By Jeffrey M. Haber In Aybar v. Aybar , 2021 N.Y. Slip Op. 05393 (Oct. 7, 2021) ( here ), the New York Court of Appeals was asked to determine whether a foreign corporation that registers to do business in New York consents to the general jurisdiction of the State’s courts. As explained below, in a 5-2 decision, the Court held that registration under the Business Corporation Law (“BCL”) to do business in the State does not confer general jurisdiction over the corporation. Procedural History Defendant Jose A. Aybar, Jr., a New York resident, was operating a Ford Explorer on an interstate highway in Virginia. The vehicle overturned multiple times after its Goodyear tire allegedly failed, resulting in the death of three passengers and injuries to three other passengers. The surviving passengers and the representatives of the deceased passengers’ estates (“plaintiffs”) commenced an action against Aybar, Ford Motor Company (“Ford”), and The Goodyear Tire & Rubber Co. (“Goodyear”), asserting, among other things, products liability claims against Ford and Goodyear. Ford is incorporated in Delaware and maintains its principal place of business in Michigan. Goodyear is incorporated, and has its principal place of business, in Ohio. At all relevant times, Ford and Goodyear were registered with the New York Secretary of State as foreign corporations authorized to conduct business in the State and had appointed in-state agents for service of process in accordance with the BCL. Ford and Goodyear separately moved to dismiss the complaint against them pursuant to CPLR § 3211(a)(8) on the ground that New York courts lacked personal jurisdiction over them. Plaintiffs opposed both motions, arguing, inter alia , that by registering to do business in New York and appointing an in-state agent for service of process, a foreign corporation knowingly consents to general jurisdiction in the State’s courts. Supreme Court denied the motions in separate orders, concluding that New York courts could exercise general jurisdiction over Ford and Goodyear. Citing Bagdon v. Philadelphia & Reading Coal & Iron Co. , 217 N.Y. 432 (1916), the court determined that Ford and Goodyear consented to general jurisdiction by registering to do business in New York as a foreign corporation and designating a local agent for service of process. The Appellate Division, Second Department reversed the orders and granted the motions of Ford and Goodyear to dismiss the complaint as to them. See 169 A.D.3d 137, 152-153 (2d Dept. 2019) ( here ). Citing Bagdon and other authority, the Second Department agreed with the motion court that “ here has been longstanding judicial construction” that a foreign corporation’s registration to do business in New York and appointment of an in-state agent constituted consent to general jurisdiction ( id. at 147).” The court determined, however, that “ Bagdon must be understood within the historical context in which it was decided” and, in light of recent U.S. Supreme Court precedent clarifying the permissible grounds for general jurisdiction, the Second Department concluded that “it cannot be said that a corporation’s compliance with the existing business registration statutes constitutes consent to the general jurisdiction of New York courts.” Id. at 147-148. The Court of Appeals granted plaintiffs leave to appeal and affirmed the Second Department’s decision and order. The Majority Decision The sole issue before the Court was whether Ford and Goodyear consented to general jurisdiction in New York by registering to do business in the State and appointing a local agent for service of process, in compliance with the BCL (also known as “consent by registration”). The Court observed that, although the BCL requires a foreign corporation to register and designate an in-state agent for service of process to conduct business in the forum, the statute does not “condition the right to do business on consent to the general jurisdiction of New York courts or otherwise afford general jurisdiction to New York courts over foreign corporations that comply with these conditions.” 1 “A different reading would improperly ‘amend statute by adding words that are not there<,> ’ 2 and would impermissibly ‘read into a statute a provision which the egislature did not see fit to enact<,> ’” 3 said Judge Singas, the author of the majority decision. “Accordingly,” concluded the Court, “a foreign corporation’s registration to do business and designation of an agent for service of process in New York does not constitute consent to general jurisdiction under the Business Corporation Law’s plain terms.” 4 In reaching this decision, the majority held that plaintiffs’ interpretation of Bagdon v. Philadelphia & Reading Coal & Iron Co. , the 1916 Court of Appeals decision on which they relied, was “incorrect”. 5 “ hen viewed in the context of the controlling jurisprudence of the time,” Judge Singas observed, “ Bagdon’s holding was far narrower than plaintiffs urge.” 6 Properly understood, said Judge Singas, Bagdon “was limited to the effect of service of process to which a foreign corporation consented; did not determine that a foreign corporation consented to general jurisdiction by registering to do business and designating an agent for service of process.” 7 The majority recounted how the U.S. Supreme Court has shaped the rules governing the exercise of personal jurisdiction, observing that “specific jurisdiction has rapidly expanded” over the years, while the reach of general jurisdiction is relegated “to a narrow class of defendants.” 8 Today, “ court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the tate are so ‘continuous and systematic’ as to render them essentially at home in the forum tate.” 9 “With respect to a corporation, the place of incorporation and principal place of business are paradigm … bases for general jurisdiction” because these are places where a corporation “is fairly regarded as at home.” 10 Only in “exceptional cases” may “a corporation’s operations in a forum other than its formal place of incorporation or principal place of business [] be so substantial and of such a nature as to render the corporation at home in that tate” for the purposes of general jurisdiction. 11 Daimler="Daimler" here.=">here."> The majority declined to address “whether consent-by-registration, if it existed in New York, would comport with federal due process under Daimler <,> ” noting that it decision “rest solely on New York law grounds.” 12 The Dissent Opinion Judge Wilson wrote a lengthy dissent, in which Judge Rivera concurred. The dissent criticized the majority’s interpretation of Bagdon . Specifically, the dissent found that “consent the analytical lynchpin of Bagdon .” 13 In historical context, explained Judge Wilson, consent to service of process was the equivalent of consent to the jurisdiction of the courts.  The dissent chastised the majority for transposing a modern meaning to the word “service” when the historical meaning was different and broader. In context, said the dissent, it was understood that “imposing on foreign corporations a requirement to designate an agent for ‘service,’” meant that the corporation would be “subject … to jurisdiction by consent.” 14 “When one understands the history of corporate structure and liability predating Bagdon ,” explained Judge Wilson, “the majority’s attempt to brush it aside as a case about the ‘effect’ of service falls apart.” 15 “Until today,” said the dissent, “ Bagdon’s rule of general jurisdiction by consent through registration was ‘well settled’”. 16 For more than a century, continued Jude Wilson, the Court “has correctly interpreted our legislature as having ensured that residents of New York, injured by corporations that had registered to do business here and chosen to take advantage of our laws, could seek judicial relief here, even if the injury took place somewhere else. Query what offends fair play and substantial justice.” 17 Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP business litigation attorneys. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Footnotes Slip Op. at *2. Id. (quoting American Tr. Ins. Co. v. Sartor , 3 N.Y.3d 71, 76 (2004). Id. (quoting Matter of Chemical Specialties Mfrs. Assn. v. Jorling , 85 N.Y.2d 382, 394 (1995) (internal quotation marks and citation omitted). Id. (citations omitted) Id. at *3. Id. Id. Id. at *6-*7. General jurisdiction permits a court to exercise jurisdiction over a defendant in connection with a suit arising from events occurring anywhere in the world, whereas specific jurisdiction permits a court to exercise jurisdiction only where the suit arises out of or relates to the defendant’s contacts with the forum state. See Bristol-Myers Squibb Co. v. Superior Court of Cal., San Francisco Cty. , 582 US __, __, 137 S.Ct. 1773, 1780 (2017). Goodyear Dunlop Tires Operations, S.A. v. Brown , 564 U.S. 915, 919 (2011); Daimler AG v. Bauman , 571 U.S. 117,122 (2014). Daimler , 571 U.S. at 137 (internal quotation marks, brackets, and citations omitted). Id. at 139 n.19. Slip Op. at *7. Id. at *10. Id. at *11. Id. at *12. Id. at *17 (citations omitted). Id.

