By: Jeffrey M. Haber Earlier this month, we wrote about how courts enforce contracts that are clear and unambiguous. The title of the article, “ Contracts That Say What They Mean, Mean What They Say ”, aptly describes this fundamental principle of contract interpretation. After all, a contract that is clear and unambiguous on its face reflects the intent of the parties. 1 And, the courts will enforce the parties’ intent when it is plainly written in the agreement.  Courts will not, however, look to extrinsic evidence when the contract is unambiguous. 2 Such evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear. 3 A contract is unambiguous if, on its face, it is reasonably susceptible of only one meaning or interpretation. In determining whether a contract is ambiguous, the contract must be read so as to reconcile sections of the contract with each other “to give rational meaning to all provisions.” 4 In PCT Contracting Inc. v. Riggs Distler & Co., Inc. , the Appellate Division, First Department underscored the foregoing principles in dismissing a breach of contract claim because the relief sought was barred by a clear and unambiguous exclusive remedies provision in the subject agreement. PCT Contr. Inc. v. Riggs Distler & Co., Inc. , 2021 N.Y. Slip Op. 06328 (1st Dept. Nov. 16, 2021) ( here ). PCT Contracting involved a brokerage fee under an Asset Purchase Agreement (“APA”). Pursuant to the APA, Plaintiff agreed to sell certain of its assets, together with the transfer of certain of its liabilities, to Defendant for approximately $33 million.  The APA required Plaintiff to disclose all material contracts it had with brokers. The APA also provided that Defendant would pay the brokerage fees of the sole owner of HMC Strategic Advisors LLC. Plaintiff disclosed an executed brokerage contract with Madison One Clearing House (“Madison”), a broker involved in the transaction. Plaintiff did not, however, disclose an unsigned proposal it received from HMC because Plaintiff did not consider the proposal to be a binding contract. Defendant was aware of HMC’s existence and involvement in the transaction.  After the closing, HMC initiated an arbitration against Plaintiff in which the arbitrator found that HMC was entitled to recover a 4% brokerage fee from Plaintiff based on the term sheet. Accordingly, the arbitrator directed Plaintiff to pay HMC and its sole owner $1,950,000.00. Plaintiff and Defendant asserted claims and counterclaims against each other with respect to who was responsible for the $1,950,000.00 fee and certain related expenses of the arbitration.  Plaintiff sought summary judgment that Defendant was responsible for those sums. Defendant claimed that the arrangement with HMC was a non-disclosed material contract that should have been disclosed pursuant to the APA and Defendant was, therefore, not responsible for HMC’s fees. Defendant also claimed that Plaintiff’s breach of contract claim asserted against it should be dismissed as it was barred under the APA’s Exclusive Remedies clause, which provided in relevant part that the parties’ “sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto …) … shall be pursuant to the indemnification provisions set forth in this Article VIII .” The motion court denied the parties’ respective motions for summary judgment. On appeal, the First Department held that the motion court should have granted Defendant’s motion for summary judgment as to Count I (seeking money damages) due to the exclusive remedies clause. The Court explained that the clause was clear and unambiguous and that, as such, “Plaintiff’s first cause of action, seeking damages for breach of contract,” had to “be dismissed .…” The Court found that Plaintiff’s allegations “regarding defendant’s failure to negotiate and pay a broker’s fee” did not rise to the level of fraud, criminal activity or willful misconduct “so as to allow plaintiff to pursue a remedy other than indemnification.” Takeaway Nearly two decades ago, the New York Court of Appeals explained that “ he best evidence of what the parties … intend is what they say in their writing.” 5 Thus, when the contract is clear and unambiguous (i.e., it says what it means) and is susceptible to only one meaning, it should be enforced according to the plain meaning of those words. That was the situation in PCT Contracting . Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 60 A.D.3d 61, 66 (1st Dept. 2008), aff’d , 13 N.Y.3d 398 (2009); Dreisinger v. Teglasi , 130 A.D.3d 524, 527 (1st Dept. 2015). Ashwood Capital, Inc. v. OTG Mgt., Inc. , 99 A.D.3d 1, 9 (1st Dept. 2012) (“ bsent a finding of ambiguity in the agreement … parol evidence inadmissible”).  Id. See Glencore Ltd. v. Degussa Engineered Carbons L.P. , 848 F. Supp. 2d 410, 433 (S.D.N.Y. 2012). Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992)

By: Jeffrey M. Haber Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. 1 It is encouraged and recognized as the public policy of the State of New York. 2 Consequently, courts will interfere as little as possible with the agreement of consenting parties to submit their disputes to arbitration. 3 Generally, a court will vacate an arbitral award for the following reasons: the arbitrator violated the arbitration agreement; the arbitrator was not independent; the award was obtained by corruption, fraud, or undue means; and the arbitrator exceeded his/her powers – that is, the arbitrator ruled on matters that the parties did not consent to be heard in the arbitration agreement . Making a mistake in fact or law is not sufficient to vacate an award. An arbitrator’s decision will be upheld unless it is completely irrational or constitutes a manifest disregard of the law. As the U.S. Supreme Court noted, “as long as an honest arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, the fact that a court is convinced committed serious error does not suffice to overturn decision.” 4 In New York, CPLR § 7511(b) sets forth the grounds upon which a court can vacate an arbitral award.  Under CPLR § 7511, an arbitral award may be vacated: if the rights of a party were prejudiced by “(1) corruption, fraud, or misconduct in procuring the award, (2) partiality of a supposedly neutral arbitrator, (3) the arbitrator exceeding his powers so that no final and definite award was made, or (4) failure to follow procedures provided by CPLR article 75.” 5 New York courts apply these four grounds narrowly, declining more times than not to vacate arbitral awards. 6 In today’s article, we examine CPLR § 7511(b)(iii). Under CPLR § 7511(b)(iii), a court may vacate an arbitrator’s award where it finds that the rights of a party were prejudiced when “an arbitrator … exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made.” An arbitrator exceeds his or her power only where his or her award violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power. 7 An award is “irrational” where “there is no proof whatever to justify the award”. 8 Where, however, “an arbitrator offer even a barely colorable justification for the outcome reached, the arbitration award must be upheld”.  9 While “courts are obligated to give deference to the decision of the arbitrator … even if the arbitrator misapplied the substantive law”, 10 an arbitrator can exceed his or her power when he or she “manifestly disregard ” the substantive law applicable to the parties’ dispute. 11 “To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrator[ ] knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrator[ ] was well defined, explicit, and clearly applicable to the case.” 12 The petitioner has the burden to establish that the arbitration award should be vacated. 13 In Matter of Gerber v. Goldberg Segalla LLP , 2021 N.Y. Slip Op. 06241 (4th Dept. Nov. 12, 2021) ( here ), the Appellate Division, Fourth Department considered the foregoing principles in affirming the confirmation of an arbitral award involving the departure of equity partners from their law firm. Petitioners are former equity partners of respondent law firm. In 2015, they executed a Partnership Agreement (“PA”), which contained a withdrawal provision providing that the withdrawal of an equity partner extinguished that partner’s interest in the partnership and his or her rights to receive a return of capital. The withdrawal provision further provided that, if a client wished to remain with the withdrawing partner, the withdrawing partner was required to reimburse respondent for all unpaid costs advanced and all unpaid services expended with respect to the matter. Upon their departure from respondent to begin a new practice, petitioners demanded arbitration, seeking rescission of the PA on the grounds that it was the product of the firm’s wrongful acts and that the withdrawal provision violated public policy. Following a hearing, the panel of arbitrators concluded that the PA was valid and enforceable and was consistent with controlling New York law and policy. Petitioners thereafter commenced a CPLR article 75 proceeding, seeking, inter alia , to vacate the arbitration award on the grounds that it violated public policy and disregarded the law. Supreme Court vacated the petition, confirmed the award and entered judgment in favor of respondent. Petitioners appealed. The Appellate Division, Fourth Department affirmed, holding that that arbitrator did not exceed his or her authority and did not manifestly disregard the law.  Petitioners argued that, because the withdrawal provision of the PA violated “the twin public policies” of attorney mobility and client choice, the award upholding that provision violated public policy and should be vacated. The Fourth Department “reject that contention and conclude that the arbitration award on its face not violate public policy …  i.e., it not ‘create[] an explicit conflict with other laws and their attendant policy concerns.’” 15 The Court also concluded that “the arbitration award not subject to vacatur on the ground that it was based on a ‘manifest disregard of the law.’” 16 Takeaway A court may vacate an arbitral award where strong and well-defined policy considerations embodied in constitutional, statutory or common law prohibit a particular matter from being decided or certain relief from being granted by an arbitrator. The public policy exception has its roots in common law, where it is well settled that a court will not enforce a contract that violates public policy A court, however, may not vacate an award on public policy grounds when vague or attenuated considerations of a general public interest are at stake. “Courts shed their cloak of noninterference where specific terms of the arbitration agreement violate a defined and discernible public policy.” 17 In Gerber , although not specifically stated, the provision in the PA at issue did not violate public policy because only vague considerations of a general public interest were at stake – e.g., attorney mobility and client choice.    “To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.” 18 Although discussed by the Fourth Department, neither of those requirements was apparently present in Gerber . Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted).  Id. at 49-50. (citations omitted). E. Associated Coal Corp. v. United Mine Workers of Am., Dist. 17 , 531 U.S. 57, 62 (2000) (internal quotation marks and citation omitted). Matra Bldg. Corp. v. Kucker , 2 A.D.3d 732 (2d Dept. 2003).   E.g. , Matter of Mercury Cas. Co. v. Healthmakers Med. Grp., P.C. , 67 A.D.3d 1017, 1017 (2d Dept. 2009). Matter of Falzone , 15 N.Y.3d 530, 534 (2010); Matter of New York City Tr. Auth. v. Transport Workers’ Union of Am., Local 100, AFL-CIO , 6 N.Y.3d 332, 336 (2005). Matter of Professional, Clerical, Tech., Empls. Assn. , 103 A.D.3d 1120, 1122 (4th Dept. 2013), lv. denied, 21 N.Y.3d 863 (2013) (internal quotation marks omitted). Id. (internal quotation marks omitted). Schiferle v. Capital Fence Co., Inc. , 155 A.D.3d 122, 125 (4th Dept. 2017). Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479-80 (2006). Schiferle , 155 A.D.3d at 127 (internal quotation marks omitted). Caso v. Coffey , 41 N.Y.2d 153, 159 (1976). See Denburg v. Parker Chapin Flattau & Klimpl , 82 N.Y.2d 375, 380-81 (1993); Cohen v. Lord, Day & Lord , 75 N.Y.2d 95, 98 (1989) and Rule 5.6 (a)(1) of the Rules of Professional Conduct (22 N.Y.C.R.R. 1200.00). Slip Op. at *2 (citations and internal quotation marks omitted). Id. In the Matter of New York State Correctional Officers and Police Benevolent Ass’n, Inc. v. State , 94 N.Y.2d 321, 327 (1999). Wien , 6 N.Y.3d at 481 (internal quotation marks omitted).

