Today’s Blog relates to extensions of time to serve a defendant under CPLR 306-b, a topic previously addressed by this Blog < HERE =">HERE"> and < HERE =">HERE"> .  The background discussion in today’s Blog was taken from one of the linked prior Blogs.   Under the present “commencement by filing” system, an action (or proceeding) (collectively, an “Action”) is commenced by filing (CPLR 304(a))the initiatory paper(s) with the “clerk of the court in the county in which the ction … is brought or any other person designated by the clerk of the court for that purpose (CPLR 304(c)).  Once an Action is commenced, the plaintiff (or petitioner) (collectively, a “Plaintiff”) must effectuate service of process pursuant to the parameters of CPLR 306-b , which provides: Service of the summons and complaint, summons with notice, third-party summons and complaint, or petition with a notice of petition or order to show cause shall be made within one hundred twenty days after the commencement of the ction, provided that in an ction, except a proceeding commenced under the election law, where the applicable statute of limitations is four months or less, service shall be made not later than fifteen days after the date on which the applicable statute of limitations expires.  If service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service. Among other things, CPLR 306-b provides that, in general, service of process on a defendant (or respondent) (collectively, a “Defendant”) must be effectuated within 120 days of the commencement of an Action.  The Court of Appeals in Leader v. Maroney, Ponzini & Spencer , 97 N.Y.2d 95 (2001), explained the history of CPLR 306-b. According to Leader , “ s originally enacted in 1992, CPLR 306-b transformed New York from a commencement-by-service to a commencement-by-filing jurisdiction.”  Leader , 97 N.Y.2d at 100 (citation omitted).  Plaintiffs were “considerabl benefit ” by “making the act of filing the point at which a claim is interposed for Statute of Limitations purposes.”  Leader , 97 N.Y.2d at 100 (citation omitted).  Under the old statute, a Plaintiff was afforded 120 days to effectuate service of process and the Action would be “deemed dismissed” if service was not timely made.  Leader , 97 N.Y.2d at 100 (citation omitted).  “The plaintiff was free to commence a new ction and serve process within a second 120-day period from the date of the automatic dismissal, even if the Statute of Limitations had expired.”  Leader , 97 N.Y.2d at 100 (citation omitted).  For a variety of reasons, the “deemed dismissed” provisions of the old statute were considered “unnecessarily harsh” and were amended to provide that if service of process is not made within the 120-day period after the commencement of the Action, an unserved Defendant can move for the dismissal, without prejudice, or the court could extend Plaintiff’s time to serve a Defendant “upon good cause shown or in the interest of justice.”  Leader , 97 N.Y.2d at 101 (citing CPLR 306-b). The Leader Court, in a trio of cases, was called upon to determine the circumstances under which a Plaintiff would be permitted to avail itself of the extension provisions of CPLR 306-b.  Importantly, the Leader Court made clear that, under CPLR 306-b, “good cause” and “the interest of justice” are “two separate standards by which to measure an application for an extension of time to serve” a Defendant if service is not made within 120 days of the commencement of an Action.   Good Cause “To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service.”  Bumpus v. New York City Tr. Auth. , 66 A.D.3d 26, 31 (2 nd Dep’t 2009) (citing Leader ).  “Good cause will not exist where a plaintiff fails to make any effort at service or fails to make at least a reasonably diligent effort at service.”  Bumpus , 66 A.D.3d at 31 (citations omitted).  Where “good cause” is not established, “courts must consider the ‘interest of justice’ standard of CPLR 306-b.”  Bumpus , 66 A.D.3d at 32 (citations omitted). Interest of Justice To satisfy the “interest of justice” standard, a court must “careful ” analyze “the factual setting of the case and … balance … the competing interests presented by the parties.”  Leader , 97 N.Y.2d at 105.  Significantly, the Leader Court made clear that to satisfy the “interest of justice” standard, “a plaintiff need not establish reasonably diligent efforts at service as a threshold matter,” although it may consider plaintiff’s efforts to serve a defendant as one of many factors in its analysis.  Leader , 97 N.Y.2d at 105.  