Melville, NY ( Law Firm Newswire ) October 15, 2021 -  Freiberger Haber LLP is pleased to announce that co-founding partners, Jonathan H. Freiberger and Jeffrey M. Haber, have been named by Super Lawyers magazine to be among the top lawyers in the New York metropolitan area. This is Mr. Freiberger’s second, and Mr. Haber’s tenth, consecutive year of selection. Both Messrs. Freiberger and Haber were recognized for their work in business litigation. Super Lawyers Magazine® is an affiliate of Thomson Reuters. It recognizes attorneys who have distinguished themselves by both a high degree of professional achievement and by peer recognition. Each year no more than 5 percent of lawyers are recognized as Super Lawyers by the magazine. The annual selection involves a survey of lawyers, independent research evaluation of candidates, and peer reviews within each practice area. The magazine publishes its lists nationwide, as well as in leading city and regional magazines and newspapers across the country. A description of the selection process can be found on the Super Lawyers website. About Freiberger Haber LLP Located in New York City and Melville, Long Island, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals in a broad range of complex business, construction and commercial litigation matters. Founded by Jonathan H. Freiberger and Jeffrey M. Haber, Freiberger Haber leverages more than 50 years of combined experience to deliver sophisticated and creative representation to its clients. The firm’s approach is results oriented and client-centric, providing clients with the sophisticated counsel expected from larger firms with the flexibility and agility of a small firm. ATTORNEY ADVERTISING. © 2021 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 425 Broadhollow Road, Suite 416, Melville, New York 11747, (631) 282-8985. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact Jeffrey M. Haber Or Jonathan H. Freiberger Melville Office (Main Office): 425 Broadhollow Road, Suite 416 Melville, New York 11747 Tel: (631) 282-8985 Fax: (631) 390-6944

By Jonathan H. Freiberger Many contracts contain provisions requiring that in the event of a default, one party must provide to the other notice of the purported default and an opportunity to cure before the valuable rights under the contract can be terminated.  In general “ he purpose of a Notice to Cure is to specifically apprise the of claimed defaults in its obligations under the and of the forfeiture and termination of the if the claimed default is not cured within a set period of time.”  Filmtrucks, Inc. v. Express Industries and Terminal Corp. , 127 A.D.2d 509, 510 (1 st Dep’t 1987) (addressing a notice to cure under a lease).  “A termination that does not comply with contractual requirements is ineffectual.”  Process America, Inc. v. Cynergy Holdings, LLC , 2014 WL 3844626, *11 (E.D.N.Y. April 30, 2014), aff’d , 839 F3d 125 (2 nd Cir. 2016). Default/notice-to-cure provisions are frequently found in construction contracts.  Such was the case in East Empire Construction Inc. v. Borough Construction Group LLC , decided by the Appellate Division, First Department, on October 12, 2021.  The Court described the import of East Empire as “giv us the opportunity to address the strict nature of provisions and the very rare instances when they can be ignored.” By way of brief background, the plaintiff in East Empire was a steel subcontractor that was to, inter alia , “supply and install all steel needed for ‘Support of Excavation’ and for construction of the structural steel frame of the new building, and to secure and pay for the crane permits for installation.”  The defendant was the general contractor for the subject residential development project. The relevant subcontract provisions as articulated by the Court, are as follows: Section 3.4 of the subcontract provides, “If the Subcontractor defaults or neglects to carry out the Work ... fails within five working days after receipt of written notice from the Contractor to commence and continue correction of such default or neglect with diligence and promptness, the Contractor may ... make good such deficiencies and may deduct the reasonable cost thereof from the payments then or thereafter due the Subcontractor.” Section 7.2.1 provides, “If the Subcontractor repeatedly fails or neglects to carry out the Work in accordance with the Subcontract Documents or otherwise fails to perform in accordance with this Subcontract and fails within a ten-day period after receipt of written notice to commence and continue correction of such default or neglect with diligence and promptness, the Contractor may by written notice<,> ... terminate the Subcontract and finish the Subcontractor’s Work by whatever method the Contractor may deem expedient.” (Brackets and ellipses in original.)  In addition, a rider to the subcontract “provided the owner (as opposed to Borough ) with a shorter notice period.”  Thus, the rider provided, in part, that “ f for any reason the Subcontractor fails to perform to the degree and standards set forth by the Owner, he will be issued Notice to Cure hould the Subcontractor fail to rectify and remedy the situation within that timeframe, the Owner will remove Subcontractor from the Project….” In May of 2016, defendant sent plaintiff a “written notice of termination” directing that plaintiff “cease work immediately” and that “the subcontract would be terminated in three days from the date of the letter and that plaintiff was in default” of numerous provisions of the subcontract.”  While the notice was cancelled and plaintiff returned to the job, one week later an identical notice of termination was sent to plaintiff in which plaintiff was directed to “cease operations.”   Plaintiff commenced action against , inter alia , defendant general contractor asserting a claim for breaching the subcontract by “improperly terminating plaintiff from the project on May 16, 2016 without good cause and without providing plaintiff with the appropriate notice and opportunity to cure the alleged default….”  Plaintiff moved for summary judgment “on the grounds that did not give plaintiff the chance to ‘commence and continue correction’ of its alleged breach, as required by the subcontract.”  Plaintiff further argued, inter alia , that the record failed to show “that the alleged defects were impossible to cure or amounted to a repudiation of the subcontract so as to render futile a notice-to-cure….”  In response, defendant alleged “persistent, incurable acts of negligence and numerous safety violations and delays by plaintiff” caused defendant’s engineer to shut down the job. The First Department affirmed supreme court’s grant of summary judgment to plaintiff subcontractor.  In so doing, the Court noted that termination of the subcontract required compliance with section 7.2.1 of the subcontract and, accordingly, before termination “plaintiff first be given the opportunity to ‘commence and continue correction’ of the defaults within a 10-day period from the termination notice.  The Court also noted that the cure provisions in the rider, which permitted the owner (as opposed to defendant) to terminate plaintiff if noticed defaults were not cured within 72 hours, were inapplicable to defendant. Thus, the Court held that: Our case law is clear that a party’s termination is ineffective where the relevant contract provides for a notice-to-cure and notice is not provided. This approach gives effect to the principle that, generally, where contracting parties agree on a termination procedure, the procedure will be enforced as written. (Citations omitted.) The Court also discussed “limited circumstances” where otherwise required notices to cure may not be necessary and include, among others, situations where “the other party expressly repudiates the contract or abandons performance” (numerous citations omitted) or where “the breach is impossible to cure, or so substantial that it ‘undermines the entire contractual relationship such that it cannot be cured’” (numerous 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 prior articles, we discussed the impact a disclaimer clause in a contract can have on a fraud claim. See , e,g. , here . Namely, a disclaimer clause can preclude a fraud claim when (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party. 1 Disclaimer clauses often are worded as “no reliance” clauses. In a such a clause, the parties represent that they are not relying on any extra-contractual representations. Disclaimer clauses may also include a release of claims. Generally, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.” 2 If “the language of a release is clear and unambiguous, the signing of a release is a ‘jural act’ binding on the parties.” 3 A release may be invalidated when the traditional bases for setting aside written agreements exist, namely, duress, illegality, fraud, or mutual mistake. 4 Often releases are broad in scope and “may encompass unknown claims, including unknown fraud claim s, if the parties so intend and the agreement is fairly made.”5 When that occurs, a “party that releases a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.”6 As the New York Court of Appeals noted, “Were this not the case, no party could ever settle a fraud claim with any finality.”7 A plaintiff seeking to invalidate a release due to fraudulent inducement must “establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” 8 In addition to disclaimer (or no reliance) clauses, contracts can include waiver of information provisions. These provisions are used by parties who consider themselves fully aware of the risks involved in the transaction they are about to enter. The provision waives any claim one party may have against the other, if the other knows of material information about the transaction but does not disclose it.  Waiver of information provisions are often found in securities transactions, as in Silver Point Capital Fund, L.P. v Riviera Resources, Inc. , 2021 N.Y. Slip Op. 05312 (1st Dept. Oct. 5, 2021) ( here ), the case we examine in this article. Typically, the transaction concerns (a) a sophisticated investor – i.e. , the buyer, (b) who acknowledges that the seller may possess material, non-public information that will not be disclosed to the buyer, and (c) agrees to waive any claim he/she may have if the transaction blows up. Sophisticated parties often agree to these provisions because of their desire to do the deal. With the foregoing principles in mind, we examine Silver Point Capital Fund, L.P. v Riviera Resources, Inc. Silver Point involved the sale of Silver Point’s shares to Riviera. 