of particulars that were not alleged in the notice of claim.” Id. at 415 (citations omitted). The plaintiff in Williams v. MTA Bus Co., 224 A.D.3d 467 (1st Dept. 2024), sought relief under CPLR 2001 after it failed to comply with the mailing requirements of CPLR 308(2). Although the motion court granted plaintiff’s motion for a default judgment, the First Department reversed and stated that plaintiff’s “failure to comply with CPLR 308(2)’s mailing requirement was not a mere technical infirmity that may be overlooked by the court pursuant to CPLR 2001” because it is a jurisdictional defect that “greatly increases the likelihood that a defendant will not receive the pleadings and have an opportunity to answer.” Id. at 469 (citation and internal quotation marks omitted; hyperlink added); see also Nicholas v. Martuscello, 245 A.D.3d 1055, 1058-59 (3d Dept. 2026) (quoting Park Premium Enterprises, Inc. v. Norben Lofts, LLC, 220 A.D.3d 661, 662 (2d Dept. 2023)) (“the complete failure to file the initial papers necessary to institute an action is not the type of error that falls within the court's discretion to correct under CPLR 2001”). Against this backdrop, we discuss AB International Investments, LLC v. GFE NY, LLC, a case decided by the Appellate Division, Second Department, on July 22, 2026. AB International was a breach of contract action in which the plaintiff filed an amended complaint. One of the defendants moved to dismiss the amended complaint but neglected to attach a copy of the amended complaint to the motion and omitted the names of two defendants from the caption on the notice of motion.[2] The motion court, in its order, denied the motion to dismiss solely because of the defendant’s omissions. The defendant appealed. The Second Department modified the order on appeal because the motion court “improperly denied the defendants’ motion solely on the procedural grounds that the defendants failed to annex the amended complaint to their initial moving papers and made certain omissions in the caption contained in the defendants’ notice of motion, which the parties did not raise or litigate.” In so holding, the Court stated: CPLR 2001 permits a court, at any stage of an action, to disregard a party's mistake, omission, defect, or irregularity if a substantial right of a party is not prejudiced. Here, not only was the amended complaint electronically filed and available to the court and the parties, but the amended complaint was submitted by the plaintiff in opposition to the motion and by the defendants in reply, and the plaintiff did not assert that it was prejudiced by the defendants' omission. Moreover, to the extent the variation between the caption appearing on the defendants' notice of motion and the amended complaint constituted a defect in form (see CPLR 2101[c], [f]; 2214[a] ), the plaintiff did not assert that it was prejudiced by the variation. Under such circumstances, the court should have determined the defendants' motion on the merits. [Citations omitted; hyperlinks added.] Because the parties briefed the merits of the appeal before the motion court and on appeal, the Second Department addressed the merits of defendant’s motion and dismissed several causes of action in the amended complaint. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This occurred prior to the repeal of 22 NYCRR 202.8-g, which permitted a motion court to require a statement of material facts with a motion for summary judgment. [2] Some of the facts recited herein were obtained from the court files available on the NYSCEF system.

By Jeffrey M. Haber In Universal Health Services, Inc. v. United States ex rel. Escobar, the U.S. Supreme Court unanimously confirmed that the false certification theory “can be a basis for liability” under “some circumstances.” (See blog post here.) Those circumstances are: (1) the defendant does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading. As to the second circumstance, the Court held that a misrepresentation about legal compliance does not become “material” simply because the government expressly labeled the legal requirement as a “condition of payment,” or because the government could choose to withhold payment if it knew about the noncompliance. “What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.” Earlier this month, the Seventh Circuit considered the knowledge aspect of the second condition identified by the Supreme Court. In United States ex rel. Sheet Metal Workers Int’l Assoc. v. Horning Investments, LLC, No. 15-1004 (7th Cir. July 7, 2016), the Seventh Circuit affirmed the dismissal of a False Claims Act complaint, finding that the relator failed to prove with sufficient evidence that the defendants knew they were submitting a false claim to the government in violation of a statute that, according to the court, was ambiguous in meaning. Sheet Metal Workers involved a construction project for the U.S. Department of Veterans Affairs. The defendant, Horning Investments doing business as Horning Roofing & Sheet Metal, LLC (“Horning”), was hired as a sub‐contractor for the project; its workers were represented by Local 20 of the Sheet Metal Workers International Association (the “Union”). The Union contended that Horning was paying its workers less than the amount required under the Davis‐Bacon Act, which requires contractors who perform construction projects for the federal government to pay their workers the “prevailing wage” for pay and fringe benefits. The Union claimed that Horning improperly deducted a flat $5.00 per hour contribution from member paychecks, which was to be paid into an insurance benefit trust. The Union argued that Horning deducted