By Jonathan H. Freiberger This Blog frequently writes about decisions related to residential mortgage foreclosure actions.  < Here =">Here" and="and" the="the" articles="articles" hyperlinked="hyperlinked" therein.="therein.">   One frequent topic that is always ripe for treatment is the repeated failure of lenders to demonstrate compliance with the requirements of RPAPL 1304 due to shortcomings in the evidence presented on their prima facie case.  Suffice it to say, on November 10, 2021, the Appellate Division, Second Department, decided two cases on this very issue. As summarized in prior Blog articles, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that offer free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  One purpose of RPAPL 1304 is to enable defaulted borrowers to “benefit from the information provided in the notice and the 90–day period during which the parties could attempt to work out the default without imminent threat of a foreclosure action, in an effort to further the ultimate goal of reducing the number of foreclosures”.  CIT Bank, N.A. v. Schiffman , 36 N.Y.3d 550, 555 (2021) (citation and internal quotation marks omitted). “Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action.”  Citibank, N.A. v. Conti-Scheurer , 172 A.D.3d 17, 20 (2 nd Dep’t 2019) (citations omitted).  Moreover, lender has the burden of establishing compliance with RPAPL 1304.  BAC Home Loans Servicing, L.P. v. Chertov , 165 A.D.3d 1214, 1215 (2 nd Dep’t 2018) (citations omitted). 2021-3 SFR Venture, LLC v. Schiavoni In 2006, lender loaned borrower $750,000 and the repayment obligation was secured by a mortgage. A mortgage foreclosure action was commenced in 2014. Among borrower’s defenses was lender’s failure “to comply with the notice requirements of RPAPL 1304”. Supreme court granted lender’s motion for summary judgment, to strike borrower’s answer and for an order of reference.  Thereafter, supreme court granted lender’s motion to confirm the referee’s report and for a judgment of foreclosure and sale.  On borrower’s appeal, the Second Department reversed because “plaintiff failed to establish, prima facie, that it strictly complied with the requirements of RPAPL 1304.”  (Citation omitted.)  The Court reiterated that while generally, a foreclosing lender establishes its prima facie entitlement to judgment “through the production of the mortgage, the unpaid note, and evidence of default, “where a defendant raises the issue of compliance with RPAPL 1304 as an affirmative defense, the is also required to make a prima facie showing of strict compliance with RPAPL 1304.” (Citation omitted.) In addressing lender’s evidentiary failures, the Court stated: In support of its motion, inter alia, for summary judgment on the complaint, submitted, among other things, the affidavit of Bethany White, Foreclosure Oversight Specialist for Roundpoint Mortgage Servicing Corporation …, loan servicer. However, White did not aver that she had personal knowledge of the purported mailings of the 90-day notice, or that she was familiar with the mailing practices and procedures of Roundpoint, which allegedly sent the notice.  Although submitted proof of mailing and tracking information for certified mailings of the 90-day notice, failed to submit proof of mailing of the notice by first-class mail. Moreover, White's affidavit failed to specify that the RPAPL 1304 notice was served in an envelope that was separate from any other mailing or notice ( see RPAPL 1304<2> . The record also otherwise did not demonstrate that the notice was sent in a separate envelope from any other mailing or notice.  (Some citations omitted.) In addition, the Court found that lender failed to establish a payment default. Although the affidavit of the representative of the loan servicer demonstrated knowledge of servicer’s record-keeping practices and procedures, “her conclusory assertion that defaulted on his obligations under the note was not substantiated by any business record establishing the alleged default.”  (Citation omitted.) U.S. Bank N.A. v. Krakoff The facts of Krakoff , as related to this article, are simple.  Borrower executed and delivered to lender a note in the amount of $600,000 secured by a mortgage.  Lender’s motion for summary judgment was granted and borrower’s cross-motion to dismiss the complaint as time-barred was denied.  Thereafter, borrower moved to confirm the referee’s report and for a judgment of foreclosure and sale, which motion was opposed by borrower, who alleged that lender failed to comply with RPAPL 1304.  Lender’s motion was granted and a sale of the property was directed.  As to borrower’s opposition, supreme court found “inter alia, that ‘ is now barred from raising allegations disputing compliance with RPAPL 1304.’" On borrower’s appeal, the Second Department reversed and stated: However, the Supreme Court erred in granting motion to confirm the referee's report and for a judgment of foreclosure and sale, because failed to establish that it complied with RPAPL 1304. Contrary to contention, failure to comply with RPAPL 1304 is a defense that may be raised at any time prior to the entry of judgment of foreclosure and sale and thus, properly raised it in opposition to motion to confirm the referee's report and for a judgment of foreclosure and sale. Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action. RPAPL 1304 requires that the notice be sent by registered or certified mail, and also by first-class mail, to the last known address of the borrower ( see RPAPL 1304<2> ). Here, failed to establish that it complied with the requirements of RPAPL 1304. The affidavits of Armenia L. Harrell and La'Shana Farrow, both of whom are officers of Wells Fargo Bank, N.A. …, the servicing agent of , were insufficient to establish that complied with RPAPL 1304. Both Harrell and Farrow attested that they were familiar with Wells Fargo's records and record-keeping practices. Farrow averred, inter alia, that complied with RPAPL 1304 by mailing the required notices. The record indicates that the 90-day notices appear to have been mailed by ASC (America's Servicing Company). However, neither Harrell or Farrow attest that they personally mailed the notices or that they were familiar with the mailing practices and procedures of ASC. Therefore, they failed establish proof of standard office practice and procedures designed to ensure that items are properly addressed and mailed. Moreover, failed to send individually addressed notices to each borrower; rather, the 90-day notices were jointly addressed to .  (Some citations 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.