9 Pursuant to the Stock Repurchase Agreement (the “Repurchase Agreement”) the parties signed, Silver Point agreed to sell all of its shares to Riviera for $10.50 per share (totaling $18,680,875.50), which was a discount of approximately 7% to the then-prevailing market price. In connection with the transaction, the parties entered into a separate letter agreement (the “Letter Agreement”), which was annexed to the Repurchase Agreement as an exhibit. The Letter Agreement included a waiver of information provision that provided, in pertinent part: The Seller hereby acknowledges that it is aware that the Buyer may have access to certain material, nonpublic information regarding the Buyer, its financial condition, results of operations, businesses, properties, assets, liabilities, management, projections, appraisals, plans and prospects (the “Information”). Any such Information may be indicative of a value of the Common Stock that is substantially different than the purchase price reflected in the Purchase. * * * The Seller acknowledges that the Buyer is relying upon this letter in engaging in the Purchase and would not engage in the Purchase in the absence of this letter. Notwithstanding the Buyer’s possession of the Information and the absence of disclosure thereof to the Seller, the Seller wishes to enter into the proposed transaction.  The Letter Agreement also contained a broad release that, in pertinent part, released all claims “(including, but not limited to, any and all claims alleging violations of federal or state securities laws, common-law fraud or deceit, breach of fiduciary duty, negligence or otherwise) … against the Buyer or any of its affiliates, … which are based upon or arise from the existence or substance of the Information and the fact that the Information has not been disclosed to the Seller.” 10 Silver Point alleged that it signed the Letter Agreement at Riviera’s behest because Riviera was about to announce its earnings. Silver Point claimed that it did not release Riviera from any claims because the definition of Information did not include the sale of the Hugoton Basin properties – one of Riviera’s major assets.  Silver Point maintained that during the negotiation and execution of the Repurchase Agreement, Riviera was secretly receiving bids on a “blockbuster $295 million asset sale of its Hugoton Basin properties, which represented approximately 45% of the Company’s market capitalization (the “$295 Million Transaction”).” Silver Point claimed that no public disclosures as to the $295 Million Transaction were made prior to its announcement, when Riviera publicly revealed that the proceeds of the transaction would be distributed to shareholders on a tax-free basis by way of a $260 million distribution ( i.e. , $4.25 per share). Shortly after the announcement of the $295 Million Transaction, Riviera’s stock price surged approximately 30% to $13.50 per share.  Because of the materiality of the Hugoton Basin properties to Riviera, Silver Point contended that it could not have been the type of property or information that was included in the waiver of information clause. If it were, Silver Point alleged that it would never have entered into the Repurchase Agreement or signed the Letter Agreement. Silver Point brought suit, asserting causes of action for (i) common law fraud , (ii) fraudulent inducement, (iii) fraudulent concealment, and (iv) unjust enrichment. Riviera moved to dismiss. The motion court granted the motion. The motion court held that Silver Point’s claims were barred by the express terms of the Letter Agreement.  First, the court found that the release was broad enough, and specific enough, to cover the fraud claims alleged by Silver Point.  Second, the court found that the waiver of information provision directly addressed Silver Point’s claims: the “Letter expressly acknowledged that Riviera may have material nonpublic information regarding its properties, plans and prospects and that ‘such Information may be indicative of a value of the Common Stock that is substantially different than the purchase price reflected in the Purchase.’” The motion court explained that contrary to Silver Point’s argument, the definition of “Information” “clearly include ‘properties’ and nothing in the … Letter carve out major sales of Riviera’s properties.” The motion court observed that “ f the parties intended to carve-out major sales of properties, they could have negotiated for that exclusion.” They did not. Thus, “ aving failed to do so, they cannot ask this court to rewrite their agreement.” The motion court also rejected Silver Point’s argument that the Letter Agreement was induced by fraud “because Riviera allegedly said the letter was needed only because of its earnings call.” The motion court said that “this is not a ‘separate fraud from the subject of the release’ because the … Letter expressly disclaim any such limitations and, indeed, expressly contemplate the fact that Riviera may have ‘material, nonpublic information regarding ... properties, assets, ... projections ... plans and prospects.’” “In other words,” concluded the court, “the fraud described in the Amended Complaint, that Riviera withheld information relevant to the Stock Purchase transaction, ‘falls squarely within the scope of the release,’ and is, thus, barred by its express terms.” 11 The motion court also rejected Silver Point’s argument that the disclaimer was “not sufficiently specific to the particular misrepresentation or omission alleged” in the amended complaint, “and because Riviera’s alleged misrepresentation or omission concerned facts peculiarly within Riviera’s knowledge. The motion court reasoned that the Letter Agreement “expressly indicated that claims based on Information were barred and the definition of Information included Riviera’s properties.” With regard to Silver Point’s fraud, fraudulent inducement and fraudulent concealment claims – which were based on the fact that Riviera did not disclose that it was in the process of negotiating the sale of its Hugoton Basin properties, which resulted in the $295 Million Transaction and the resulting $260 million distribution – the motion court noted that even if they were not barred by the Letter Agreement, they would still fail. The motion court held that Silver Point could not show that it justifiably relied on any omission by Riviera in its alleged failure to disclose the sale of the Hugoton Properties.  “Moreover,” said the motion court, “contrary to Silver Point’s arguments, … there was neither a fiduciary duty to provide such material non-public information …, nor does the special facts doctrine apply.”  As to the former, the motion court found that the lack of an alleged breach of fiduciary was “telling”. Under New York law, when sophisticated investors negotiate against a fiduciary and understand that a fiduciary is acting in its own interest, they cannot reasonably rely on the fiduciary to disclose every material fact. 12 The motion court explained:  Silver Point is a sophisticated group of investors, represented by counsel, selling stock worth millions of dollars. It is simply not credible to believe — and nor does it allege — that it believed that Riviera was acting in Silver Point’s interest (and not its own) when it reached out to Silver Point to propose the stock repurchase. Any reliance on such a representation, even if made, would be wholly unreasonable. The parties negotiated an arms length transaction. No fiduciary duty attached. As to the latter, because there was no fiduciary duty between the parties, the special facts doctrine did not apply, 13 unless Silver Point could show that Riviera possessed superior knowledge about the transaction. 14 To show superior knowledge, the aggrieved party must allege that: (1) the information was “peculiarly within the knowledge” of the defendant; and (2) the information could not have been discovered “through the exercise of ordinary intelligence”. 15 In other words, “if the other party has the means available to him of knowing ... he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentation.” 16 At a minimum, a party has a “duty to inquire”. The motion court held that it did “not appear that Silver Point did so here.” 17 On appeal, the Appellate Division, First Department unanimously affirmed. The Court held that “Plaintiffs’ fraud-based claims barred by the release in the . 18 The Court found that “ nformation regarding a planned asset sale and distribution, clearly and unambiguously within the scope of th release.” 19 The Court also held that the waiver of information provision in the Letter Agreement barred Silver Point’s claims: “The Letter Agreement sets forth the types of information that were potentially not being disclosed in sufficient detail to enable plaintiffs to make an informed decision as to whether or not to execute the release.” 20 The Court further held that “Plaintiffs’ fraudulent inducement claim fail because plaintiffs did not allege a ‘separate fraud from the subject of the release’ and because they could not have justifiably relied on the alleged oral misrepresentation in view of the express no-additional-representations clause in the Letter Agreement.” 21 Finally, the Court held that the special facts doctrine and the “peculiar knowledge” doctrine did not apply. 22 The Court explained that plaintiffs were “sophisticated parties that were aware that they were not provided with full information but nonetheless agreed to go forward with a transaction without either demanding access to the omitted information or assurances in the form of representations and warranties.” 23 Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. References: Basis Yield Alpha Fund v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty Corp. v Harris , 5 N.Y.2d 317, 323 (1959); MBIA Ins. Corp. v. Merrill Lynch , 81 A.D.3d 419 (1st Dept. 2011). Global Mins. & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). Id. Id. Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 276 (2011) (quotation and citations omitted). Id . See also Avnet, Inc. v. Deloitte Consulting LLP , 187 A.D.3d 430 (1st Dept. 2020). Centro , 17 N.Y.3d at 276. Global Mins. , 35 A.D.3d at 98. Riviera is a publicly traded corporation. Silver Point Capital Fund, L.P. and Silver Point Capital Offshore Master Fund, L.P. (together, “Silver Point”) are hedge funds that collectively held 1,779,131 shares of Riviera common stock. The Letter Agreement defined Information as material, nonpublic information regarding the Buyer, its financial condition, results of operations, businesses, properties, assets, liabilities, management, projections, appraisals, plans and prospects. Quoting Centro , 17 N.Y.3d at 277. Pappas v. Tzolis , 20 N.Y.3d 228, 232 (2012) (“ here a principal and a fiduciary are sophisticated entities and their relationship is not one of trust, the principal cannot reasonably rely on the fiduciary without making additional inquiry”); Centro , 17 N.Y.3d at 278. Jana L. v. West 129th Street Realty Corp. , 22 A.D.3d 274, 277 (1st Dept. 2005). Swersky v. Dreyer and Traub , 219 A.D.2d 321 (1st Dept. 1996). Jana L. , 22 A.D.3d at 278 (quotation marks omitted). Schumaker v. Mather , 133 N.Y. 590, 596 (1892). Jana L. , supra . Slip Op. at *1. Id. Id. Id. (citing Avnet , 187 A.D.3d at 431-432). Id. Id. (citations omitted).