In determining whether the “interest of justice” compels the granting of the extension, the court may consider “any other factor in making its determination, including expiration of the Statute of Limitations, the meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff’s request for the extension of time, and prejudice to defendant.”  Leader , 97 N.Y.2d at 105-6 (footnote omitted).  The “interest of justice” standard is broader than that of “good cause” and is meant to “‘accommodate late service that might be due to mistake, confusion or oversight, so long as there is no prejudice to the defendant.’”  Nationstar Mortgage, LLC v. Wilson , 176 A.D.3d 1087 (2 nd Dep’t 2019) (quoting Leader ). JPMorgan Chase Bank, NA v. Gluck In deciding JPMorgan Chase Bank, NA v. Gluck on June 23, 2021, the Second Department had occasion to address several issues under CPLR 306-b.  JPMorgan was a mortgage foreclosure action commenced against Gluck in May of 2011.  Shortly after the commencement of the action, Gluck transferred his interest in the subject property to Landau.  Subsequently, Gluck moved to dismiss the complaint pursuant to CPLR 306-b and, in December of 2013, supreme court granted Gluck’s motion because “plaintiff failed to establish due diligence in attempting to serve Gluck via the personal service method in CPLR 308(1) or the “leave and mail” method in CPLR 308(2), and thus, … service pursuant to the “nail and mail” method in CPLR 308(4) was not authorized.”   In August of 2014, eight months after the order dismissing the action, Landau transferred his interest in the property back to Gluck.  In September of 2018, supreme court “denied … plaintiff’s motion to serve a supplemental summons on Gluck, without prejudice to the plaintiff commencing a new action against Gluck or moving to extend the time to serve Gluck.”  Thereafter, based on supreme court’s prior decision, plaintiff moved pursuant to CPLR 306-b to extend the time to serve Gluck in the pending action alleging good cause because “it promptly moved for the extension after being directed to do so by the .”  Supreme court denied the motion “holding that the court had already dismissed the action insofar as asserted against Gluck for lack of personal jurisdiction.”   On plaintiff’s appeal, the Second Department affirmed, but for different reasons.  The Court rejected supreme court’s denial of the motion “because the complaint had already been dismissed insofar as asserted against Gluck,” and, in so doing, stated: his Court recently "reject the view that motion pursuant to CPLR 306-b to extend the time for service, made in a pending action but after the Supreme Court issued an order granting a motion to dismiss based on lack of personal jurisdiction, should denied without consideration of its merits" (State of New York Mtge. Agency v Braun , 182 AD3d 63, 64). An action is deemed pending until there is a final judgment (see CPLR 5011; State of New York Mtge. Agency v Braun, 182 AD3d at 68; Cooke-Garrett v Hoque , 109 AD3d 457, 457). Here, no judgment has been entered. "Inasmuch as no judgment was entered dismissing the action, the action was pending when the plaintiff moved to extend the time to serve with process" ( U.S. Bank NA. v Saintus , 153 AD3d 1380, 1382; see State of New York Mtge. Agency v Braun, 182 AD3d at 69). Accordingly, the Supreme Court erred in denying the plaintiff's motion without consideration of the merits (see State of New York Mtge. Agency v Braun, 182 AD3d at 67-69).  (Hyperlinks added, brackets in original.) After explaining the “good cause” and “interest of justice” standards along the lines set forth supra , the Court found that plaintiff satisfied neither standard and stated: Here, when the Supreme Court granted Gluck's motion to dismiss the complaint insofar as asserted against him for lack of personal jurisdiction-in 2013-the court specifically stated that the plaintiff had failed to exercise diligence in attempting to serve Gluck pursuant to CPLR 308(1) and CPLR 308(2). The plaintiff fails to dispute that conclusion on appeal, and thus, the plaintiff has failed to demonstrate good cause within the meaning of CPLR 306-b.  Nor has the plaintiff demonstrated that an extension of time is warranted in the interest of justice. supra, in leader, 97 n.y.2d at 105-106).> supra, in leader, 97 n.y.2d at 105-106).> Here, in view of the more than five-year delay of the plaintiff in seeking this extension of time, and the lack of any excuse for the delay, the extension is not warranted in the interest of justice (see Slate v Schiavone Cons tr. Co. , 4 NY3d 816; Rodriguez v Consolidated Edison Co. of NY., Inc. , 163 AD3d 734, 736).  (Hyperlinks and bracketed language added.)