By: Jeffrey M. Haber In today’s article, we consider a case in which, as the title indicates, timing is everything. Before we discuss the case, let’s consider the following scenario.  The parties to a litigation reach a settlement in principle. They do so while a motion to dismiss the action (or a motion for summary judgment) is pending. Before the parties can execute the definitive agreement that memorializes their settlement, the court decides the motion and dismisses the action. Is there a settlement? In Rawald v. Dormitory Auth. of the State of N.Y. , 2021 N.Y. Slip Op. 06109 (1st Dept. Nov. 9, 2021) ( here ), the Appellate Division, First Department answered the question in the affirmative. The case arose out of an alleged agreement by which plaintiffs’ counsel and counsel for defendants Sea Crest Construction Corp. and Peter Scalamandre & Sons, Inc. (together, “Sea Crest”) agreed to settle the underlying personal injury action for $275,000. The settlement agreement was set forth in an email communication in which plaintiffs’ counsel stated, “This is to confirm settlement in the sum of $275,000. Please send release language and parties to be released.” At the bottom of the email was a signature block with counsel’s name, firm name, address and telephone number. Later that day, plaintiffs’ counsel sent a follow-up email, stating, “Please confirm we are settled.” Unlike the first email, this email did not contain the prepopulated signature block. Sea Crest’s counsel responded, “Confirmed. I’ll have release information to you ASAP.” The email was sent by counsel’s phone and included an automatically generated footer stating that it had been sent from an iPhone. Shortly after the parties agreed to settle plaintiffs’ claims, they learned that the motions for summary judgment that all defendants filed in the action had been granted and the action had been dismissed. Sea Crest then disavowed the settlement. Plaintiffs sought enforcement of the settlement agreement, which the motion court denied, finding that the settlement agreement did not contain all material terms of the settlement and had not been subscribed for purposes of CPLR § 2104. 1 The Appellate Division, First Department unanimously reversed. The Court held that the parties had an enforceable settlement agreement. 2 The Court found that the emails, which counsel exchanged, agreeing to the settlement complied with CPLR § 2104, in that they were “subscribed” within the meaning of the statute. 3 Relying on Matter of Philadelphia Ins. Indem. Co. v. Kendall , 197 A.D.3d 75, 80 (1st Dept. 2021), the Court explained that “the sender was identifiable and there was no contention that Sea Crest’s counsel did not send any of the emails intentionally.” 4 In Philadelphia Insurance , the First Department held that it is “the transmission of an email, and not whether an email ‘signature’ can be shown to be retyped, is what determines that a settlement stipulation has been subscribed for purposes of CPLR 2104.” 5   In other words, when “an attorney hits ‘send’ with the intent of relaying a settlement offer or acceptance, and their email account is identified in some way as their own, then it is unnecessary for them to type their own signature.” 6   According to the First Department, CPLR § 2104 demands no more. 7 here.=">here."> The Court also held that “ he emails … contained all material terms , since the sole issue was how much plaintiffs would accept in settlement of their claim.” 8 The Court found persuasive the fact that “in emails leading up to the settlement, … the other defendants were not interested in negotiating a settlement before Supreme Court’s decision on the summary judgment motions,” and had authorized Sea Crest’s attorney “to settle the action on Sea Crest’s behalf regardless of whether she later received contribution from the other defendants.” 9 Takeaway In New York, as in other jurisdictions, settlement agreements “are judicially favored, will not lightly be set aside,” and will be enforced “with rigor and without a searching examination into their substance.” 10 A court called upon to enforce a settlement must be satisfied that the agreement is “clear, final and the product of mutual accord.” 11 Thus, an out-of-court agreement settling an action is binding on each party to the agreement only if “it is in a writing subscribed by him or his attorney.” 12 “In addition, since settlement agreements are subject to the principles of contract law, for an enforceable agreement to exist, all material terms must be set forth” in that writing, “and there must be a manifestation of mutual assent.” 13 Correspondence between the parties or counsel “can qualify as an enforceable stipulation of settlement under CPLR 2104,” so long as that correspondence “set forth the material terms of the stipulation” and is a properly subscribed (i.e., signed) writing. 14 This principle also holds true where, as in Rawald , the correspondence is by email rather than traditional physical means. To meet the requirement of a subscribed writing in the context of email, “the party to be charged, or his or her agent,” must “type[ ] his or her name” at the end of the email “under circumstances manifesting an intent that the name be treated as a signature.” 15 As shown in Rawald , where the sender of the emails are identifiable and there is no contention that counsel sent the emails unintentionally, CPLR § 2104 is satisfied. In other words, when “an attorney hits ‘send’ with the intent of relaying a settlement offer or acceptance, and their email account is identified in some way as their own, then it is unnecessary for them to type their own signature.” 16 Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes A copy of the Supreme Court’s decision and order can be found here . Slip Op. at *1 (citing, Bonnette v. Long Is. Coll. Hosp. , 3 N.Y.3d 281, 286 (2004)). Id. Id. Philadelphia Ins. , 197 A.D.3d at 79-80. Id. at 80. CPLR § 2014 provides: “An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered….” Slip Op. at *1 (citing, Philadelphia Ins. , 197 A.D.3d at 81). Id. Forcelli v. Gelco Corp. , 109 A.D.3d 244, 247-248 (2d Dept. 2013) (internal quotation marks omitted). Id. CPLR § 2014. Forcelli , 109 A.D.3d at 248 (internal quotation marks omitted). Id. at 249; Philadelphia Ins. , 197 A.D.3d at 79. Forcelli , 109 A.D.3d at 251. Philadelphia Ins. , 197 A.D.3d at 80.

By: Jeffrey M. Haber The doctrines of res judicata and collateral estoppel embody related but distinct concepts. They both stand for the general proposition that a party to a litigation should have only one bite at the apple and should not be permitted to relitigate the same issue over and over again. Under the doctrine of res judicata, a final judgment on the merits of a claim precludes re-litigation of that claim by a party, and those in privity with that party. 1 This means that parties cannot relitigate the claim and all claims arising out of the same transaction, or series of transactions, even if based upon different theories or if seeking different remedies. It is a “transactional analysis” that the courts of New York apply to “preclude the litigation of matters that could have or should have been raised in a prior proceeding arising from the same ‘factual grouping.’” 2 Ultimately, the application of res judicata requires the claim sought to be resolved to have been “reasonably and plainly comprehended to be within the scope” of the prior dispute. 3 The doctrine of collateral estoppel prevents a party from relitigating an issue that was “raised, necessarily decided and material in the first action,” provided the party had a full and fair opportunity to litigate the issue. 4 Collateral estoppel is an equitable defense “grounded in the facts and realities of a particular litigation, rather than rigid rules.”5 The proponent of collateral estoppel has the burden of demonstrating “the identicality and decisiveness of the issue,” while the opponent has the burden of establishing “the absence of a full and fair opportunity to litigate the issue in prior action or proceeding.” 6 here.=">here."> These doctrines apply to prior arbitration proceedings, 7 as well as prior determinations by state appellate and federal courts. 8 In New York, the Civil Practice Law and Rules (“CPLR”) specifically recognizes res judicata and collateral estoppel as bases for dismissal. 9 Both concepts are also affirmative defenses under the CPLR. 10 Recently, Justice Francis Kahn, III had the opportunity to consider the foregoing principles in Denson v. Donald J. Trump for President, Inc. , 2021 N.Y. Slip Op. 32095(U) (Sup. Ct. N.Y. County Oct. 26, 2021) ( here ). Plaintiff commenced the action claiming, among other things, that she endured a hostile work environment, experienced sex discrimination, and faced retaliation related to her employment with Defendant, Donald J. Trump for President, Inc., a corporate entity formed to facilitate Donald J. Trump’s 2016 presidential campaign. Central to the action were the non-disclosure and non-disparagement provisions (“NDAs”) contained within the employment agreement that Plaintiff executed as a condition of her employment. Among other things, these provisions prohibited Plaintiff from disclosing, disseminating, or publishing any confidential information unfavorable to Donald J. Trump, his family, or his businesses. Further, the agreement provided that Plaintiff could not demean or disparage Trump, his family, or his businesses publicly. At the sole election of Defendant, any dispute arising under or relating to the NDAs was to be resolved by binding arbitration. Defendant filed a demand to arbitrate the issues of whether Plaintiff breached the NDAs and whether it was entitled to an award of damages. Defendant moved to compel arbitration, which Justice Arlene Bluth denied by order dated August 9, 2018. Justice Bluth found that the arbitration provision could not be interpreted to apply to Plaintiff’s affirmative state law claims arising out of her employment. While the motion was sub judice , Plaintiff commenced another action against Defendant in the United States District Court for the Southern District of New York, where she sought a declaration that the NDAs were void and unenforceable as against public policy. Plaintiff claimed that after she commenced the New York State action, Defendant retaliated against her by bringing an arbitration proceeding in which Defendant sought a determination of its claims that Plaintiff breached the NDAs through disclosure of confidential information and making disparaging statements in connection with the lawsuit. Defendant moved again to compel arbitration, this time in the SDNY, and to dismiss Plaintiff’s complaint. By order dated August 30, 2018, Judge Jesse M. Furman granted Defendant’s motion finding that the parties had agreed to proceed with binding arbitration and that the validity of the agreement was an issue to be resolved by the arbitrator. Judge Furman found that his determination was not inconsistent with Justice Bluth’s ruling since the federal court claims did not arise out of her employment, but out of the agreement. After arbitration, at which Plaintiff only tacitly participated, the arbitrator concluded, among other things, that the validity of the NDAs was an issue that was properly before him and found those provisions enforceable. Plaintiff moved to vacate that award, which Justice Bluth denied. 