the money regardless of whether the employee was eligible for any benefits and without tying the deduction to the actual monetary value of the benefit each employee received. The Union sued under the False Claims Act rather than under the Davis‐Bacon Act, claiming that the payroll reports and applications for payment submitted to the federal government violated the False Claim Act. The Seventh Circuit (by Chief Judge Diane Wood, writing for herself and Judge Frank Easterbrook) affirmed the district court’s summary judgment dismissal because there was insufficient evidence that Horning acted with the requisite knowledge that the claims it submitted were false. First, the court addressed the Union’s contention that Horning never tried to determine whether each employee received the equivalent of $5.00 per hour in fringe benefits, holding that nothing in the Davis-Bacon Act and relevant regulations required employers to tailor fringe benefit contributions to the benefits each employee actually received. Consequently, “the fact that Torres and Moore failed to do so tells us nothing about whether they knew that their certifications of Horning’s compliance with the Act were false.” Second, the court addressed the Union’s contention that some employees from whose checks the deductions were made were not yet eligible to receive fringe benefits. In rejecting this argument, the court observed that there was nothing in the Department of Labor field operations handbook stating that the Davis‐Bacon Act permits an employer to count contributions to an insurance plan for employees who are not yet eligible for coverage when the plan itself requires the employer to make that contribution during the waiting period. In the absence of government clarity and a record supporting a contractual obligation to make contributions during the waiting period, the court held that “there is enough ambiguity about this matter that we cannot infer that Horning either knew or must have known that it was violating the Davis‐Bacon Act.” The Court concluded: “Horning may, or may not, have violated the Davis‐Bacon Act. But the Union did not bring a claim under that statute. Instead, it sued under the False Claims Act, which requires proof that the defendant knowingly submitted a false claim to the government for payment. The Union did not present enough evidence to survive summary judgment on that issue, and so we AFFIRM the judgment of the district court.” Judge Richard Posner dissented, finding that “an experienced contractor on Davis-Bacon Act projects” like Horning “must have known about the statute’s requirements.” If Horning did not know, “it must have been because they closed their eyes to those requirements — a good example of ostrich behavior, itself a good example of deliberate indifference within the meaning of the False Claims Act.” Judge Posner further found that there was “uncontroverted evidence” showing that a number of employees had the $5.00 per hour deduction “credited to the trust” even though “they didn’t participate in the benefits program” and therefore “never benefited from the $5 that was an ostensible part of their compensation.” According to Judge Posner, the record showed that “[N]o one in management attempted to match the $5 deductions to each employee’s eligibility to receive benefits ….” He also found evidence in the record showing that “at least $54,000” of the wage deductions “was diverted to the company’s owner and to a relative of the general manager, neither of whom … was entitled to receive” the funds. “This is further evidence that Horning knowingly made false statements in claiming that the $5 of ‘fringe benefits’ it took out of each worker’s hourly salary went to ‘appropriate programs for the benefit of such employees,’ that is, by buying insurance for the employee.” Quoting Escobar, Judge Posner concluded that “[W]hen ‘a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided.’ That’s this case.” Judge Posner would have remanded the case to the district court “[T]o understand the full scope and gravity of Horning’s conduct.” TAKEAWAY: The majority opinion suggests that when a statute is ambiguous in meaning, relators will have a difficult time proving that the defendant knowingly submitted a false claim in violation of that law. The dissent, on the other hand, takes a different view, suggesting that differing interpretations of a statute should not overshadow clear requirements applicable to the alleged false statement. In Sheet Metal Workers, the certification found to be false provided, in relevant part, that “no deductions have been made either directly or indirectly from the full wages earned by any person, other than permissible deductions.” The Davis-Bacon Act “permits an employer to count contributions to an insurance plan for employees not yet eligible for coverage only if the plan requires the employer to make those contributions during the employee’s waiting period—that is, after the employee has been hired but before he is eligible for benefits.” The evidence showed that a number of employees had $5.00 per hour deducted from their pay for a longer period than their waiting period without any corresponding benefit. Thus, “Because he wasn’t receiving the $5 an hour either in cash or in insurance during that two‐month period, he was receiving less than the Davis‐Bacon Act entitled him to.” This blog believes that the dissent’s analysis is consistent with the Supreme Court’s approach in Escobar. This article was written by Jeffrey M. Haber, a partner at 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 What are the elements of a sound business succession plan? In June, the Securities and