The Securities Exchange Act of 1934 (“Exchange Act”) governs the way in which the nation’s securities markets and its brokers and dealers operate. Under the Exchange Act, most “brokers” and “dealers” must register with the Securities and Exchange Commission (“SEC” or the “Commission”) and join a “self-regulatory organization,” or SRO. Section 15(a)(1) of the Exchange Act, 15 U.S.C. §78o(a). Under Section 3(a)(4)(A) of the Exchange Act, 15 U.S.C. §78c(a)(4)(A), a broker is defined as a person or entity that regularly: (i) participates in the solicitation, negotiation, or execution of securities transactions, (ii) receives transaction-based compensation contingent on the value or success of securities transactions or (iii) handles investor funds or securities. Apart from the foregoing, individuals and businesses need to register as a broker when, among other things, they act as “finders” – e.g., they find investors or customers for, making referrals to, or splitting commissions with registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries; they find investment banking clients for registered broker-dealers; they act as “placement agents” for private placements of securities; they provide support services to registered broker-dealers; they act as “independent contractors,” but are not “associated persons” of a broker-dealer; and they are otherwise engaged in the business of effecting or facilitating securities transactions. Unlike a broker, who acts as agent, a dealer acts as principal. Section 3(a)(5)(A) of the Exchange Act defines a “dealer” as a person or entity that (i) holds himself/herself out as being willing to buy and sell securities on a continuous basis or (ii) originates securities that they buy and sell. Individuals who buy and sell securities for themselves generally are considered traders and not dealers. The SEC considers the regulatory regime applicable to broker-dealers to be a cornerstone of the U.S. federal securities laws because it provides important safeguards to investors and market participants. Among other things, registered broker-dealers must (a) satisfy comprehensive recordkeeping, reporting, and supervisory obligations, and (b) pass inspection and examination by the SEC and SRO. In addition, broker-dealers must address conflicts of interest and implement policies and procedures that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules, including, without limitation, safeguarding customer information and preventing identity theft. On June 29, 2021, the SEC announced (here) that Neovest Inc. (“Neovest”), a provider of an order and execution management system (“OEMS”) that facilitates electronic trading, had agreed to pay a $2.75 million penalty for its failure to register as a broker-dealer in violation of the federal securities laws. This is the SEC’s first case charging an OEMS provider for operating as an unregistered broker-dealer. According to the SEC’s order (here), Neovest, a subsidiary of JPMorgan Chase & Co., operates an OEMS that allows customers to route orders for stocks and options to more than 360 customer-selected destination brokers for execution. The OEMS had been Neovest’s primary product. The SEC found that prior to being acquired by JPMorgan Chase, Neovest engaged in this activity through its registered broker-dealer, Neovest Trading Inc. The SEC also found that although Neovest withdrew its broker-dealer registration after it was acquired, it continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm’s website and direct outreach at industry conferences and trade shows. Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers. According to the SEC, in exchange for its OEMS services, Neovest also continued to receive transaction-based compensation by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest. The SEC further found that Neovest’s failure to register as a broker-dealer deprived its customers of protections associated with registration, including inspections and examinations by the SEC and the requirement to establish policies and procedures to safeguard customer information. As detailed in the SEC’s order, during the period that Neovest failed to register, the firm replicated a database containing customer authentication information, including user names and passwords, to one of its most active customers and failed to exercise any supervision over the customer’s use of the database. “According to the SEC’s order, Neovest circumvented the regulatory regime that grants broker-dealers the privilege of operating in our markets,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Today’s charges underscore the SEC’s commitment to securing the important investor protections that flow from broker-dealer registration.” By its order, the SEC censured Neovest and found that it willfully violated Section 15(a) of the Exchange Act. Without admitting or denying the SEC’s findings, Neovest consented to the order and agreed to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act, and to pay a $2.75 million penalty.