11 The Appellate Division, First Department reversed Justice Bluth’s order and vacated the arbitration award holding that it was “partly made in violation of public policy, and otherwise in excess of the arbitrator’s authority.” 12 In reaching its conclusion, the First Department reasoned as follows: By concluding that the allegations in the federal action are tantamount to disclosure of confidential information violative of the NDA, the arbitrator improperly punished plaintiff for availing herself of a judicial forum. Defendant is hard-pressed to explain how plaintiff could have pursued her rights without setting forth necessary factual statements for the federal court to consider. Thereafter, Plaintiff commenced a class action suit against Defendant in New York State Supreme Court which sought a declaratory judgment on behalf of all persons with an employment agreement with Defendants that the NDA contained therein was void. Plaintiff further sought an injunction prohibiting enforcement of the NDA. That action was removed to federal court. In that action, Judge Paul G. Gardephe denied Defendant’s motion to dismiss and granted Plaintiff’s motion for summary judgment to the extent that the NDAs within the employment agreement was declared invalid and unenforceable as to Plaintiff. Judge Gardephe held that neither the non-disclosure nor the non-disparagement clauses were sufficiently definite to be enforceable. Judge Gardephe declined to “Blue Pencil” or pare down the scope of the NDAs, stating: Moreover, the Campaign’s past efforts to enforce the non-disclosure and non-disparagement provisions demonstrate that it is not operating in good faith to protect what it has identified as legitimate interests. The evidence before the Court instead demonstrates that the Campaign has repeatedly sought to enforce the non-disclosure and non-disparagement provisions to suppress speech that it finds detrimental to its interests. While the motion before Judge Gardephe was sub judice , the state court granted Plaintiff’s motion to amend her complaint to include a cause of action for retaliation pursuant to Section 8-107(7) of New York City Human Rights Law based upon Defendant’s action in bringing the arbitration and attempting to enforce the award therein. Plaintiff moved for summary judgment on her retaliation cause of action on the basis that this claim had been determined as a matter of law in Plaintiff’s favor by the First Department and in the federal court. Justice Kahn denied the motion, holding that the doctrines of res judicata and collateral estoppel did not apply to her claim. Plaintiff argued that the First Department’s finding that “the arbitrator improperly punished Plaintiff for availing herself of a judicial forum” and Judge Gardephe’s notations that Defendant was “not operating in good faith to protect what it has identified as legitimate interests” and that Defendant “has repeatedly sought to enforce the non-disclosure and non-disparagement provisions to suppress speech that it finds detrimental to its interests” fell squarely within the parameters of the preclusion doctrines at issue. Justice Kahn rejected this argument. With respect to res judicata, the Court said that “it cannot by any measure be concluded that the substantive issues underlying Plaintiff’s New York City Human Rights Law §8-107<7> were comprehended to be within the scope of either proceeding.” 13 To that end, the Court explained that “neither court made a holding that Defendant violated each and every element under that statute.” 14 “In vacating the arbitration award,” said the Court, the First Department concluded that “the arbitrator, not Defendant, penalized Plaintiff for the allegations she made in the federal action.” 15 Indeed, said the Court, Plaintiff accused Defendant of using “the arbitration proceeding as a litigation tactic,” a factual argument “the Appellate Division expressly eschewed” because it would be “contrary to established law that a strong public policy justifying the vacatur of an arbitration award must be apparent from the face of the award, without extended factual inquiry.” 16 As to Judge Gardephe’s holding, the Court noted “that the NDAs were invalid and unenforceable as to Plaintiff because “the NDAs were not sufficiently definite.” 17 The Court said that the “comment that Defendant acted in ‘bad faith’ was, at most, dicta.” 18 Concerning collateral estoppel, the Court held that “neither the Appellate Division nor Judge Gardephe necessarily decided the issue of retaliation, either in whole or in part, when coming to their conclusions.” 19 “In any event,” concluded the Court, “the disparate nature of the prior proceedings and the matter before this Court demonstrates Defendant was not afforded a full and fair opportunity to litigate Plaintiff’s retaliation claim under New York City Human Rights Law §8-107<7> .” 20 Takeaway Res judicata and collateral estoppel address preclusion of issues and claims after judgment: res judicata precludes a party from asserting a claim that was litigated in a prior action, while collateral estoppel precludes relitigating an issue decided in a prior action. In Denson , Plaintiff was unable to demonstrate that the First Department and SDNY decisions precluded Defendants from defending against Plaintiff’s retaliation claim. With respect to res judicata, the substantive issues underlying Plaintiff’s New York City Human Rights Law §8-107<7> were not litigated in the prior state court and federal actions. And, with respect to collateral estoppel, Defendant was not afforded a full and fair opportunity to litigate Plaintiff’s retaliation claim under New York City Human Rights Law §8-107<7> in either court. Thus, the Court denied Plaintiff’s motion. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. 1. E.g. , O’Brien v. City of Syracuse , 54 N.Y.2d 353,357 (1981). 2. Board of Managers of Windridge Condos. One v. Horn , 234 A.D.2d 249 (2d Dept. 1996). 3. Kim v. NRT New York LLC , _A.D.3d __ , 2021 N.Y. Slip Op. 05291 (1st Dept. 2021). 4. E.g. , Parker v. Blauvelt Volunteer Fire Co. , 93 N.Y.2d 343, 349 (1999). 5. Buechel v. Bain , 97 N.Y.2d 295, 303 (2001). 6. Ryan v. New York Tel Co. , 62 N.Y.2d 494, 501 (1984). 7. Mahler v. Campagna , 60 A.D.3d 1009 (2d Dept. 2009); see also Rembrandt Ind. v. Hodges Intl. , 38 N.Y.2d 502, 504 (1976); Lopez v. Parke Rose Mgt. Sys. , 138 A.D.2d 575, 577 (2d Dept. 1988) 8. Milone v City University of New York , 153 A.D.3d 807, 808-809 (2d Dept. 2017); see also Emmons v Broome County , 180 A.D.3d 1213 (3d Dept. 2020). 9. See CPLR § 3211(a)(5). 10. See CPLR § 3018(b). 11. Denson v. Donald J Trump for President, Inc. , __ Misc. 3d __ , 2019 N.Y. Slip Op. 30611(U) (Sup. Ct. NY County 2019). 12. Denson v. Donald J Trump for President, Inc. , 180 A.D.3d 446 (1st Dept. 2020). 13. Slip Op. at *3. 14. Id. 15. Id. at *3-*4. 16. Id. at *4. 17. Id. 18. Id. 19. Id. (citations omitted). 20. Id. (citations omitted).

By: Jeffrey M. Haber This Blog has written numerous articles about Ponzi schemes and the enforcement proceedings that resulted from them. See, e.g., here, here, here, here, and here. In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight, taking investors, many of whom are the later ones in the scheme, down with them. Today, we examine SEC v. BNZ One Capital, LLC, an enforcement action involving a Ponzi-like scheme that bilked more than 100 retail investors out of millions of dollars. The SEC announced the action on October 29, 2021 (here). The SEC charged BNZ One Capital, LLC, a Newport Beach, California-based company, and its co-founders and co-managers Brett Barber and Louis Zimmerle, for fraudulently raising $13.5 million from more than 100 retail investors. According to the SEC’s complaint (here), since June 2019, defendants have raised $13.5 million from retail investors by telling them BNZ was in the business of making investments in real estate and alternative investments and promising to pay investors significant returns, generally 10% per year. The SEC alleged that defendants used only $6.4 million of the $13.5 million raised from investors to invest in real estate and alternative investments. Those investments, said the SEC, generated only $300,000 in profits. According to the complaint, despite generating minimal profits, the defendants paid investors returns of at least $1.7 million using funds raised from other investors in Ponzi-like fashion, and transferred over $1.6 million to Barber through his company, Guaranteed Income Solutions Inc., and over $700,000 to Zimmerle. According to the SEC, defendants made false and misleading statements to investors regarding, among other things, the source of the payment of the investor returns. In addition, said the SEC, Barber allegedly misled investors by touting his education in finance and his investment experience without also disclosing that he had been barred by the Financial Industry Regulatory Authority from affiliating with any member firm. “The complaint here alleges that when defendants failed to earn sufficient profits in order to pay investor returns, they made Ponzi-like payments to investors using other investors’ money, and, separately, also used investor funds to pay themselves handsomely,” said Michele Wein Layne, Regional Director of the SEC’s Los Angeles Regional Office. “Individuals who engage in such misconduct should expect to be held accountable for their actions by the SEC.” The complaint charges BNZ, Barber, and Zimmerle with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, violating the registration provisions of Sections 5(a) and (c) of the Securities Act, and, as to Barber and Zimmerle, violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The complaint also charges Barber and Zimmerle as control persons of BNZ under Section 20(a) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties from BNZ, Barber, and Zimmerle, and disgorgement with prejudgment interest from Relief Defendant Guaranteed Income Solutions. In a parallel action, the Department of Justice brought criminal charges against defendants (here). The allegations in the indictments mirror those in the complaint filed by the SEC. We briefly discuss the facts alleged by the DOJ. According to court documents, BNZ, its principals (i.e., Barber and Zimmerle), and several marketers raised money from investors by falsely representing that the firm bought and sold real estate projects and “flipped” real estate. Defendants falsely promised investors a “guaranteed” return of between 8 percent and 10 percent, as well as potential bonuses based on successful deals. According to the indictments, Barber told investors that their funds were “safe” and “FDIC insured.” According to the DOJ, although BNZ did purchase some real estate, it did not take any substantial steps to develop parcels, nor did BNZ flip real estate for a profit. Rather, BNZ primarily used investor funds to allegedly pay Barber, Zimmerle, and others associated with the scheme, including purchasing residences where Barber and Zimmerle lived. According to court documents, some of the investors’ money was used to repay earlier investors. During the scheme, Barber, Zimmerle, and the marketers solicited or caused to be transferred to BNZ approximately $13.8 million from investors. Because several million dollars were paid to earlier investors, investigators estimate that actual losses resulting from this alleged Ponzi-like scheme are more than $9 million. In his plea agreement, Zimmerle admitted that he received and kept approximately $582,815 of investor money. ____________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber In New York, contracts are to be construed in accordance with the parties’ intent. 