Exchange Commission (“SEC”) proposed a rule that would require registered investment advisers to adopt formal business continuity and transition plans in the event of business disruptions whether from natural disasters, cyber attacks or the death of key people, particularly the firm's owner. The succession plans should enable a firm to continue meeting its fiduciary obligations to clients by establishing risk management plans related to business continuity. While many firms have already implemented continuity plans in the wake of catastrophic events like Super Storm Sandy, the proposed rule emphasizes transition planning, particularly for smaller firms in the event of a top adviser's sudden death. In particular, investment advisers need to create "what if" scenarios that can allow for the seamless transition of client data and investments. The Compliance Burden Some observers believe the compliance costs related to the proposed rule should be manageable, ranging from $30,000 to $70,000 depending on the size of the firm. The challenge, however, will be the administrative details in establishing systems that will allow for retention and transition of data, possibly involving off-site back-up locations. In addition, an investment advisory firm should have an organizational chart in place so that an outsider can ascertain who the key players are, what they do, and who is next in line. If the proposed rule is adopted, the SEC estimates a firm will need to dedicate as much as 250 hours of staff time to establish a continuity plan. The proposed rule was reportedly prompted by the SEC's concern with protecting investors from a wide range of threats, including cyber attacks, information security issues, and natural disasters. Moreover, as investment advisers age, succession planning becomes critical. Lastly, industry observers note that SEC chairwoman Mary Jo White will soon be stepping aside, and addressing business continuity and transition planning has been on her checklist. If and when the rule will be adopted remains unclear. That being said, it is essential for any business, not just investment advisory firms, to have a well designed business succession plan in place. An experienced business law attorney can help your firm design a continuity and transition plan. This article was written by Jeffrey M. Haber, a partner at 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 After a merger, which agreement controls when both companies have pre-existing contracts with a common third party? In May 2016, Stamford-based Charter Communications Inc. (“Charter”) completed its acquisition of Time Warner Cable (“TWC”), making it the second largest cable provider behind Comcast Corporation. At the time of the acquisition, TWC was the larger of the two companies. As such, TWC was able to negotiate more favorable rates and terms on carriage agreements with programmers than the then-smaller Charter. One programmer, common to both TWC and Charter, was Univision Communications Inc. ("Univision"), the nation’s largest Spanish language broadcaster. Univision’s contract with TWC does not expire until June 2022, and provides for licensing fees at a much cheaper rate than the Charter agreement. Univision’s contract with Charter was set to expire on June 30, 2016. Beginning in March 2016, Univision tried to renegotiate its agreement with Charter. Those efforts were rebuffed by Charter, which claimed that the TWC agreement governed the payment of licensing fees through June 2022. Univision contends that Charter is acting in bad faith by "resorting to transparently constructed, pretextual arguments ... to unilaterally impose license fees that are dramatically below current market license fees." In support, Univision relies on a provision in its contract with Charter which provides that in the event Charter acquires a company with a pre-existing Univision carriage agreement, the licensing fee rates of the acquired company may only remain in effect until the expiration of the calendar year when the acquisition occurred -- which in this case would be December 2016. Univision claims the provision was expressly designed to address and avoid the kind of licensing fee dispute that has now come to pass. Univision also maintains that Charter's position is contradictory to public statements that Charter executives made to secure approval of the acquisition -- namely that it would be Charter, not TWC, management who would control the operations of the combined company after the acquisition. According to Univision, these statements formed the basis upon which "the Federal Communications Commission, the U.S. Department of Justice, the New York State Public Service Commission, and the California Public Utilities Commission each approved the Acquisition." Univision filed suit against Charter in New York Supreme Court (Univision Communications Inc. v. Charter Communications, Inc., Index No. 653568/2016) this month for breach of contract related to the licensing fees dispute. For more on how New York courts determine which of several competing agreements controls a dispute, see our discussion in Contract Ambiguity Defeats Dismissal of Declaratory Judgment Claim and Written Agreements That Are Clear and Unambiguous Must Be Enforced According to the Plain Meaning of Their Terms. Freiberger Haber LLP is a New York City based law firm experienced in business law and complex business litigation. The firm handles all aspects of business transactions, including contract negotiations and preparation, asset purchase agreements, mergers, and acquisitions, and litigation that arises from such transactions. Contact the firm today at (212) 209-1005 or online here. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In Benowski v. Track Dr., LLC, 2026 NY Slip Op. 04466 (3d Dept. July 16, 2026), the Appellate Division, Third Department, affirmed summary judgment dismissing a contractor’s claim for unpaid retainage and other compensation arising from a commercial renovation project. Although the parties never executed a formal written construction contract, the Court enforced a January 2020 release under which the contractor acknowledged that $233,797.23 constituted the “entire unpaid balance” due and waived all claims relating to the project. The Court held that defendants established the validity of the release through documentary and testimonial evidence, and that plaintiff’s inability to recall signing the document, coupled with his alleged misunderstanding of its scope, was insufficient to create a triable issue of fact. As explained below, the decision underscores New York’s strong policy favoring enforcement of clear and unambiguous releases. The Law “Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release. If the language of a release is clear and unambiguous, the signing of a release is a jural act binding on the parties.”[1] “Nevertheless, a release must be fairly and knowingly made and thus, like any other contract, may be set aside on the basis of fraud or mutual mistake.”[2] The defendant bears the initial burden to demonstrate that there has been a signed release, after which the burden shifts to the plaintiff to demonstrate “that there has been fraud, duress or some other fact which will be sufficient to void the release.”[3] Benowski v. Track Dr., LLC Benowski involved an electrical contractor engaged in the business of installing and maintaining electrical systems in residential and commercial properties. In 2019, plaintiff began installing electrical systems at a renovated commercial property located in Broome County, New York that is jointly owned by defendants Track Drive, LLC and PSM Limited Partnership. Due to plaintiff’s longstanding business relationship with Track Drive’s owners, no formal written agreement was executed to memorialize the scope of the work or the terms of the project. However, plaintiff provided Track Drive’s owners with a written project proposal at the outset of the project that detailed the nature of the work and the expected total price, which amounted to approximately $1.14 million. Although not specifically delineated in the project proposal, the amount listed therein also reflected a 10% retainer fee plaintiff expected to be paid at the end of the work. Over the course of the project, plaintiff submitted invoices and payment applications to Track Drive’s representatives, which underwent an approval process. After the project encountered several delays, one of Track Drive’s owners purportedly asked plaintiff to forgo his retainer fee as a way of compensating one of the defendants, which was leasing space at the project site. On January 7, 2020, after plaintiff had been paid approximately $800,000 for his work, he signed a written release in which he agreed to waive all claims pertaining to the project upon the receipt of an additional $233,797.23, which was listed as the “entire unpaid balance” due and owing to plaintiff and which did not include the 10% retainer fee. The release contained both plaintiff’s signature and printed name, as well as a signature by a witness. On the same date as the release, defendants paid plaintiff’s company the agreed-upon amount of $233,797.23. In May 2021, plaintiff commenced the action seeking to recoup $140,738.47 from defendants, which included the 10% retainer fee plus an additional sum of money he claimed was owed for his work. In January 2022, the motion court denied defendants’ pre-answer motion to dismiss the complaint. Following joinder of issue and discovery, defendants moved for, among other things, summary judgment dismissing the complaint based upon the January 2020 release. Plaintiff opposed the motion and cross-moved for partial summary judgment dismissing defendants’ affirmative defense of waiver and release, arguing that he did not sign the release, it was not fairly and knowingly made, and it pertained only to the release of liens against defendants’ property and not claims against defendants for money owed under the project. The motion court granted defendants’ motion for summary judgment, denied plaintiff’s cross-motion, and dismissed the complaint, finding that the clear and unambiguous language of the release barred plaintiff’s claims and that plaintiff failed to establish a genuine issue of material fact as to whether he signed the release and whether it was fairly and knowingly made. Plaintiff appealed. The Appellate Division, Third Department, affirmed. The Court held that “[o]n this record, defendants satisfied their prima facie burden on their summary judgment motion by proffering evidence that plaintiff signed a broad and unambiguous release waiving his right to bring any claims against defendants pertaining to the project upon his receipt of the additional amount listed therein (which did not include the 10% retainer fee), that he was paid that sum of money and that he was witnessed signing the document.”