By:  Jeffrey M. Haber As a general matter, when a contract fails to conform to the agreement between the parties due to the mutual mistake of the parties however induced, or of the mistake of one party and fraud of the other, a court will reform the contract so as to make it conform to the actual agreement between the parties. 1 The mutual mistake must be material ( i.e. , it must involve a “fundamental assumption” of the contract). 2 However, it does not mean that the mistake would have caused the parties not to enter into the contract had they known of it. 3 Rather, a material mistake is one which “vitally” affects a fact or facts on the basis of which the parties contracted. 4 Reformation is an equitable form of relief. The purpose of reformation is not to “alleviat a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties.” 5 The burden is high to obtain contract reformation. The party demanding it “‘must establish his right to such relief by clear, positive and convincing evidence.’” 6 Therefore, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.” 7 Only by satisfying this burden can the party seeking reformation “overcome the heavy presumption” that the contract embodies the parties’ true intent. 8 Sometimes reformation is based upon a scrivener’s error ( i.e. , an unintentional mistake in the drafting of a contract). When a scrivener’s error is the basis for reformation, the party demanding reformation must prove “a prior agreement between parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement.” 9 The parties’ course of performance under the contract, or their practical interpretation of a contract for any considerable period of time, is considered to be the most persuasive evidence of the intention of the parties. 10 The foregoing principles were at issue in Empery Asset Master, Ltd. v. AIT Therapeutics, Inc. , 2021 N.Y. Slip Op. 05163 (1st Dept. Sept. 30, 2021) ( here ). Empery involved warrants to purchase shares of defendant’s stock. Plaintiffs were holders of the warrants. The warrants at issue contained antidilution provisions, which mandated that defendant adjust the warrant exercise price and share amount in the event it issued shares of stock to other parties for consideration below the then exercise price of plaintiffs’ warrants. Plaintiffs alleged that defendant issued securities to new investors pursuant a Security Purchase Agreement (the “SPA”). Plaintiffs contended that the transaction diluted their investment, and that the certificate of adjustment defendant issued was incorrect as to the exercise price and failed to reflect a change in the number of warrant shares arising from the transaction. Plaintiffs alleged that defendant breached a section of the warrants – Section 3(d) – by issuing warrants to third parties in accordance with the SPA. Plaintiffs alleged that the issuance triggered defendant’s obligation to provide them with an adjustment to the exercise price. Defendant moved to dismiss. The motion court denied the motion. On appeal, the Appellate Division, First Department affirmed the denial of defendant’s motion to dismiss this claim. Empery Asset Master, Ltd v. AIT Therapeutics, Inc.,  179 A.D.3d 443  (1st Dept. 2020). The First Department also held that plaintiffs stated a cause of action for reformation of Section 3(b) of the warrants. Plaintiffs alleged that the relevant clause, which provided for the increase of the number of shares subject to plaintiffs’ option after a dilutive transaction, misstated the parties’ agreement by limiting the increase of the number of shares to an issuance of stock described in the “immediately preceding sentence” — which deals with the issuance of stock for no consideration — rather than the “immediately preceding sentences,” which would include the issuance of stock for a price lower than the exercise price. In this regard, the First Department held that plaintiffs sufficiently alleged that the parties intended for the warrants to permit the increase of plaintiffs’ shares under both circumstances. Following discovery, defendant moved for summary judgment on the same causes of action. The motion court denied the motion. Defendant appealed. The First Department affirmed. Defendant contended that Section 3(b) of the warrants was unambiguous and must be applied as written. Under the rules of contract interpretation , a written agreement that is clear and unambiguous on its face must be enforced according to the plain meaning of its terms. 11 In other words, a contract that “on its face is reasonably susceptible of only one meaning” must be enforced as written. Notably, parol (or extrinsic) evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear and unambiguous. 13 Whether an ambiguity exists 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.” 14 Using the foregoing, the First Department rejected defendant’s argument. The Court noted that the section at issue, when read as a whole did not support the view that section was clear and unambiguous:  The third sentence of section 3(b) begins, “Upon each such adjustment of the Exercise Price pursuant to the immediately preceding sentence …” However, the immediately preceding sentence (the second sentence) says nothing about adjusting the Exercise Price; instead, it is the first sentence of section 3(b) that addresses adjusting the Exercise Price. Moreover, said the Court, “if section 3(b) unambiguously supported defendant, we would have granted its motion to dismiss, rather than affirming the denial of the motion.” Addressing the reformation cause of action, the Court held that there were issues of fact precluding summary judgment on the matter. The Court rejected defendant’s contention that there was no evidence that plaintiffs — as opposed to nonparty Deerfield Special Situations Fund, LP, the lead investor for the relevant capital raise by defendant — reached an agreement with defendant that was not reflected in the warrant. Accordingly, the Court held that it could not “conclude, as a matter of law, that a reasonable person reviewing a 20-page warrant and a 42-plus-page Securities Purchase and Registration Rights Agreement would have realized that the word ‘sentence’ (in ‘immediately preceding sentence’) should have been ‘sentences.’” 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: Janowitz v. 25-30 120th St. , 75 A.D.2d 203, 214 (2d Dept. 1980). Id. (quoting 13 Williston, Contracts <3d ed> , § 1544). Id. Id. (citing 13 Williston, Contracts <3d ed> , § 1544, at 96). George Backer Mgt. Corp. v. Acme Quilting Co. , 46 N.Y.2d 211, 219 (1978). Schultz v. 400 Coop. Corp. , 292 A.D.2d 16, 19 (1st Dept. 2002) (quoting, Amend v. Hurley , 293 N.Y. 587, 595 (1944)). Id. Id. US Bank N.A. v. Lieberman , 98 A.D.3d 422, 424 (1st Dept. 2012). Gulf Ins. Co. v Transatlantic Reins. Co. , 69 A.D.3d 71, 85 (1st Dept. 2009). See , e.g. , W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990). 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). Kass v. Kass , 91 N.Y.2d 554, 566 (1998) (quoting, Atwater & Co. v. Panama R.R. Co. , 246 N.Y. 519, 524 (1927)).