1 “The best evidence of what parties to a written agreement intend is what they say in their writing.” 2 Thus, a written agreement that is clear and unambiguous on its face must be enforced according to the plain meaning of its terms. 3 Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous. 4 A contract is unambiguous if “on its face is reasonably susceptible of only one meaning.” 5 Parol (or extrinsic) evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear and unambiguous. 6 Conversely, “ contract is ambiguous if the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.” 7 The existence of ambiguity is determined by examining the “entire contract and consider the relation of the parties and the circumstances under which it was executed,” with the wording to be considered “in the light of the obligation as a whole and the intention of the parties as manifested thereby.” 8 Whether a contract is ambiguous is a question of law for the court to decide. 9 Significantly, a court may not, in the guise of interpreting a contract, add or excise terms or distort the meaning of those used to make a new contract for the parties. 10 In transactions involving the purchase and sale of real estate, the Court of Appeals has made clear that the rule requiring a written agreement to “be enforced according to its terms” has special importance: We have … emphasized this rule’s special import in the context of real property transactions, where commercial certainty is a paramount concern, and where … the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length. 11 here.=">here."> The foregoing principles were recently considered in GCP Capital Grp. LLC v. Greco , 2021 N.Y. Slip Op. 05812 (1st Dept. Oct. 26, 2021) ( here ), a case involving the payment of a commission in connection with the negotiation of a mortgage extension and workout negotiations regarding certain real property. GCP Capital concerned a mortgage brokerage commission agreement. Pursuant to the agreement, BNDO LLC (“BNDO”) and Louis Greco, Jr. (“Grego” and together with BNDO, “defendants”) retained GCP Capital Group LLC (“plaintiff”) to assist with a mortgage extension and associated work-out negotiations covering certain real property. If plaintiff assisted with the mortgage extension and workout negotiations “in any amount and/or terms to which Borrower may agree,” then plaintiff was to be paid a commission of $150,000.00 (the “Commission”).  On December 7, 2018, BNDO and Madison Realty Capital (“Madison”) entered into a Building Mortgage and Security Agreement by which BNDO borrowed in excess of $4 million. Greco guaranteed the loan. Defendants never paid plaintiff a Commission. Defendants argued that the transaction with Madison fell short of what they had engaged plaintiff to facilitate. In particular, defendants claimed that plaintiff was to secure additional funds to pay unpaid contractors and material suppliers, many of whom had filed liens on the property where the construction was taking place. However, Madison refused to allocate sufficient funds to pay existing lienors. As a result, Greco claimed he was required to post mechanics liens bonds of about $1.1 million and secure them personally. Plaintiff brought suit. Thereafter, plaintiff moved for summary judgment in its favor. Defendants cross moved to dismiss the claims against Greco individually and Second Development Services, Inc (“SDS”), another defendant. The motion court granted plaintiff’s motion to the extent it asserted claims against BNDO and Greco and otherwise denied the motion. The court denied defendants’ cross motion in its entirety. The motion court noted that, under the agreement, all plaintiff had to do to earn its fee was to “assist with … a mortgage extension and associated work-out negotiations covering the above referenced property in any amount and/or terms to which Borrower may agree.” The motion court held that under that provision, the Commission was “earned and payable on the date of acceptance of the Loan Workout Terms.”  Notably, defendants did not argue that plaintiff failed to provide assistance or that they did not actually agree to the amount and terms of the loan with Madison. Rather, their defense was that plaintiff failed to obtain certain financing. The Court noted that “ his, however, was not a requirement under the Agreement.” The motion court rejected defendants’ request for discovery, holding that  The agreement is plain. All that was necessary for plaintiff to earn its commission was to assist with obtaining a loan, the terms with which defendants agreed. There is no question that plaintiff assisted with obtaining a loan. There is also no question defendants agreed and accepted the terms of the loan when they closed on December 7, 2018. Accordingly, all prerequisites to plaintiff earning a commission have occurred. Thus, plaintiff is entitled to its commission now.  The motion court also held that the agreement bound Greco, as he was a person “affiliated” with BNDO. However, the motion court held that there was a question of fact as to whether SDS was affiliated with BNDO. On appeal, the Appellate Division, First Department vacated the judgment as against Greco, and otherwise affirmed the motion court’s order. The Court agreed with the motion court that “the language of the written commission agreement unambiguous as to whether plaintiff entitled to a commission.” 12 The Court found that plaintiff “assisted BNDO and that BNDO entered into a renegotiated loan with the lender.” 13 In fact, noted the Court, it was “undisputed”. 14 “Thus,” said the Court, “plaintiff entitled to its commission, which was earned and payable on the date on which BNDO entered into the loan modification agreement.” 15 However, the Court found that the agreement was ambiguous as Greco; in particular, it was “ambiguous as to the meaning of ‘person . . . affiliated with’ BNDO.” 16 The Court said that it was unclear whether Greco signed the agreement in his individual capacity and, therefore, it was ambiguous whether he was “affiliated” with BNDO. 17 Finally, the Court held, like the motion motion court, that “ he ambiguity in the phrase “affiliated with” in the agreement … present an issue of fact as to whether defendant SDS was intended to be bound by the agreement.” 18 Takeaway GCP Capital underscores the fundamental principle of contract interpretation – i.e., contracts are to be construed pursuant to the parties’ intention. As the Court of Appeals explained almost two decades ago, “ he best evidence of what the parties … intend is what they say in their writing.” 19 When the parties’ writing is clear and unambiguous on its face – that is, the terms are reasonably susceptible to only one meaning – it should be enforced according to the plain meaning of those words.  In GCP Capital , the Court made clear that, in the context of the underlying transaction, the terms of the agreement as against BNDO were clear and unambiguous. In that regard, the agreement expressly provided that BNDO would pay plaintiff a fee if plaintiff assisted with mortgage extension and workout negotiations regarding the property. There was no dispute that plaintiff did just that – that is, plaintiff “so assisted BNDO and that BNDO entered into a renegotiated loan with the lender.” Under those circumstances, plaintiff was entitled to its commission, which was earned and payable on the date on which BNDO entered into the loan modification agreement. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes See , e.g. , Slatt v. Slatt , 64 N.Y.2d 966 (1985). Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). See , e.g. , W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990).  Id. Greenfield v. Philles Records , 98 N.Y.2d 562, 570 (2002). Innophos, Inc. v. Rhodia, S.A. , 38 A.D.3d 368, 369 (1st Dept. 2007), aff’d , 10 N.Y.3d 25 (2008). New York City Off-Track Betting Corp. v. Safe Factory Outlet, Inc. , 28 A.D.3d 175, 177 (1st Dept. 2006) (internal quotation marks and citation omitted). Kass v. Kass , 91 N.Y.2d 554, 566 (1998) (quoting, Atwater & Co. v. Panama R.R. Co. , 246 N.Y. 519, 524 (1927)). Id. Teichman v. Community Hosp. of W. Suffolk , 87 N.Y.2d 514, 520 (1996); Morlee Sales Corp. v. Manufacturers Trust Co. , 9 N.Y.2d 16, 19 (1961). Vermont Teddy Bear Co. v. 538 Madison Realty Co. , 1 N.Y.3d 470, 475 (2004) (quoting, Matter of Wallace v. 600 Partners Co. , 86 N.Y.2d 543, 548 (1995)). Slip Op. at *1. Id. Id. Id. Id. Id. (citations omitted). Id. Slamow , 79 N.Y.2d at 1018.

By Jonathan H. Freiberger Defaults by a party to a real estate contract, whether a purchaser or a seller, are a fruitful source of litigation.  Among other remedies available to an individual or entity aggrieved by a real estate contract default is specific performance, an issue discussed in this Blog’s article entitled: “ Specific Performance (That’s What I Want) – Would be a Terrible Song Title .”  Briefly stated, because of the judicially recognized “unique” nature of real property, specific performance is frequently an appropriate remedy because monetary damages can be deemed insufficient to make a litigant whole when title to the subject property is not conveyed.  See, e.g., Alba v. Kaufmann , 27 A.D.3d 816, 818 (3 rd Dep’t 2006) (citation omitted) (“As to the remedy plaintiffs seek, the case law reveals that ‘the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique.’”); EMF General Contracting Corp. v. Bisbee , 6 A.D.3d 45, 52 (1 st Dep’t 2004) (same). Many times, however, a seller, when faced with a breach by the buyer, is content to retain the down payment as the remedy for the buyer’s breach.  An aggrieved seller may also sue for damages if, for example, the property is subsequently sold for a lower price than agreed to by the purchaser under the defaulted contract.  The law is established that “ here a purchaser defaults under an agreement to purchase real property, the seller may retain the down payment paid upon the execution of the agreement.”  Orea v. D’Auria , 160 A.D.2d 694, 695 (2 nd Dep’t 1990) (citations omitted).  See also, Maxton Builders, Inc. v. Lo Galbo , 68 N.Y.2d 373, 378 (1986) (“For more than a century it has been well settled in this State that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment.”) Such was the case in Jennings v. Silfen , a case decided by the Appellate Division, First Department on October 28, 2021.  The Plaintiff in Jennings entered into a contract to purchase from defendant sellers a cooperative apartment.  