[4] The Court’s conclusion was grounded in a record that, in its view, established each element necessary to enforce the January 2020 release. That record included deposition testimony, paid invoices relating to the project, payment applications submitted by plaintiff during the course of the work, plaintiff’s interrogatory responses, and the January 2020 release itself. Defendants supplemented the documentary evidence with sworn testimony from one of Track Drive’s owners, who testified that during a January 7, 2020, meeting plaintiff agreed to waive the retainage because of delays in completing the project and signed the January 2020 release memorializing that agreement. Defendants also offered deposition testimony from the individual responsible for project billing, who signed the release as a witness and testified that she personally observed plaintiff execute the document. Based upon the submitted evidence, the Court concluded that defendants satisfied their burden, so that the burden shifted to plaintiff to demonstrate the existence of a triable issue of fact in opposition. The Court concluded that plaintiff failed to satisfy his burden: On this record, even viewing the evidence in the light most favorable to plaintiff, we conclude that he did not raise a triable issue of fact sufficient to defeat defendants’ prima facie showing of entitlement to judgment as a matter of law dismissing the complaint. Plaintiff’s contention that the January 2020 final release is a release of liens against defendants’ property and not a release of claims against defendants to recover money for work performed under the project is flatly contradicted by the plain and unambiguous language of the document, which listed $233,797.23 as the “entire unpaid balance” owed to plaintiff and stated that receipt of such amount would “constitute payment in full and [would] fully satisfy any and all liens, claims, and demands which the [c]ontractor may have or assert against the [o]wner in connection with said contract or project” (emphasis added). Plaintiff also did not come forward with sufficient admissible proof to raise a genuine issue of fact as to whether he signed the final release, as “[s]omething more than a bald assertion of forgery is required to create an issue of fact contesting the authenticity of a signature” and, notably, plaintiff did not deny having signed the document but merely confirmed that he could not recall doing so.[5] The Court also held that it was “unpersuaded by plaintiff’s argument that there [were] questions of fact as to whether the January 2020 final release was ‘fairly and knowingly made.’”[6] That argument was based on personal injury cases “in which an injured party signed a broad release waiving the ability to recover damages from an accident or employment discrimination cases “where a plaintiff signed a release purporting to preclude additional employment discrimination claims that were unknown at the time the release was signed.”[7] Addressing plaintiff’s argument that there was a misunderstanding as to the scope of the January 2020 release and whether it precluded his ability to recover the additional 10% retainer fee, the Court held that “plaintiff’s own unilateral mistake about the scope of the January 2020 release [was] an insufficient ground to set it aside.”[8] Based upon the evidence plaintiff submitted, the Court concluded that “plaintiff fell short of raising a triable issue of fact as to whether the release was fairly and knowingly made.”[9] Takeaway One of the principal takeaways from Benowski is that New York courts will enforce a clear and unambiguous release according to its terms, even in the absence of a formal written contract governing the underlying project. Once defendants established the existence of a signed release, payment of the stated consideration, and plaintiff’s execution of the document, the burden shifted to plaintiff to present admissible evidence sufficient to invalidate the release. Benowski also highlights the difficulty of defeating a release through a claim of forgery or lack of recollection. Plaintiff did not deny signing the release; rather, he testified that the signature could be his and that he did not remember signing it. The Third Department held that such testimony was insufficient to create a triable issue of fact, particularly where witness testimony and expert analysis supported the authenticity of the signature. The decision further demonstrates that courts focus on the objective language of a release, not a party’s subjective understanding of it. Plaintiff argued that the January 2020 document released only lien rights and not his claim for unpaid retainage. The Court rejected that position, holding that the release’s broad language expressly waived not only liens but also all claims and demands arising from the project. Finally, the case illustrates the narrow circumstances under which a release may be set aside as not having been "fairly and knowingly made." Although releases may be invalidated based on fraud, duress, or mutual mistake, plaintiff’s contention amounted at most to a unilateral misunderstanding of the release’s effect, which was insufficient to avoid its enforcement. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (internal quotation marks and citations omitted); see Salewski v. Music, 150 A.D.3d 1353, 1353-1354 (3d Dept. 2017). [2] Ford v. Phillips, 121 A.D.3d 1232, 1234-1235 (3d Dept. 2014) (internal quotation marks and citations omitted). [3] Centro, 17 N.Y.3d at 276 (internal quotation marks and citation omitted); see Cames v. Craig, 181 A.D.3d 851, 852 (2d Dept. 2020). [4] Slip at *3 (citing M.M. v. Church of Our Lady of the Annunciation, 203 A.D.3d 1277, 1278 (3d Dept. 2022), lv. denied, 38 N.Y.3d 911 (2022); Ivasyuk v. Raglan, 197 A.D.3d 635, 637 (2d Dept. 2021). [5] Id. at 3-4. [6] Id. at *4. [7] Id. at *4 (citations omitted). [8] Id. (citing Church of Our Lady of the Annunciation, 203 A.D.3d at 1279-1280; Matter of Walter, 180 A.D.3d 1201, 1204-1205 (3d Dept. 2020); Ford v. Phillips, 121 A.D.3d 1232, 1235 (3d Dept. 2014)). [9] Id. at *5 (citations omitted).