By Jonathan H. Freiberger In this Blog, we frequently write about cases and developments related to mortgage foreclosure, in general, and RPAPL 1304, specifically.  Indeed, in our September 24, 2021, blog < here =">here"> we discussed the importance of submitting sufficient proof of compliance with RPAPL 1304 on a motion for summary judgment and hyperlinked to prior related articles. By way of brief background, and as set forth in prior articles, in general, a foreclosing mortgagee demonstrates prima facie entitlement to judgment as a matter of law by “produc the mortgage, the unpaid note, and evidence of default.”  M&T Bank v. Barter , 186 A.D.3d 698, 700 (2 nd Dep’t 2020) (citations omitted).  In and after 2006, the New York State Legislature passed legislation to protect homeowners in “response to the subprime lending crisis and the epidemic of foreclosures at that time.”  HSBC Bank US, Nat. Assoc. v. Ozcan , 154 A.D.3d 822, 825 (2 nd Dep’t 2017) (citation omitted).  Some such measures required a lender, under certain circumstances, to provide notices to borrowers in the context of anticipated and pending litigation.  See, e.g., RPAPL 1303 and 1304 . RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to certain loans, 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 provide 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.  The failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint ( see, e.g., U.S. Bank N.A. v. Beymer , 161 A.D.3d 543 (1 st Dep’t 2018)) when the issue is raised as an affirmative defense by the borrower ( see, e.g., One West Bank, FSB v. Rosenberg , 189 A.D.3d 1600, 1602-3 (2 nd Dep’t 2020) (citation omitted)).  Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.”  U.S. Bank N.A. v. Taormina , 187 A.D.3d 1095, 1096 (2 nd Dep’t 2020) (citations omitted).  When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case.  Bank of America, N.A. v. Wheatly , 158 A.D.3d 736 (2 nd Dep’t 2018) (citations omitted).   On September 29, 2021, the Second Department decided Wells Fargo Bank, N.A. v. Yapkowitz .  In describing the salient issue in Yapkowitz and its holding, the Second Department stated: This appeal presents an issue of first impression before this Court as to whether a plaintiff in a foreclosure action may satisfy the requirements of RPAPL 1304 by mailing a 90–day notice jointly addressed to two or more borrowers. We hold that this practice is insufficient to satisfy the requirements of RPAPL 1304, and that the plaintiff is required to mail a 90–day notice addressed to each borrower in separate envelopes as a condition precedent to commencing the foreclosure action. The facts of Yapkowitz are simplified herein for discussion purposes.  Briefly stated, the borrowers in Yapkowitz were a married couple that defaulted on a loan secured by a mortgage on their home.  [Eds. Note: some facts were obtained from the underlying supreme court decision < here =">here"> .]  Lender sent to each borrower a contractual 30-day notice of default and opportunity to cure even though the loan documents provided that notice to one borrower is deemed notice to all borrowers.  After some loan assignments and changes in servicing agents, lender commenced action against borrowers.  As expected, one affirmative defense in borrowers’ answer was lender’s failure to comply with RPAPL 1304.  Lender moved for summary judgment and: n support of the motion, the submitted, among other things, a copy of a 90–day notice pursuant to RPAPL 1304 sent by via certified and first-class mail to the address, and a certified mail receipt for the 90–day notice signed for by “F. Yapkowitz.” The 90–day notice was jointly addressed to both of the .  In opposition, borrowers argued that they did not recall receiving or reading the 90-day notice or whether husband ever showed the notice to wife.  Counsel also argued that since lender sent one joint notice to both borrowers in a single envelope, lender failed to comply with the RPAPL 1304 condition precedent to commencing a foreclosure action.   Supreme court denied the motion due to the insufficiency of evidence regarding the mailing procedures utilized for the 90-day notice.  [Eds. Note: this issue has been treated by this Blog, inter alia , < here =">here"> , < here =">here"> and < here =">here"> .]  At a subsequent pretrial conference, the parties agreed to address the issue of compliance with RPAPL 1304 through written submissions to the court.  In the resulting decision, supreme court found that the lender’s affiant’s knowledge and averments regarding lender’s mailing practices and procedures were adequate (in contrast to the submissions made on the summary judgment), however, it determined that “the plaintiff failed to establish its strict compliance with RPAPL 1304, which ‘requires a separate notice to each borrower in a separate envelope’ ( Wells Fargo Bank, N.A. v. Yapkowitz, 59 Misc.3d 1227 , 2018 N.Y. Slip Op 50726 , *8 < here =">here"> ), and thus, the foreclosure action must be dismissed.”  (Hyperlink added.)    On lender’s appeal, the Second Department affirmed and, inter alia , dismissed lender’s complaint.  After analyzing several trial court level decisions on the issue, the Court explained its holding requiring separate mailings for each borrower.  First, the Court, in analyzing the language of RPAPL 1304, contrasted subsections 1 and 2 and stated, inter alia : RPAPL 1304(1) provides that giving “notice to the borrower ” (emphasis added), in the singular, at least 90 days prior to the commencement of the foreclosure action, is a prerequisite to commencement of the action “against the borrower, or borrowers ” ( id. ). By contrast, RPAPL 1304(2), which sets forth the mailing requirements for the 90–day notice, contains no reference to “borrowers” in the plural. RPAPL 1304(2) requires the 90–day notice to be sent by registered or certified mail, and also by first-class mail, to both (1) “the last known address of the borrower” and (2) “the residence that is the subject of the mortgage” ( id. ). The Court also rejected lender’s assertion that the borrower receiving the jointly addressed notice would likely advise the other borrower of the contents of same.  The Court noted that such a transfer of information may not occur if there “is a breakdown of communications between the borrowers.”  The Court also recognized that relying on one borrower to communicate the substance of the notice to the other would “subvert the legislative purpose of the statute to shift the burden of providing notice to each borrower from the lender or mortgage loan servicer to one of the borrowers who happens to sign for the envelope.”  The Court further recognized that: Since the Legislature imposed strict mailing requirements aimed at ensuring notice and documenting the delivery of the 90–day notice, it would be difficult to imagine why the Legislature would not also require the simple measure of separately addressing a 90–day notice to each of the borrowers. Moreover, while “ otice is considered given as of the date it is mailed” (RPAPL 1304<2> ), that provision cannot be complied with unless and until each notice “required by this section” ( id. ) has been sent “in a separate envelope from any other mailing or notice” ( id. ). Thus, notice cannot be deemed given until the date of mailing, in a separate envelope, of each 90–day “notice to the borrower” ( id. § 1304<1> ), which we read to mean notice to each borrower. Accordingly, “notice cannot be deemed given until the date of mailing, in a separate envelope, of each 90–day “notice to the borrower” ( id. § 1304<1> ), which we read to mean notice to each borrower. Finally, the Court recognized that permitting “a single notice jointly addressed to two or more borrowers and mailed in a single envelope to serve in lieu of a separately mailed notice to each borrower would transform the requisite standard of compliance from ‘strict compliance’ to ‘substantial compliance.’” In light of its analysis the Second Department concluded that supreme court “properly denied the plaintiff’s motion, inter alia, for summary judgment on the complaint and properly dismissed the complaint insofar as asserted against the defendants.” It should be noted that there was a lengthy dissent by one Justice, who “respectfully depart company from colleagues as to how the language of RPAPL 1304 should be interpreted where, as here, there are two borrowers living at the residence that is the subject of the mortgage. 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 Litigation can be a long and drawn-out process. Indeed, it is not uncommon for lawsuits to go on for years before they reach their conclusion. Sometimes during the pendency of a lawsuit, one or more of the parties dies. When that happens, the court is divested of jurisdiction to conduct proceedings in the action until a proper substitution has been made pursuant to CPLR § 1015(a). 1 Any order rendered after the death of a party and before the substitution of a legal representative is void. 2 CPLR § 1021 governs the procedure for the substitution of a party, whether due to death or otherwise, and CPLR § 1022 governs the extensions of time necessary to tend to the procedural steps involved with the substitution of a party. This Blog examined the foregoing principles here . In Thomas v. Rubin , 2021 N.Y. Slip Op. 05112 (1st Dept. Sept. 28, 2021) ( here ), the Appellate Division, First Department ruled that it lacked jurisdiction to hear the appeal because there was no substitution for the deceased defendant. Thomas stemmed from allegations of sexual assault and abuse. The order on appeal concerned Plaintiff’s request to proceed pseudonymously and to prevent Defendants from revealing her identity in the litigation. Relevant to the appeal, are the following facts. Defendant Ashley Duduk (“Duduk”) appeared in the action by answering the complaint in October 2019. Defendant Howard Rubin Duduk maintained in his brief on appeal that Duduk died in or around July 2020.  The suggestion of death was apparently the first time a court learned of Duduk’s demise. According to the First Department, the record was devoid of any evidence that Duduk had died. As there was no evidence of Duduk’s death, there was no record that a substitution had been made for her.  The motion court issued its order, which was entered on March 18, 2021, after Duduk’s death. Since the motion court’s order was issued after Diduk’s death, the Court dismissed the appeal because it was without jurisdiction: “Since the order was issued after a defendant’s death and without proper substitution, the appeal must be dismissed as we do not have jurisdiction to hear and determine the appeal.” 3 Although not stated, under the authorities discussed herein, since any order rendered after the death of a party and before the substitution of a legal representative is void, then the motion’s court’s order should be a nullity. 4 [Ed. Note: The First Department noted that “ ere to reach the merits , would agree with Supreme Court.”] 5 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 Singer v. Riskin , 32 A.D.3d 839, 840 (2d Dept. 2006); Faraone v. National Academy of Tel. Arts & Sciences , 296 A.D.2d 349, 350 (1st Dept. 2002), Cueller v. Betanes Food Corp. , 24 A.D.3d 201 (1st Dept. 2005); Bluestein v. City of New York , 280 A.D.2d 506 (2d Dept. 2001). Slip Op. at *1 (citation omitted). Bluestein , 280 A.D.2d at 506. Id.