“It is a fundamental principle of our jurisprudence that the power of a court to declare the law only arises out of, and is limited to, determining the rights of persons which are actually controverted in a particular case pending before the tribunal.”  Matter of Darcy M. , ___ A.D.3d ___ *1 (2 nd Dep’t June 9, 2021) (quoting Matter of Hearst Corp. v. Clyne , 50 N.Y.2d 707, 713 (1980)) (internal quotation marks omitted).  Courts cannot issue “advisory opinions”.  Matter of Darcy , at *1.  Accordingly, courts are forbidden “to pass on academic, hypothetical, moot, or otherwise abstract questions….”  Matter of Hearst , 50 N.Y.2d at 713.  This principle “is founded both in constitutional separation-of-powers doctrine, and in methodological strictures which inhere in the decisional process of a common-law judiciary.”  Id ., at 713 – 14.  Typically, the doctrine of mootness is invoked where a change in circumstances prevents a court from rendering a decision that would effectively determine an actual controversy.”  Quinn v. 20 East Clinton, LLC , 193 A.D.3d 893, 894 (2 nd Dep’t 2021) (citations and internal quotation marks omitted). In many cases, circumstances change during the course of litigation.  Generally, courts are precluded “from considering questions which, although once live, have become moot by passage of time or change in circumstances.”  Id ., at 714.  In this regard, “an appeal will be considered moot unless the rights of the parties will be directly affected by the determination of the appeal and the interest of the parties is an immediate consequence of the judgment.”  Matter of Darcy , at *1. There are exceptions to the application of the mootness doctrine that permit “a court to pass on moot issues.”  Quinn , 193 A.D.3d at 895.  The exception applies where there is: “(1) a likelihood of repetition, either between the parties or among other members of the public; (2) a phenomenon typically evading review; and (3) a showing of significant or important questions not previously passed on, i.e., substantial and novel issues.”  Id. (citations and internal quotation marks omitted). The parties in Quinn were owners of adjacent property.  The defendant’s property contained a 170-year-old residence that was undergoing extensive interior and exterior renovations.  During the renovations, defendant’s contractors frequently entered plaintiff’s property without permission and much debris from the construction found its way to plaintiff’s property.  After informal efforts to resolve defendant’s encroachments failed, plaintiff commenced action and moved for, inter alia , injunctive relief enjoining defendant “and its contractors from performing any further construction work on the subject premises or, in the alternative, … convert the motion to a proceeding pursuant to RPAPL 881.”  Id . at 894.  [This blog has written about RPAPL 881 < here =">here"> and < here =">here"> , which permits an adjoining property owner or lessee to commence action against a neighbor to obtain a limited license to enter the neighbor’s property to make improvements to owner’s property if voluntary consent is refused.]  By the time that Quinn’s action was commenced, the renovation work was completed and, accordingly, defendant opposed the motion on the ground that it was academic.  Supreme court agreed with defendant and denied the motion.  The Second Department in Quinn , affirmed.  In so doing the Court stated: Here, that branch of the plaintiff's motion which was to preliminarily enjoin from any further construction work was rendered academic by completion of the project.  Enjoining further construction work where no further construction work is needed, or planned, would have no practical effect on the parties.  In reaching this determination, we note that the plaintiff, despite alleging that the defendants were, inter alia, trespassing and injuring her property, took no legal action to enforce her rights, enjoin the work, or preserve the status quo until after the work was nearly complete. Quinn , 193 A.D.3d at 894-95 (citations omitted).  The Court also found that none of the exceptions to the application of the mootness doctrine were applicable in Quinn . On June 17, 2021, the Appellate Division, Fourth Department, decided Matter of Sportsmen’s Tavern LLC v. New York State Liq. Auth. , which analyzed the mootness doctrine.  The petitioner in Sportsman’s commenced a “hybrid CPLR article 78 and declaratory judgment action challenging COVID-19 pandemic-related guidance issued by respondent-defendant New York State Liquor Authority (SLA).”  The guidance “which Sportsmen's was required to abide by pursuant to certain executive orders, prohibited advertised and ticketed main-draw music shows at licensed bars or restaurants and restricted live music at such establishments to only that which was incidental to the dining experience and not the draw itself.”  