When purchaser could not close in the time frame set forth in the initial contract, the parties agreed to an amendment pursuant to which “plaintiff agreed that in exchange for additional time to close on the purchase, she would cover defendants’ carrying costs and would waive any right to recovery of the down payment if she did not close on the sale by the agreed-to date.” After plaintiff failed to close in the timeframe set forth in the amendment to the contract, plaintiff requested the return of her down payment and defendant refused.  Plaintiff commenced Jennings , seeking, inter alia , the return of the down payment.  Defendant sellers moved to dismiss the complaint pursuant to CPLR 3211(a)(1) because they had a defense “founded upon documentary evidence”.  [Eds. Note: this Blog has addressed motions to dismiss pursuant to CPLR 3211 (a)(1) < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> .]  In support of their motion, defendant sellers “submitted a signed copy of the contract of sale, which contains all the material terms, and the amendment to the contract, .”    In unanimously reversing supreme court, the First Department found that the “documentary evidence conclusively establishes a defense to the complaint” because “ laintiff’s failure to close by the agreed-to date constitutes a default under the purchase agreement and the amendment thereto, and the default entitles defendants to retain the down payment as liquidated damages pursuant to paragraph 13.1 of the purchase agreement and paragraph 5 of the amendment.”  (Citations omitted.) The Court also concluded that plaintiff’s claim that defendants were unjustly enriched by their retention of the down payment failed due to the existence of a written contract.  (Citations omitted.)  Finally, the Court held that an “appeal to equity is equally unavailing, since the law is established that a vendee who defaults on a real estate contract without lawful excuse cannot recover his or her down payment.” Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber People use social media, and the Internet in general, for all sorts of reasons. Investors are no different. Investors use social media to research stocks, look up information on a broker-dealer ( see Broker Check < here =">here"> ) or investment adviser ( see Investment Adviser Public Disclosure < here =">here"> ), find guidance on investing strategies, receive up-to-date news, and discuss the markets with others. While social media offers investors valuable information when making investment decisions, it also presents opportunities for fraudsters. Through social media, wrongdoers can spread materially false or misleading information about a company and its stock to large numbers of people with minimum effort and at a relatively low cost. They can also hide their true identities by acting anonymously or even impersonating credible sources of market information. One way a wrongdoer can abuse social media is by spreading materially false and misleading information about a company to affect the price of its stock. Often, a fraudster will perpetuate rumors about a company and its stock on social media, as well as on online bulletin boards and in Internet chat rooms, to manipulate the price of the company’s stock.  The Securities and Exchange Commission’s (“SEC”) Office of Investor Education and Advocacy has warned investors ( here ) about the use social media to perpetrate stock frauds. One type of stock fraud that is well suited for social media is the “pump-and-dump” scheme. 1 In a “pump-and-dump” scheme, promoters “pump” up the stock price by spreading positive rumors that cause a buying frenzy and then quickly “dump” their own shares before the hype ends. After the promoters profit from their sales, the stock price drops and the remaining investors lose money. In other instances, fraudsters start negative rumors urging investors to sell their shares so that the stock price plummets, and the fraudsters take advantage of buying shares at the artificially low price. In SEC v. Craig ( here ), the SEC accused an individual of manipulating the share prices of two publicly traded companies by tweeting false and misleading information. The defendant allegedly tweeted rumors that federal law enforcement was investigating a technology company for fraud, and that a biopharmaceutical company had tainted drug trial results and a federal government agency seized its papers. The SEC alleged that these deceptive tweets were made from Twitter accounts mimicking established securities research firms. The tweets allegedly caused investors to lose more than $1.5 million. Fraudsters also use social media for “scalping”, another form of stock fraud. Scalping is a scheme in which the fraudster (a) acquires shares of a stock; (b) recommends that others purchase the stock without disclosing his/her intention to sell; and (c) subsequently sells the stock for his/her own benefit. 2 In SEC v. McKeown and Ryan ( here ), the SEC obtained judgments ( here ) against a Canadian couple who used their website (PennyStockChaser), Facebook, and Twitter to pump up the stock of microcap companies, and then profited by selling shares of those companies. In this scalping scheme , the couple allegedly received millions of shares of these companies as compensation and sold the shares around the time that their website predicted the stock price would massively increase. The SEC alleged that the couple did not fully disclose the compensation they received for touting the stocks. The court ordered the couple and their companies to pay more than $3.7 million in disgorgement for profits gained as a result of the alleged conduct and ordered the couple to pay $300,000 in civil penalties. Recently, the SEC brought an emergency action, and obtained an injunction and asset freeze, against Steven M. Gallagher for allegedly committing securities fraud through a long running scalping scheme using Twitter. The announcement of the SEC enforcement action can be found here .  SEC v. Gallagher According to the SEC, since at least 2019, through October 13, 2021, defendant used his Twitter account to promote and encourage the purchase of dozens of microcap stocks, while simultaneously selling his own shares and not disclosing that fact to his followers. Defendant is an active day trader in over-the-counter securities. He created the Twitter account using the alias “Alex DeLarge,” a character from the novel A Clockwork Orange and the Stanley Kubrick film of the same name. As of October 19, 2021, defendant’s Twitter account had over 70,000 followers. Defendant allegedly disseminated false and/or misleading information about the promoted issuers, or falsely stated that he was not selling the stock that he was concurrently recommending that his Twitter followers and other Twitter viewers buy. The SEC said that, for at least two issuers, defendant engaged in multiple instances of manipulative trading by placing multiple buy orders at the end of the trading day to raise the stocks’ price (“marking the close”) to mislead the public about the trajectory of the stocks’ price. “Marking the close” is the term used to describe the practice of buying or selling stocks near the close of trading to affect the closing price. The SEC said that defendant engaged in scalping in connection with the stock of at least 60 issuers and generated at least $3.39 million in profits from his fraudulent and manipulative scheme.  According to the SEC, defendant had been repeatedly warned by his brokerage firm (“Broker A”) that he appeared to be engaged in manipulative trading in violation of securities laws and regulations. Notwithstanding, defendant continued to engage in manipulative trading and scalping, said the SEC.  On September 9, 2021, Broker A informed Gallagher that it was closing his trading account effective October 9, 2021, and that it would immediately prevent him from making new stock purchases, restrict his account to just liquidating transactions, and not allow him to open a new account in the future. The SEC alleged that this action did not deter defendant. According to the SEC, defendant continued to engage in scalping through sales of stock he already held in his Broker A account. In addition, on the day that Broker A told defendant it was shutting down his account, defendant opened a trading account at Broker B, indicating that he intended to use the account for “active/day trading.” As of October 14, 2021, the account had approximately 40 penny stocks in it, with a market value of approximately $1 million, said the SEC. Defendant allegedly continued to engage in scalping stocks in that account as recently as October 13, 2021. “The complaint alleges that Gallagher used his followers for his own financial gain, tweeting out false advice to pump up the price of stocks he owned, so he could sell for a profit,” said Richard Best, Director of the SEC’s New York Regional Office. “This case is a reminder that investors should be wary of taking financial advice from unverified sources on Twitter and other social media platforms.” The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York (Case no. 21-cv-8739), charges defendant with violating the antifraud provisions of the federal securities laws. The complaint seeks, among other relief, a permanent injunction, disgorgement, prejudgment interest, civil penalties, and the asset freeze granted by the court. The U.S. Department of Justice also said in a related charge that defendant had been arrested for additional violations, including wire fraud and market manipulation, related to the same scalping and pump-and-dump scheme. The charge also specified that defendant earned over $1 million in profit.  Commenting of the charges, U.S. Attorney Damian Williams said: “As alleged, Steven Gallagher brought old-school boiler room tactics to the Twitter age, and operated a social media pump-and-dump scam that defrauded ordinary investors, all so that he could make over $1 million in profits.”  Williams went on to emphasize the vigilance of the SEC and DOJ in stopping the use of social media to perpetrate a fraud on investors: “Today’s arrest of Gallagher demonstrates that this Office and our law enforcement partners will be vigilant as securities fraud schemes move onto Twitter and other forms of social media.” Acting HSI Special Agent-in-Charge Ricky J. Patel said: “Turning lies into cash, Gallagher allegedly engaged in a pump & dump scheme, where he and his followers manipulated the price of penny stocks and guaranteed profits for themselves. Pump and dump stock schemes cause mistrust in the market and have real victims who often invest large sums of money, only to have their hopes shattered by a fraudster’s greed.  Like so many Hollywood movies which have portrayed stock frauds, Gallagher met the same fate as those storylines, he was arrested and will now face justice.”  Agent Patel echoed William’s focus on fighting stock fraud through social media: “Working with our partners at the USAO-SDNY and the SEC, identifying and disrupting illegal financial schemes like this one is a top priority for HSI.” A copy of the DOJ’s announcement of the charges can be found here . Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes This Blog examined pump-and-dump schemes here , here and here . This Blog previously examined an enforcement action involving scalping here .