By:  Jeffrey M. Haber Default judgments are a part of litigation. In New York, a default judgment may be entered “ hen a defendant has failed to appear, plead or proceed to trial of an action reached and called for trial, or when the court orders a dismissal for any other neglect to proceed, ….” 1 The consequences of a default can be severe. Among other things, it allows the prevailing party to enforce the judgment using all the tools available under Article 52 of the CPLR.  However, the party against whom judgment is entered can seek to vacate the judgment, when he/she can demonstrate, among other things, “fraud, misrepresentation, or other misconduct of an adverse party.” CPLR § 5015. Although there is no express time limit for seeking relief from a judgment under CPLR § 5015 (a)(3), a party is required to make the motion within a reasonable time. 2 Sometimes, the judge will direct a party to do something in the order or judgment, which if not done can result in vacatur of the order or judgment. That was the situation in Bank of Am., N.A. v. Campbell , 2021 N.Y. Slip Op. 50897(U) (Sup. Ct., Nassau County Sept. 20, 2021) ( here ). In Bank of America , Plaintiff obtained a judgment on March 25, 2016, upon Defendant’s default in answering the complaint. Thereafter, Defendant filed an order to show cause to vacate the judgment. Under the terms of the order, Defendant was required to file a note of issue in order to set the schedule for the traverse hearing granted by the Court. According to the Court’s records, the traverse hearing was never calendared in the Calendar Control Part because Defendant never filed the note of issue as directed. The matter did not appear on a court calendar until Plaintiff filed its order to show cause in February 2021. 3 The Court observed that more than four years elapsed before either party “ask the Court to address th matter again.” 4 This span of time was critical to Defendant, who claimed that she was unaware of the decision because she was never served with the decision and notice of entry of the order by Plaintiff. The Court found the failure to file and serve a notice of entry to be an important factor in its decision: “the long-standing rule is that the party seeking to limit the time of another to take an appeal must strictly conform to the rules of practice and service of a judgment or order by the prevailing party on a motion is required to start the running of the limitations period.” 5 “Thus,” concluded the Court, “since Defendant was the movant on the application and because she would be deemed to be the prevailing party, it was her obligation to serve a copy of the decision and order with notice of entry upon Plaintiff, not the contrariwise.” 6 While the failure to serve the judgment with notice of entry was important, it was not dispositive. It was the failure to file the note of issue, “as directed”, that the Court found to be dispositive: “ lthough neither party can claim responsibility for having served a copy of the decision and order with notice of entry upon its/her opponent, Defendant blatantly failed to satisfy its obligations as directed.” 7 Accordingly, the Court held that: Given the foregoing, this Court finds that the misconduct on the part of Defendant by failing to file a note of issue and place the matter on the Court’s calendar for a traverse hearing as directed warrants vacatur of the decision and order of Justice Iannacci dated December 20, 2016. The egregiousness of the delay by Defendant coupled with a lack of a reasonable excuse for the asserted law office failure requires a conclusion that Defendant’s application was either purposefully abandoned or Defendant attempted to prejudice Plaintiff at a traverse hearing through the passage of more than four (4) years’ time. Therefore, the motion by Plaintiff is hereby granted in full, over opposition. 8 Takeaway Although judges may excuse non-compliance or impose some form of sanction on the non-compliant party that is not fatal to that party’s rights, Bank of America shows that the failure to comply with a court’s order can sometimes be fatal. 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. Resources : CPLR § 3215(a). Aames Capital Corp. v. Davidsohn , 24 A.D.3d 474 (2d Dept. 2005). Plaintiff requested an order deeming Defendant’s application to vacate the judgment as abandoned. Slip Op. at *2. Id. (citing Williams v. Forbes , 157 A.D.2d 837 (2d Dept. 1990)). Id. Id. Id.

By Jonathan H. Freiberger This Blog frequently analyzes residential mortgage foreclosure issues.  See, e.g., < here =">here"> and the articles hyperlinked therein.  As relates specifically to today’s article, we have frequently focused on the pre-foreclosure notice requirements of RPAPL 1304 . < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> .  In general, and as discussed in previous articles, a foreclosing mortgagee demonstrates prima facie entitlement to judgment as a matter of law by “produc the mortgage, the unpaid note, and evidence of default.”  M&T Bank v. Barter , 186 A.D.3d 698, 700 (2 nd Dep’t 2020) (citations omitted).  In and after 2006, the New York State Legislature passed legislation to protect homeowners in “response to the subprime lending crisis and the epidemic of foreclosures at that time.”  HSBC Bank US, Nat. Assoc. v. Ozcan , 154 A.D.3d 822, 825 (2 nd Dep’t 2017) (citation omitted).  Some such measures required a lender, under certain circumstances, to provide notices to borrowers in the context of anticipated and pending litigation.  See, e.g., RPAPL 1303 and 1304 . 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 provide 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.  The failure of a lender to comply with RPAPL 1304 will result in the dismissal of a foreclosure complaint ( see, e.g., U.S. Bank N.A. v. Beymer , 161 A.D.3d 543 (1 st Dep’t 2018)) when the issue is raised as an affirmative defense by the borrower ( see, e.g., One West Bank, FSB v. Rosenberg , 189 A.D.3d 1600, 1602-3 (2 nd Dep’t 2020) (citation omitted)).  Indeed, “proper service of the notice containing the statutorily mandated content is a condition precedent to the commencement of a foreclosure action.”  U.S. Bank N.A. v. Taormina , 187 A.D.3d 1095, 1096 (2 nd Dep’t 2020) (citations omitted).  When failure to comply with RPAPL 1304 is raised as an affirmative defense, the foreclosing lender must demonstrate its compliance with the statute as part of its prima facie case.  Bank of America, N.A. v. Wheatly , 158 A.D.3d 736 (2 nd Dep’t 2018) (citations omitted).  Accordingly, borrowers frequently interpose a defense to mortgage foreclosure actions, lender’s lack of statutory compliance with the notice requirements of, inter alia , RPAPL 1304.   On September 22, 2021, the Appellate Division, Second Department, decided Caliber Home Loans, Inc. v. Weinstein .  The facts of Caliber reinforce the notion that compliance with statutory foreclosure requirements, as well as evidentiary burdens, are paramount.  The borrowers in Caliber , presumably husband and wife, defaulted in their repayment obligations under a consolidated note and lender commenced action.  Among other defenses, borrowers alleged lender’s failure to comply with RPAPL 1304.  Lender moved for summary and, to address the RPAPL 1304 defense: submitted … an affidavit from Josh Cantu, a default servicing officer for the . Cantu averred, inter alia, that the information in his affidavit was taken from the 's business records, and that he had personal knowledge of the 's procedures for creating and maintaining such records. Cantu stated that " he Loan Records reflect" that the defaulted on the subject loan by failing to make a payment…. Cantu also averred that " mailed to "at the Subject Property" the 90-day notice required under RPAPL 1304 by both first-class and certified mail on November 19, 2015. In support of that assertion, Cantu attached copies of the 90-day notices allegedly addressed to each of the at the property, along with envelopes bearing certified mail 22-digit barcodes. However, the 90-day notices attached, as well as the envelopes, were addressed to each of the defendants at an address in Seaford, Nassau County, which was not the proper address. Borrowers opposed the motion.  One of the borrowers (wife) submitted an affidavit in which she averred that the notices were not received, that there was insufficient proof that the notices were actually mailed in compliance with RPAPL 1304, that the evidence indicated that the purported mailings were made by non-party, Waltz Group, Inc., and that the purported mailings were made to an address at which neither of the borrowers lived.  Over borrowers’ opposition, supreme court granted lender’s motion for summary judgment and determined that borrower’s “affidavit was insufficient to raise a triable issue of fact as to whether the 90-day notices were received at the property.” Thereafter, lender moved to confirm the referee’s calculation report and for a judgment of foreclosure and sale and Borrowers cross-moved to renew their opposition to lender’s summary judgment motion.  In support of the cross-motion, one of the borrowers (husband) submitted an affidavit in which he averred that due to his ill health he was unable to participate in opposing lender’s summary judgment motion and that neither he nor his wife ever lived at the Seaford address to which the RPAPL 1304 notices were sent.  Lender’s reply affirmation from counsel contained, for the first time, “certified and first-class mail envelopes addressed to the property bearing barcodes matching those on accompanying 90-day notices.”  Cantu, on lender’s behalf, also submitted an affidavit explaining the Waltz Group’s involvement with, and authorization to, send the RPAPL 1304 notices. Supreme court granted lender’s motion to confirm the referee’s report and for a judgment of foreclosure and sale.  