Supreme court “declared that the guidance constituted an unlawful content-based restriction, both facially and as applied, under the First Amendment of the United States Constitution and corresponding provisions of the New York State Constitution; declared that the guidance was arbitrary, capricious, and an abuse of discretion; and permanently enjoined SLA from enforcing the guidance.”  The Fourth Department dismissed SLA’s appeal as moot “ lthough neither party contend that the appeal should be dismissed” because "mootness is a doctrine related to subject matter jurisdiction and thus must be considered by the court sua sponte. "  (Citation and internal quotation marks omitted.) Discussing caselaw akin to that which is referenced supra , the Court recognized that “an appeal is moot unless an adjudication of the merits will result in immediate and practical consequences to the parties.”  (Citations, internal quotation marks and brackets omitted.)  The Court reasoned that “due to recent easing of pandemic-related restrictions, the prohibitions challenged in this case are no longer in effect the rights of the parties cannot be affected by the determination of this appeal and it is therefore moot." In finding that the exceptions to the application of the mootness doctrine were inapplicable to the appeal, the Court stated: We conclude that the exception to the mootness doctrine does not apply here. In our view, although the issue of the lawfulness of the prior challenged guidance implemented as part of the extraordinary response to the COVID-19 pandemic is substantial and novel, that issue is not likely to recur.  Moreover, the issue is not of the type that typically evades review. Indeed, as the parties have acknowledged, the guidance at issue here prohibiting advertised and ticketed main-draw music shows has been reviewed on the merits by at least two other courts.  In any event, under the circumstances of this case, we would decline to invoke the mootness exception. (Citations and internal quotation marks omitted, emphasis in original.)

In New York, contracts are to be construed in accordance with the parties’ intent. See , e.g. , Slatt v. Slatt , 64 N.Y.2d 966 (1985). “The best evidence of what parties to a written agreement intend is what they say in their writing.” Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). Thus, a written agreement that is clear and unambiguous on its face must be enforced according to the plain meaning of its terms. See , e.g. , W.W.W. Assoc. v Giancontieri , 77 N.Y.2d 157, 162 (1990). Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous. Id. A contract is unambiguous if “on its face is reasonably susceptible of only one meaning.” Greenfield v. Philles Records , 98 N.Y.2d 562, 570 (2002). Parol (or extrinsic) evidence cannot be used to create an ambiguity where the words of the parties’ agreement are otherwise clear and unambiguous. Innophos, Inc. v Rhodia, S.A. , 38 A.D.3d 368, 369 (1st Dept. 2007), aff’d , 10 N.Y.3d 25 (2008). 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.” 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). 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.” Kass v. Kass , 91 N.Y.2d 554, 566 (1998), quoting Atwater & Co. v. Panama R.R. Co. , 246 N.Y. 519, 524 (1927). Whether a contract is ambiguous is a question of law for the court to decide. Kass , 91 N.Y.2d at 566. 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. 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). 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.  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). The foregoing principles were recently considered in Villager Capital Advisors, LLC v. Union Settlement Assn., Inc. , 2021 N.Y. Slip Op. 04003 (1st Dept. June 22, 2021) ( here ), a case involving the payment of a commission in connection with the sale of real property. Villager Capital arose out of a brokerage agreement between plaintiff, Villager Capital Advisors, LLC, a real-estate broker, and defendant Union Settlement Association, Inc. (“Union”). Union is the sole member of two housing development fund corporations (“HDFC”), defendants East 103rd Street Housing Development Fund Corporation and East 104th Street Housing Development Fund Company.  here.=">here."