By:  Jeffrey M. Haber A forum selection clause is a contractual provision that sets forth the location designated by the parties for dispute resolution. Such clauses can be found in virtually every type of contract imaginable, e.g., employment agreements, commercial contracts, and purchase and sale agreements. Parties require forum selection clauses to reduce litigation expenses, avoid adverse laws, and mitigate the risks associated with unknown foreign judges and/or juries. In the commercial context, forum selection clauses are common because they “provide certainty and predictability in the resolution of disputes.” 1 Forum selection clauses come in two forms: mandatory and permissive. In the former, the parties are “required to bring any dispute to the designated forum,” while the latter “only confers jurisdiction in the designated forum, but does not deny plaintiff his choice of forum, if jurisdiction there is otherwise appropriate.” 2 Under New York law, “parties to a contract may freely select a forum which will resolve any disputes over the interpretation or performance of the contract.” 3   Such clauses “are prima facie valid” and “are not to be set aside unless a party demonstrates that the enforcement of such would be unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court.” 4 In interpreting forum selection clauses, courts apply the principles of contract construction.  A confession of judgment is an agreement whereby a defendant or debtor agrees to the entry of judgment against him/her in an amount certain. It is a procedural device whereby the plaintiff or creditor can bypass the commencement of a lawsuit to obtain the amount “confessed.”  Confessions of judgment are used in a variety of circumstances. For example, parties to a litigation may use a confession of judgment as part of a settlement whereby the defendant agrees to pay the plaintiff money. In that situation, the defendant agrees to the confession of judgment until he/she satisfies the payment obligations under the settlement agreement. If the defendant fails to make the agreed-upon payment(s), then the plaintiff, who typically holds the confession of judgment in escrow, can file the confession of judgment with a county clerk without having to commence an action for breach of the settlement agreement.  Sometimes, parties to a dispute who wish to avoid the costs and burdens of litigation, will use a confession of judgment to ensure the payment(s) required by their out-of-court settlement. In New York, confessions of judgment are governed by Section 3218 of the Civil Practice Law and Rules (“CPLR”). Under CPLR § 3218(a),  a judgment by confession may be entered, without an action, either for money due or to become due, or to secure the plaintiff against a contingent liability in behalf of the defendant, or both, upon an affidavit executed by the defendant; 1. stating the sum for which judgment may be entered, authorizing the entry of judgment, and stating the county where the defendant resides; 2. if the judgment to be confessed is for money due or to become due, stating concisely the facts out of which the debt arose and showing that the sum confessed is justly due or to become due; and 3. if the judgment to be confessed is for the purpose of securing the plaintiff against a contingent liability, stating concisely the facts constituting the liability and showing that the sum confessed does not exceed the amount of the liability.  However, the plaintiff or creditor cannot enter judgment against the defendant or debtor if (1) more than three years has elapsed since the defendant or the debtor signed the confession, or (2) the defendant or debtor is deceased. 5 When an amount certain is confessed, the affidavit required under CPLR § 3218(a) must state the facts from which the debt arose as to demonstrate that the confessed amount is just. 6 In doing so, the statute requires the affiant to “concisely” state “the facts out of which the debt arose and showing that the sum confessed is justly due or to become due.” 7 This means that “there must be sufficient genuine detail to enable other creditors to investigate the claim and ascertain its validity ….” 8 As the courts have noted, CPLR § 3218 “is designed for the protection of third persons who might be prejudiced in the event that a collusively confessed judgment is entered ….” 9 It is “not for the protection of the defendant.” 10 In 2019, the New York State Legislature amended CPLR § 3218. By the amendment, the Legislature eliminated the ability of creditors to file confessions of judgment against non-New York residents. Prior to the amendment, a creditor could file a confession of judgment and obtain judgment in either the county where the plaintiff or debtor resided or, if the debtor was a nonresident of the State, in the county in which entry of judgment was authorized in the affidavit from the defendant or debtor. When the defendant or debtor is a business entity, residency is considered to be the entity’s “place of business.” “Notably, the amendment to CPLR § 3218 uses the term ‘residence’ rather than ‘domicile’ in defining the debtors that may confess judgments under the statute. A party may have multiple residences, but only one fixed domicile to which the party always returns. Where a New York debtor has multiple residences within the state, the affidavit confessing the judgment may still be filed in any designated county where a residence exists.” 11 The foregoing principles were addressed by the Appellate Division, First Department in Express Trade Capital, Inc. v. Horowitz , 2021 N.Y. Slip Op. 05773 (1st Dept. Oct. 21, 2021) ( here ). In Express Trade , the corporate defendant borrowed more than $1.4 million from the plaintiff. The individual defendants guaranteed the loan. In 2015, the corporate defendant defaulted on its payment obligations. In 2017, the parties settled their differences, executing a settlement agreement (the “Settlement Agreement”) that memorialized their agreement.  As is relevant to the Court’s decision, the Settlement Agreement contained a forum selection clause pursuant to which each defendant expressly submitted to the jurisdiction of the courts of New York and waived any objection to New York County as the venue for any litigation. The Settlement Agreement also provided that each of the defendants would execute a confession of judgment in plaintiff’s favor for the total amount of the obligations due. The parties further agreed to an installment schedule for defendants’ payment of the settlement amount. Upon the occurrence of an event of default, such as the failure to make a timely payment, the Settlement Agreement authorized plaintiff to file one or all of the confessions of judgment.  Sometime later, the corporate defendant defaulted on its payment obligations under the Settlement Agreement. Plaintiff filed a motion for summary judgment in lieu of complaint, based on the Settlement Agreement and the confessions of judgment. The motion court granted the motion. Defendants moved to vacate the default judgment, claiming that the motion court lacked personal jurisdiction over them because all of the transactions between the parties took place in California, where they are residents. Defendants claimed that the forum selection clause in the Settlement Agreement was unenforceable and, therefore, New York was an inconvenient forum. The motion court rejected that contention.  The court noted that defendants were sophisticated parties who had “engaged in a sophisticated business transaction in which they took a loan of $1.4 million from plaintiff which was not repaid.” The court explained that “ n settling the action, they expressly agreed, with the advice of counsel, to submit to jurisdiction in New York.” “They also expressly acknowledged that they do business in New York,” noted the court. “The fact that defendants also do business and reside in California,” held the court, “does not serve, under these circumstances, to establish that New York is an inconvenient forum.” The motion court also rejected defendants’ contention that the confessions of judgment were unenforceable in light of the 2019 amendments to CPLR § 3128. The court noted that the affidavits were signed before the amendment (indicating that the amendment applied only prospectively). “More important,” said the court, “CPLR 3218, by its terms, sets forth a procedure for the filing of affidavits of confession of judgment with the clerk and without an action. CPLR 3218 does not govern the procedure for enforcement of a confession of judgment where there is an action.” The court agreed with plaintiff that the motion for summary judgment in lieu of complaint was the functional equivalent of an action.  On appeal, the First Department affirmed. The Court held that the forum selection clause was enforceable, finding that it was not “the product of fraud or overreaching” or “unfair or unreasonable .” 12 As such, the clause served as “a sound basis for the exercise by the court of personal jurisdiction over defendants.” 13 The Court further held that since the forum selection clause was enforceable, defendants could not complaint that New York County was an inconvenient forum: “Having agreed by contract to submit to the jurisdiction of the court, defendants are precluded from attacking the court’s jurisdiction on forum non conveniens grounds.” 14 “Moreover,” noted the Court, “defendants’ confessions of judgment admitted that they were doing business in New York.” 15 Finally, the Court held that plaintiff did not run afoul of the amendments to CPLR § 3128. The Court explained that the amendments only “concern[] entry of a judgment against a nonresident without an action.” 16 Noting that the confessions of judgment were entered in connection with the CPLR § 3213 motion, the Court found that the filing of that motion sufficed to bring the issue outside the confines of the statute: “Plaintiff filed an action under CPLR 3213, which the court correctly concluded was appropriate based on the settlement agreement and confessions of judgment.” 17 Takeaway The courts in New York recognize that parties to a contract may freely select a forum to resolve any disputes over the interpretation or performance of a contract. 18 Although once disfavored, forum selection clauses are prima facie valid and enforceable because they provide certainty and predictability in the resolution of disputes. 19 They are not set aside absent a strong showing that they are unreasonable, unjust, in violation of public policy, invalid due to fraud or overreaching, or that a trial in the selected forum would be so gravely difficult that the opposing party would, for all practical purposes, be deprived of his/her day in court. 20 General allegations that the contract was induced by fraud are not sufficient to preclude enforcement of a forum selection clause. The complaint must allege that the clause itself was procured by fraud. As noted in Express Trade , there was “no evidence that the clause the product of fraud or overreaching or unfair or unreasonable.” Accordingly, it was held to be enforceable by both the motion court and the First Department.  Since the clause was deemed enforceable, the forum selected was held to be convenient. As the First Department noted, “ aving agreed by contract to submit to the jurisdiction of the court, defendants are precluded from attacking the court’s jurisdiction on forum non conveniens grounds.” 21 With regard to the confessions of judgment, Express Trade is notable in that it addresses the amended version of CPLR § 3218.  Under the amended version of CPLR § 3218, confessions of judgment executed by parties that are not New York residents are no longer enforceable in the State. The statute now provides that the confession must state the New York county in which “the defendant resided when it was executed,” and may be filed only in that county or, if the defendant moved to a different county within the State after signing the confession, “where the defendant resided at the time of filing.”  For purposes of non-natural persons – e.g., corporations, limited liability companies, limited partnerships, etc. – residence is deemed to be “in any county where has a place of business.” In Express Trade , defendants “admitted that they were doing business in New York.” 22 Express Trade also highlights the way in which a creditor can work around the amended version of CPLR § 3218 to enforce a confession of judgment that was executed by a non-resident of the State. On its face, CPLR § 3218 applies only to confessions of judgment executed “without an action”. 23 Filing a motion for summary judgment in lieu of complaint under CPLR § 3213, using the confession of judgment as an instrument for the payment only, bypasses the restriction in the statute. As both courts noted in Express Trade , the filing of the motion for summary judgment in lieu of complaint constituted an action. One must query, however, whether the Express Trade Court would have decided the issue differently if defendants did not conduct business in New York.  Footnotes Boss v. American Express Fin. Advisors, Inc. , 6 N.Y.3d 242, 247 (2006) (quoting Brooke Grp. Ltd. v. JCH Syndicate , 87 N.Y.2d 530, 534 (1996)). Phillips v. Audio Active Ltd. , 494 F.3d 378, 383, 386 (2d Cir. 2007). Brooke Grp. , 87 N.Y.2d at 534. Sterling Nat. Bank as Assignee of Norvergence, Inc. v. Eastern Shipping Worldwide, Inc. , 35 A.D.3d 222 (1st Dept. 2006) (citations and quotations omitted). CPLR § 3218(b). CPLR § 3218(a)(2). Id. Princeton Bank & Trust Co. v. Berley , 57 A.D.2d 348, 354 (2d Dept. 1977) (citations omitted). Mall Commercial Corp. v. Chrisa Rest. , 85 Misc. 2d 613, 614 (Sup. Ct., App. Term, 1st Dept. 1976). Id. Practice Commentaries, C3218:1. Judgment by Confession, Generally (2019). Slip Op. at *1 Id. (citing National Union Fire Ins. Co. of Pittsburgh, Pa. v. Williams , 223 A.D.2d 395, 398 (1st Dept. 1996)). Id. (citing Sterling Nat. Bank , 35 A.D.3d at 223). Id. Id. Id. Brooke Grp. , 87 N.Y.2d at 534. Id. Di Ruocco v. Flamingo Beach Hotel & Casino, Inc. , 163 A.D.2d 270, 271-272 (2d Dept. 1990). Slip op. at *1. Id. CPLR § 3218(a).