On borrowers’ appeal, the Second Department reversed, finding that, in its moving papers, lender failed to meet its prima facie burden that it strictly complied with RPAPL 1304, and stated: Although Cantu stated in his affidavit that the RPAPL 1304 notices were mailed by certified and first-class mail to the at the property, and he attached copies of 90-day notices with corresponding certified and first-class envelopes, Cantu did not attach the 90-day notices and envelopes addressed to the property where the resided or any United States Post Office documentation showing that the purported mailings to the property actually occurred.  To the extent relies on copies of the 90-day notices with corresponding certified and first-class envelopes addressed to the property which were submitted for the first time in its reply papers on its subsequent motion, inter alia, to confirm the referee's report, those documents were insufficient to satisfy the 's prima facie burden on its initial motion, among other things, for summary judgment.  A party seeking summary judgment should anticipate having to lay bare its proof and should not expect that it will readily be granted a second or third chance.  Further, while Cantu asserted that he had personal knowledge of the 's procedures for creating and maintaining its business records, he did not attest that he was familiar with the mailing practices and procedures of Walz, the third-party entity that he acknowledged sent the notices. Thus, failed to establish proof of standard office practices and procedures designed to ensure the notices were properly addressed and mailed.  (Citations and internal quotation marks 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 Jonathan H. Freiberger Mortgages are commonly delivered to lenders as security for the repayment of financial obligations, which, in many cases, are evidenced by promissory notes.  If borrower defaults, lender can sue on the note or foreclose the mortgage, but not both simultaneously.  See RPAPL 1301 .  [Eds. Note: this Blog has addressed a lender’s election of remedies < here =">here"> and < here =">here"> .]  When real property is sold at a foreclosure sale, the court appointed referee distributes the proceeds of sale pursuant to the judgment of foreclosure and sale (“JFS”) and statute .  See, e.g. , RPAPL 1354(1), (2) and (3) .  Among other things, the proceeds of sale may be used to pay outstanding taxes or other assessments that are liens on the subject property, certain expenses of sale, subordinate mortgagees and, of course, the sums due to the lender, with interest.  See, e.g. , RPAPL 1354(1), (2) and (3). When proceeds of the sale exceed that which must be distributed pursuant to the JFS and statute, any surplus monies are “paid into court” ( see RPAPL 1354(4)) for distribution pursuant to surplus money proceedings and may go to subordinate mortgagors, borrower’s creditors and/or individuals or entities with liens on the foreclosed property, among others.   Sometimes, however, the proceeds of a foreclosure sale are insufficient to satisfy borrower’s obligations to lender.  In such cases where a deficiency may result, the Court may issue a deficiency judgment pursuant to RPAPL 1371 (1). Prior to the enactment of RPAPL 1371, deficiency judgments were calculated using the sale price at auction.  The problem with such an analysis became apparent during the Great Depression.  As the Court of Appeals noted in Sanders v. Palmer , 68 N.Y.2d 180 (1986): That purpose was materially expanded and changed as a result of the depression of the early 1930s. In his message to the extraordinary session of the Legislature proposing enactment of relief for mortgage debtors, which ultimately became the Laws of 1933 (ch. 794), Governor Herbert H. Lehman stated: “It is evident that the State will have to intervene to prevent to some extent the hardships now being occasioned by foreclosures of mortgages on homes and farms. Owing to the current depression, thousands of our citizens who have invested their life savings in individual homes now find themselves faced with the prospect of having these homes taken from them. “The hardship has been seriously aggravated by reason of the fact that upon foreclosure sales, deficiency judgments have been entered against home owners entirely out of line with the fair value of the property…. …I am of the definite opinion that an end must be made of the present system of obtaining exaggerated deficiency judgments. A deficiency judgment should bear some definite relation to the real value of the property, rather than to the price established at the forced auction sale….” Sanders , 68 N.Y.2d at 184.   Accordingly, RPAPL 1371(2) provides that the “deficiency judgment shall be for an amount equal to the sum of the amount owing by the party liable as determined by the judgment with interest, plus the amount owing on all prior liens and encumbrances with interest, plus costs and disbursements of the action including the referee's fee and disbursements, less the market value as determined by the court or the sale price of the property whichever shall be the higher.” A motion for a deficiency judgment must be made within ninety days of the delivery of the deed to the purchaser at the foreclosure sale.  See RPAPL 1371(2).  Importantly, the motion “shall be served personally or in such other manner as the court may direct.”  See RPAPL 1371(2).   With respect to an RPAPL 1371 analysis, “ he mortgagee has the initial burden to make a prima facie showing of the fair market value of the property as of the foreclosure sale date and whether the mortgagee meets that initial burden presents a factual question for the court to resolve based on the entire record.”  Flushing Sav. Bank, FSB v. Bitar , 106 A.D.3d 690, 690-91 (2013) (citations and internal quotation marks omitted).  In Flushing , the Court affirmed the denial of lender’s motion for leave to enter a deficiency judgment due to its failure to meet its burden regarding the value of the property.  The Court found the conclusory opinion of a licensed real estate appraiser without an appraisal report to be insufficient to establish value, particularly “in light of the large discrepancy between the appraised value and the relatively low sale price at the foreclosure sale”.  Flushing , 106 A.D.3d at 691. Similar issues were addressed by the Second Department on September 15, 2021, in U.S. Bank v. 199-02 Linden Blvd. Realty, LLC .   Subsequent to a foreclosure sale, lender in U.S. Bank moved to confirm the referee’s report of sale and “to determine the fair market value of the mortgaged premises as of the date of sale, and for leave to enter a deficiency judgment against the defendants….”  In opposition, defendants argued that insufficient proof of the value of the property was submitted as of the date of the sale.  In response, lender “argued that in the event the Supreme Court found that it failed to demonstrate, prima facie, the fair market value of the property as of the date of auction, rather than denying motion outright, the court must permit an opportunity to submit additional proof as to valuation.”  The motion was denied due to lender’s failure to meet its burden “of demonstrating the fair market value of the mortgaged premises as of the date of sale.”  Lender filed a notice of appeal and moved in supreme court for reargument.  The Second Department explained that, upon reargument, supreme court: adhered to its determination … denying, without a hearing, those branches of motion which were to confirm the referee's report of sale of the mortgaged premises, to determine the fair market value of the mortgaged premises as of the date of sale, and for leave to enter a deficiency judgment against … defendants …. However, the court, upon reargument, in effect, vacated so much of the order … as denied that branch of motion which was, in effect, in the alternative, for a hearing to determine the fair market value of the mortgaged premises as of the date of sale, and thereupon granted that branch of the motion. The Second Department recognized that “RPAPL 1371 does not require the court to hold an evidentiary hearing; however, where a triable issue as to the reasonable market value is presented, that issue should not be decided upon affidavits, but by the court or a referee, so that the witnesses may be subject to observation and cross-examination.”  (Citations and internal quotation marks omitted.)  The Court then found that lender’s submissions were insufficient to meet its burden, and that supreme court, on reargument, corrected its error in failing to permit lender to submit additional proof of value and, in so doing, stated: Here, contrary to contention, its submissions were insufficient to meet its burden of establishing that it was entitled to a deficiency judgment. submissions, which included evidence of the auction price in the amount of $450,000, as well as an appraisal indicating that the property had an estimated market value of the same amount, were insufficient to satisfy its burden of demonstrating, prima facie, the property's fair market value as of the date of the auction sale  The appraisal submitted by was not certified, nor was it accompanied by an affidavit of the appraiser. Moreover, the appraisal stated that the value indicated by the income approach was in the amount of $450,000, while the value indicated by the sales comparison approach was in the amount of $480,000. There was no explanation as to why the Supreme Court should accept the value based on the income approach as opposed to the sales comparison approach. Moreover, the part of the appraisal report that discussed the income approach is incomplete, and the part of the appraisal report that discussed the sales comparison approach is completely omitted from the record. Therefore, the court properly determined that failed to meet its burden of demonstrating, prima facie, the property's fair market value as of the date of the auction sale. While the court improperly denied motion outright without permitting it to submit additional proof, that error was later corrected, when, upon reargument, the court granted a hearing to determine the property's fair market value as of the date of the auction sale. When, and if, the fair market value of the property is established, that amount will be subtracted from the amount determined to be due and owing to lender in the JFS to arrive at the amount of the deficiency.  