> Union owned and operated the St. Lucy’s Apartments through the two funds. Union wanted to sell its interest in the St. Lucy's Apartments. To do so, Union and the HDFCs entered into a brokerage agreement with plaintiff. Under the terms of the brokerage agreement, Union agreed to pay plaintiff “a Sale Commission equal to the sum of (i) 5% of the first $1,000,000 of gross sale price of the Project Interest, plus (ii) 3% of the portion of the gross sale price in excess of $1,000,000.” Plaintiff was to receive the commission “immediately upon the closing of the sale transaction.” Following a bidding process, Union and L&M Development Partners (L&M”) signed a purchase agreement that acknowledged plaintiff as the broker that procured the deal. L&M agreed to assume Union’s debts and to pay $5,747,574 in cash for the St. Lucy’s Apartments. The assumed debt consisted of two Housing Development Corporation-financed mortgage loans, totaling approximately $3,466,000. The assumed debt plus cash payment totaled $9,214,294. The sale was later approved by both the Attorney General and Supreme Court. ( See Not-For-Profit Corporation Law (“NPCL”) §§ 510, 511.) In the petitions submitted for such approvals, the parties represented the purchase price to $9,214,294 for the St. Lucy’s Apartments—the sum of the cash purchase price and the value of the mortgages assumed by L&M. Supreme Court, New York County (Masley, J.), approved the sale by two orders dated December 22, 2017. In those orders, Justice Masley listed the purchase price as $9,214,294.  Plaintiff submitted an invoice for its commission to Union. The commission sought was based on a purchase price of $9,214,294. The amount due, less a pre-payment of $10,000, was $286,429. Union replied that the assumed debt was not part of the consideration for plaintiff’s commission. Plaintiff responded, arguing that the gross purchase price of $9,214,294 was confirmed in Justice Masley’s orders. Union made no further mention of the commission. L&M and Union closed the transaction on January 31, 2018, without informing plaintiff that it was taking place. A week later, on February 6, 2018, plaintiff was advised that the transaction had closed. Plaintiff received payment from Union for $182,427.22 on February 26, 2018— $104,001.78 less than the amount in plaintiff’s commission invoice. Union included a cover letter explaining that the commission calculation was based only on the cash payment paid by L&M and did not include the value of assumed mortgages. Plaintiff brought the action for breach of contract and quantum meruit, seeking payment of the alleged shortfall.  Plaintiff moved for summary judgment on its breach of contract claim. Union cross moved for summary judgment, seeking to dismiss plaintiff’s claims. Plaintiff argued that “gross sale price” unambiguously referred to the entire consideration paid for the apartments, including the value of the mortgages that L&M assumed. Plaintiff contended that a commission payment based on the entire consideration paid by the buyer is the industry standard and is thus commercially reasonable. Any interpretation of “gross sale price” that did not include the assumed debt, said plaintiff, effectively excised the word “gross” from “gross sale price.” In response, Union contended that plaintiff’s interpretation was “unheard of in the real estate industry.” Union argued that, if L&M assumed the mortgages and there was no cash payment, plaintiff would still receive a commission—which would be an absurd result.  The motion court concluded that neither party had demonstrated that the party’s interpretation of “gross sale price” was the only one flowing from the text of the brokerage agreement. Instead, held the motion court, “ he agreement is … ambiguous.” The motion court explained that it was reasonable, as plaintiff asserted, for a broker who facilitated an agreement for a buyer to assume millions of dollars in mortgages to be paid a commission based on the value of those mortgages. This was particularly true because the text of the brokerage agreement reflected the parties’ understanding that the mortgages could be assigned to a buyer and that plaintiff’s services were being enlisted to help bring about that assignment. Thus, the motion court reasoned, it would be reasonable for the agreement to provide that plaintiff’s commission would be calculated based upon the value of the mortgage debts it helped get assigned from Union to L&M, as well as the cash payment by L&M. On the other hand, said the motion court, Union’s interpretation—that “gross sale price” refers only to the cash payment—was also reasonable. The mortgage debts at issue were held by a third-party lender and were not Union’s to sell. Thus, if the mortgages were not Union’s to sell, explained the motion court, but merely part of the overall structure of the agreement, then the parties could not have intended the mortgages to be part of the “gross sale price.” The motion court concluded that neither position would rule the day, holding that the term was ambiguous.  