By Jonathan H. Freiberger In its February 20, 2021, article entitled: “ The New York Court of Appeals Decides Four Cases, In One Opinion, Addressing and Clarifying Issues Related to the Timeliness of the Commencement of Mortgage Foreclosure Actions ” (the “Prior Article”), this Blog discussed, Freedom Mortgage Corp. v. Engel , 37 N.Y.3d 1 (2021), a February 18, 2021, decision by the New York Court of Appeals.  In Freedom , the Court of Appeals decided four cases “each turning on the timeliness of a mortgage foreclosure claim” and each of which “involve the intersection of two areas of law where the need for clarity and consistency are at their zenith: contracts affecting real property ownership and the application of the statute of limitations.”  Freedom , 37 N.Y.3d at 19.  The law on statute of limitations and acceleration in mortgage foreclosure actions is discussed in the Prior Article and will not be recounted here. The facts of Freedom , as obtained from the related Appellate Division, Second Department, decision dated July 11, 2018 ( 163 A.D.3d 631 ), and as set forth in the Prior Article, are simple.  In 2005, borrower borrowed $225,000 from lender, which obligation was evidenced by a note and secured by a mortgage.  Thereafter, the loan was modified.  Borrower defaulted in March of 2008 and a foreclosure action was commenced in July of 2008.  In 2013, the parties entered into a stipulation in order to “amicably resolve” the dispute.  As part of the stipulation, the action was discontinued, without prejudice, and the Notice of Pendency was cancelled.  Two years later, lender commenced a new action to foreclose the mortgage.  Borrower moved to dismiss the new action as time-barred because by the first action, the debt was accelerated but never de-accelerated, and the second action was commenced more than six years thereafter.  Supreme court held that the stipulation was an affirmative act by which the lender revoked its election to accelerate the loan.  The Appellate Division reversed because “the stipulation was silent on the issue of the revocation of the election to accelerate, and did not otherwise indicate the plaintiff would accept installment payments from the defendant.”  Freedom , 163 A.D.3d at 633. On lender’s appeal, the Court of Appeals reversed and, agreeing with supreme court, found that the lender’s discontinuance of the first action was an “affirmative act” sufficient to deaccelerate the loan.  In so doing, the Court of Appeals in “ dopting a clear rule that will be easily understood by the parties and can be consistently applied by the courts, that where the maturity of the debt has been validly accelerated by commencement of a foreclosure action, the noteholder’s voluntary withdrawal of that action revokes the election to accelerate, absent the noteholder’s contemporaneous statement to the contrary.”  Freedom , 37 N.Y.3d at 19.   In light of the reversal, and because the Second Department decided Freedom on statute of limitations grounds only, the Court of Appeals remitted “the case for consideration of issues raised but not determined on the appeal to .”  Freedom , 37 N.Y.3d at 34.  Upon remittitur from the Court of Appeals, on October 20, 2021, the Second Department decided the issues left unresolved in its original decision, by addressing some affirmative defenses asserted by borrower in its answer, which included lender’s “lack of standing and lack of compliance with section 22 of the mortgage, which required the plaintiff to give notice of default prior to demanding payment in full” (collectively, the “Remaining Issues”). < Here =">Here"> On the Remaining Issues, the Second Department determined that lender failed to meet its burden of proof and held that “the Supreme Court should have denied those branches of the plaintiff's cross motion which were for summary judgment on the complaint insofar as asserted against the defendant, to strike his answer and affirmative defenses, and to appoint a referee, regardless of the sufficiency of the defendant's opposing papers.”  (Citation omitted.) The issue of lender’s standing (an issue that this Blog has discussed, inter alia , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> ) was addressed first.  The Court reiterated that “ here, as here, the plaintiff's standing has been raised by a defendant in a mortgage foreclosure action, the plaintiff must prove, by tender of evidence in admissible form, its standing as part of its prima facie showing on a motion for summary judgment.”  (Citations omitted.)  While in support of its cross-motion, lender submitted an affidavit of an employee of its loan servicer who made numerous averments based on her review of her employer’s records, the employee failed to identify or annex to her affidavit the relevant business records.  The Court noted that “evidence of the contents of business records is admissible only where the records themselves are introduced it is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted".  (Citations, internal quotation marks and internal brackets omitted.)  Without producing the business records with the cross-motion, the affidavit of the loan servicer’s employee was “inadmissible hearsay”.   The Court also found that “the unsworn allegations of fact contained in counsel's memorandum of law regarding counsel's physical possession of a note, either the original note or the original consolidated note, are, likewise, without probative value.  (Citations omitted.)  In light of these evidentiary shortcomings, the Court found that lender failed to “meet its prima facie burden of establishing its standing to commence this action.” The same was true with respect to lender’s compliance with the mortgage’s notice of default provision.  While the employee submitted a copy of the notice of default with her affidavit, the “statements in her affidavit regarding the mailing of the notices were derived from unproduced business records and, therefore, were inadmissible hearsay and without probative value.”  (Citation 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.

By:  Jeffrey M. Haber The SEC Giveth In our last article (posted on September 17, 2021 ( here )) discussing the SEC’s whistleblower program, we noted that the Commission has paid more than $1 billion in awards to hundreds of whistleblowers since issuing its first award in 2012. In the month that followed, the amount paid to whistleblowers increased by more than $87 million. The first award of $11.5 million (announced on September 17, 2021, here ) was paid to two whistleblowers whose information and assistance contributed to the success of an SEC enforcement action. One whistleblower received an award of nearly $7 million, while the other whistleblower received more than $4.5 million. The SEC said that the larger award was paid in recognition of the fact that the first whistleblower was the initial source that caused the SEC staff to open an investigation into hard-to-detect violations and thereafter provided substantial assistance. The SEC said that the second whistleblower, by comparison, submitted information after the investigation was already underway and had delayed reporting the information for several years after becoming aware of the wrongdoing.  “This case demonstrates the Commission’s continued commitment to rewarding individuals who provide high-quality tips, and particularly timely ones,” said Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower. The second award of $36 million (announced on September 24, 2021 ( here )) was paid to a whistleblower whose information and assistance significantly contributed to the success of an SEC enforcement action as well as actions by another federal agency. According to the SEC, the whistleblower provided crucial information to the staff of the SEC, as well as the staff of another agency, concerning an illegal scheme. Among other things, the whistleblower participated in multiple meetings and identified key documents and witnesses. As noted by the SEC, under the whistleblower program, individuals who provide critical information to other agencies may be eligible for a related action award if they are also eligible for an award in the underlying SEC action. Commenting on the award, Emily Pasquineslli stated: “Today’s whistleblower brought valuable new information to the attention of the SEC and to another federal agency, greatly assisting ongoing investigations. Whistleblowers can act as a springboard for an investigation or, like here, they can propel forward an already existing investigation.” The third award of $40 million (announced on October 15, 2021 ( here )) was paid to two whistleblowers whose information and assistance contributed to the success of an SEC enforcement action. The first whistleblower, whose information the SEC said caused the opening of the investigation and exposed difficult-to-detect violations, received an award of approximately $32 million. The first whistleblower also provided substantial assistance to the SEC staff, including identifying witnesses and helping the staff to understand complex fact patterns. The second whistleblower, who, the SEC said, submitted new information during the course of the investigation but waited several years to report the information, received an award of approximately $8 million. “These whistleblowers reported critical information that aided the Commission’s investigation and provided extensive, ongoing cooperation that helped the Commission to stop the wrongdoing and protect the capital markets,” said Emily Pasquinelli. Under the whistleblower program, the SEC can pay an award to any individual, or group of individuals, who provide “original information” about a violation of the federal securities laws. Both U.S. citizens and foreign nationals may file whistleblower claims and receive a reward. To be “original”, the information must be unknown to the SEC and derived from the whistleblower’s independent knowledge or analysis. Whistleblowers who provide “original information” that the SEC uses in furtherance of an enforcement action can recover a reward of between 10% – 30% of the total amount of money collected by the SEC when the monetary sanctions exceed $1 million. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity. here )=">here)" and="and" SEC’s="SEC’s" target="_blank" rel="noreferrer noopener" >here).=">here).">  The SEC Taketh Away In the articles that we have written about the whistleblower program, we have highlighted the payment of money to whistleblowers who provided valuable information and assistance to the Commission in the investigation of wrongdoing. As we have noted, individuals who voluntary submit high quality information that leads to the success of an enforcement action may apply for an award in that matter. The SEC encourages whistleblowers to apply for awards only where there is a connection between their tip and the charges in the enforcement action. Sometimes, however, whistleblowers abuse the system by filing multiple tips with little or no value. When that happens, pursuant to the 2020 amendments to the Whistleblower Program Rules, the SEC can prohibit abusers from receiving an award. The amendments were adopted on September 23, 2020, and became effective on December 7, 2020. New Exchange Act Rule 21F8(e) authorizes the Commission to permanently bar a claimant from the Whistleblower Program based on submissions or applications that are frivolous or fraudulent, or that otherwise hinder the effective and efficient operation of the Whistleblower Program. The Commission’s Adopting Release ( here ) defines “frivolous claims” as “those that lack any reasonable or plausible connection to the covered or related action.” On September 28, 2021, the SEC announced ( here ) that it permanently barred two individuals from the whistleblower award program, each of whom filed hundreds of frivolous award applications. According to the SEC, over the years, these individuals submitted award applications to the SEC that bore no relation to the underlying enforcement action for which they were applying. The SEC said that the filing of those applications consumed considerable staff time and resources, hindered the efficient operation of the program, and did not contribute to any successful enforcement action. The individuals were repeatedly warned to stop submitting the abusive filings but refused to do so. The permanent bar imposed in those matters apply to any pending award application from the individuals at any stage of the review process, as well as to any future award application from the individuals. Commenting on the permanent bars, Emily Pasquinelli said, “Frivolous award applications hamper our ability to efficiently process awards to meritorious whistleblowers who come forward with helpful information intended to assist law enforcement. Today’s permanent bars send an important message that frivolous award filers will not be tolerated.”