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 On September 15, 2021, the Securities and Exchange Commission (“SEC” or “Commission”) announced ( here ) that it paid approximately $110 million and $4 million to two whistleblowers whose information and assistance led to successful SEC and related actions. With these awards ( here ), the SEC’s whistleblower program has now paid more than $1 billion in awards to 207 whistleblowers, including over $500 million in fiscal year 2021 alone. The $110 million award stands as the second-highest award in the program’s history, following the more than $114 million whistleblower award the SEC paid in October 2020 ( here ) and the over $50 million award paid in June 2020 ( here ). The first whistleblower award consists of an approximately $40 million award in connection with an SEC case and an approximately $70 million award arising out of related actions by another agency. According to the SEC, the first whistleblower provided significant independent analysis that substantially advanced the SEC’s and the other agency’s investigations. The SEC said that although the second whistleblower voluntarily provided original information that led to the successful enforcement action, the information was provided to the SEC after the staff had opened an investigation and undertaken significant investigative steps and was much more limited as compared to the information and assistance provided by the first whistleblower. According to the SEC, it has awarded over $1 billion to 207 individuals since issuing its first award in 2012. As we noted in a prior article ( here ), Since the start of the summer ( i.e. , June 2021), the SEC had awarded, in total, approximately $17.8 million to 14 whistleblowers. But that time frame is just a small window into the Commission’s payment of awards over the past fiscal year. Indeed, looking at the amount paid to whistleblowers from the beginning of the fiscal year ( i.e. , October 2020), the SEC has awarded more than $500 million to whistleblowers under the program, representing more than half of the $1 billion paid to date.  The comments of SEC officials about the milestone underscore the importance of the whistleblower program to the Commission’s enforcement activities. For example, SEC Chair Gary Gensler said the following: “Today’s announcement underscores the important role that whistleblowers play in helping the SEC detect, investigate, and prosecute potential violations of the securities laws . The assistance that whistleblowers provide is crucial to the SEC’s ability to enforce the rules of the road for our capital markets.” Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, echoed Gensler’s sentiments: “The whistleblower program has been instrumental to the success of numerous enforcement actions since it was instituted a decade ago. We hope that today’s announcement encourages whistleblowers to continue to come forward with credible information about potential violations of the securities laws.” Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, further highlighted the important role played by whistleblowers in the Commission’s enforcement regime: “Whistleblowers can play an extraordinary role in helping the SEC ferret out wrongdoing. Whistleblowers may provide critical information based on their own independent analysis that facilitates the SEC's investigation and the successful resolution of the enforcement action.” 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" >here).=">here).">  Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber This Blog has written numerous articles about Ponzi schemes and the enforcement proceedings that resulted from them. See, e.g., 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. Many Ponzi schemes share common characteristics. These include, among others: high returns with little or no risk – i.e., “guaranteed” investment opportunities; overly consistent returns – i.e., investments that consistently generate positive returns regardless of overall market conditions; unregistered investments – i.e., investments that are not registered with the SEC or with state regulators; unlicensed sellers – i.e., investment professionals and firms that are not licensed or registered with state and federal regulators; secretive, complex strategies – i.e., investment strategies that are locked away in a black box or are the operator’s “secret sauce”; and difficulty receiving payments – i.e., difficulty cashing out or obtaining redemptions. Older investors are particularly vulnerable to the Ponzi operator. Research shows that as people grow older, they become too trusting and fail to recognize false or misleading claims, suspicious intentions and evidence of risky behavior. Shutting down Ponzi schemes and holding the operators accountable for such frauds is an important part of the SEC’s enforcement mission. Recently, in SEC v. Woods (here), the SEC brought an emergency action against a Ponzi scheme organizer allegedly responsible for fleecing investors, including retirees and seniors, out of millions of dollars. The SEC announced the action on August 25, 2021 (here). According to the SEC, Defendant, John Woods, has been running a massive Ponzi scheme for over a decade. By the end of July 2021, more than 400 people had invested money in Horizon Private Equity, III, LLC (“Horizon”) (i.e., the investment vehicle used in the Ponzi scheme). According to the SEC, investors are owed over $110,000,000 in principal. Many victims of the alleged Ponzi scheme are elderly and retirees who were preyed upon by investment advisers at Livingston Group Asset Management Company d/b/a Southport Capital (“Southport”), a registered investment adviser firm that Defendant owned and controlled. Defendant and other investment advisers at Southport allegedly told investors that they would receive returns of 6-7% interest, guaranteed for two to three years, for non-specific investments in a fund called “Horizon Private Equity.” Defendant and his associates at Southport allegedly told investors that their investments were safe, Horizon would earn a return by investing their money in, for example, government bonds, stocks, or small real estate projects and could get their principal back without penalty after a short waiting period. Investors were not, however, told that their money would or could be used to pay returns to earlier investors. But, said the SEC, that is exactly what Defendants did. According to the SEC, Horizon has not earned any significant profits from legitimate investments; instead, a large percentage of purported “returns” to earlier investors were simply paid out of new investor money. The SEC noted that the assets owned by Defendant and the entities under his control, including Southport and Horizon, are worth far too little for there to be any prospect that existing investors would receive their principal, let alone the promised returns. According to the SEC, Defendant and the Southport investment advisers working with him cultivated relationships of trust with Southport’s clients. Many investors had long-standing relationships with their individual adviser before being pitched the Horizon investment. These investors felt comfortable investing in Horizon in large part because of the trust they placed in their individual investment advisers at Southport. Playing on the trust reposed in them, Defendant and his cohorts verbally induced clients to invest their money in Horizon. As noted by the SEC, most investors were not given any written materials setting forth the terms of their Horizon investments. The SEC alleged that Defendant made the following misrepresentations, among others: (a) returns would be paid from profits of Horizon’s investments; (b) investments had a guaranteed rate of return; (c) investments carried little risk and were extremely safe and conservative; (d) there was no possibility of losing the principal investment in Horizon; (e) the Horizon investment was an annuity; (f) the risk of loss was minimal because Horizon had a very diversified investment portfolio; and (g) the Horizon investment was sponsored or offered by an Institutional Investment Adviser. According to the SEC, it is not yet clear whether investors will be able to recover their money. Defendant had raised only $600,000 per month in new investments during the months for which the SEC has been able to obtain bank records. And, according to the SEC, millions of dollars’ worth of investor funds are unaccounted for because of the duration of the scheme, and because Defendant did not use any of the typical recordkeeping practices expected from a legitimate investment fund. In addition to the scheme and its implementation, Defendant allegedly concealed his affiliation with Horizon. For example, during a 2018 examination of Southport, Defendant failed to disclose his involvement in Horizon. “In fact,” alleged the SEC, “Woods minimized his role in Horizon … even though he maintained control over the entity.” In 2021, the SEC conducted another examination of Southport. During the 2021 examination, said the SEC, Defendant and Southport misleadingly downplayed their relationship with Horizon. On August 24, 2021, the United States District Court for the Northern District of Georgia granted a temporary restraining order and asset freeze with respect to Defendants Woods and Horizon and ordered expedited discovery with respect to Southport, among other relief. The SEC charged Defendants with violating the antifraud provisions of the federal securities laws. The complaint seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, civil penalties, an asset freeze, and the appointment of a receiver. “Investors felt comfortable investing in Horizon in large part because of their relationships with advisers at Southport,” said Nekia Hackworth Jones, Director of the SEC’s Atlanta Regional Office. “As alleged in the complaint, Woods and Southport preyed upon their clients’ fears of losing their hard-earned savings and convinced them to place millions of dollars into a Ponzi scheme by falsely promising them a safe investment with steady returns.” 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.