The motion court also held that the parties’ reliance on extrinsic evidence – e.g. , the two court orders and petition – underscored the ambiguity of the term in the agreement: “When parties seek to use extrinsic evidence to resolve an ambiguous term of a contract, summary judgment remains inappropriate when determining the meaning of that term would require ‘a choice among inferences to be drawn from extrinsic evidence.’” (Quoting, Amusement Bus. Underwriters v. American Intl. Grp. , 66 N.Y.2d 878, 880 (1985)). Accordingly, the motion court denied plaintiff’s motion for summary judgment on its breach of contract claim and denied defendants’ cross motion for summary judgment to the extent it sought dismissal of the claims for breach of contract and account stated ( here ). On appeal, the Appellate Division, First Department unanimously modified, on the law, to grant plaintiff’s motion, and otherwise affirmed the motion court’s order. The Court held that the term, “gross sales price” was “plain and unambiguous”; the term included the value of assumed debt, in addition to the cash payment made by the buyer in exchange for the purchase. Slip Op. at *1. “To apply a different interpretation”, reasoned the Court, “would negate the unambiguous language in the agreement.” Id. (citation omitted). Thus, concluded the Court, “Defendants simply attempting to rewrite the term ‘gross sale price.’” Id. The Court also rejected Union’s argument that the breach of contract claim should have been dismissed as against the HDFCs because they were not in privity with either party to the brokerage agreement ( i.e. , plaintiff and Union). The Court reasoned that the HDFCs were third-party beneficiaries of the brokerage agreement. Id. The Court explained that “ lthough the HDFCs did not sign the brokerage agreement, Union Settlement Association, Inc. represented in the agreement that it sought to sell all of its interest in the project, including 100% ownership of the HDFCs along with all of the interests and assets held by the HDFCs.” As such, “the HDFCs were intended third-party beneficiaries of the brokerage agreement.” Id. (citing Mendel v. Henry Phipps Plaza W., Inc. , 6 N.Y.3d 783, 786 (2006)). [Ed. Note: To assert third-party beneficiary rights under a contract, a party must establish “(1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for benefit and (3) that the benefit to is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate if the benefit is lost.” Burns Jackson Miller Summit & Spitzer v. Lindner , 59 N.Y.2d 314, 336 (1983). Takeaway Village 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. Slamow , 79 N.Y.2d at 1018. 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 Village Capital , the Court made clear that, in the context of the underlying transaction, the word “gross” included every payment of value. This meant the value of the assumed mortgages and the cash payment. To conclude otherwise would “negate” the clear and unambiguous meaning of the word “gross”.

Cherry picking is the process of selecting securities to invest in by mimicking the trading of other investors (both individual and institutions) who are successful over a long period of time. In other words, cherry-pickers base their trading around the techniques and strategies of other investors. Anyone can implement a cherry-picking strategy. Indeed, cherry picking is used by both professional and retail investors alike. Cherry picking can be an effective way to generate returns. It can also be helpful for novice investors – i.e., investors who are unfamiliar with the process of stock selection and investment research. Cherry picking can also be used by investment advisers in a fraudulent way. Under this scenario, an investment adviser will allocate winning trades to his/her personal account or to a favored client(s) at the expense of other clients. Typically, an investment adviser trades in securities through an omnibus trading account. An omnibus trading account allows an investment adviser to buy and sell securities on behalf of multiple clients simultaneously, without identifying to the broker in advance the specific accounts for which a trade is intended. For example, if an adviser separately purchases the same security for several clients on the same day, the adviser might obtain different prices on each transaction as a result of normal market fluctuation. Rather than placing individual orders in each client account, the adviser can place an aggregated order, or “block trade,” in the omnibus account and subsequently allocate the trade among multiple accounts using an average price. When used properly, an adviser will fairly and equitably allocate the block trade among client accounts, ensuring that no account receives preferential treatment over another. The fraudulent act of cherry picking involves an investment adviser selecting specific profitable or unprofitable trades and allocating them in a manner of their choosing. For example, the investment manager might allocate the profitable trades to his/her personal account or to certain clients in order to give them preferential treatment. Conversely, trades that incur losses might be allocated to the accounts of less preferred clients of the investment adviser. When used fraudulently, cherry picking violates the securities laws. Indeed, the Securities and Exchange Commission (“SEC” or the “Commission”) has been vigilant in cracking down on investment advisors who engage in fraudulent cherry picking. In January 2017, the SEC charged Michael J. Breton and his firm Strategic Capital Management, LLC with fraud for engaging in a cherry-picking scheme whereby Breton placed trades through a master brokerage account and then allocated profitable trades to himself and unprofitable trades to client accounts (here). According to the SEC, defendants defrauded their clients out of approximately $1.3 million. On September 6, 2019, the U.S. District Court for the District of Massachusetts entered final judgment against defendants (here). In September 2018, the SEC filed a complaint in the Western District of Louisiana against Lafayette, Louisiana-based World Tree Financial, LLC and its majority-owner and co-founder, Wesley Kyle Perkins, for operating a cherry-picking scheme that defrauded World Tree clients (here). According to the SEC, for more than four years, Perkins enjoyed substantial profits at his clients’ expense by cherry-picking trades. Perkins allegedly traded securities in World Tree’s omnibus account and delayed allocating the securities to specific client accounts until he had observed the securities’ performance over the course of the day. He then allocated profitable trades to favored accounts, like his own, while allocating unprofitable trades to two accounts with substantial assets controlled by one person. The SEC also alleged that World Tree and Perkins made false and misleading statements about their trade allocation practices – i.e., that all trades would be allocated fairly and equitably. In addition, the SEC alleged that World Tree, Perkins and Priscilla Gilmore Perkins, Perkins’ wife and the firm’s co-founder and co-owner, falsely represented that they were not trading in the same securities as World Tree's clients. On January 15, 2021, following a week-long, bench trial, the court entered final judgment in favor of the SEC against World Tree, Wesley Perkins, and Priscilla Perkins (here). The court ordered Wesley Perkins and World Tree to pay civil penalties of $160,000 and $300,000, respectively, ordered them to disgorge, $347,947, plus prejudgment interest jointly and severally, and enjoined them from future violations of the securities laws. On August 21, 2019, the District Court for the Central District of California entered a settled final judgment against Strong Investment Management (“Strong”) and its owner, Joseph B. Bronson (“Bronson”), both of whom the SEC previously charged with securities fraud for their involvement in a cherry-picking scheme (here). According to the SEC (here), which commenced the action in February 2018, for more than four years, Bronson traded securities in Strong’s omnibus account but delayed allocating the securities to specific client accounts until he had observed the securities’ performance over the course of the day. As alleged, Bronson enjoyed substantial profits at his clients’ expense by cherry picking the trades, disproportionately allocating profitable trades to himself and unprofitable trades to Strong’s clients. The SEC also alleged that Strong and Bronson misrepresented their trading and allocation practices in the firm’s Forms ADV, including by falsely stating that all trades would be allocated in accordance with pre-trade allocation statements and that the firm did not favor any account, including those of the firm’s personnel. Less than one week later, on August 26, 2019, the SEC announced (here) that Laurel Wealth Advisors, Inc., a registered investment adviser based in La Jolla, California, and its former investment adviser representative, Joseph C. Buchanan, agreed to settle charges relating to Buchanan’s multi-year cherry-picking scheme. According to the SEC, from at least March 2013 to June 2015, Buchanan disproportionately allocated profitable trades to his personal accounts, and disproportionately allocated unprofitable trades to his clients’ accounts. The SEC found that Buchanan’s allocation scheme resulted in $56,075 in net same-day profits to Buchanan and $60,821 in net same-day losses to his clients. Last week, on June 17, 2021, the SEC announced that it obtained an asset freeze and other emergency relief, and filed fraud charges, against a Miami-based investment professional and two investment firms for engaging in an alleged cherry-picking scheme in which they funneled millions of dollars in trading profits to preferred accounts (here). In the complaint filed by the SEC in the Southern District of Florida (here), the SEC alleged that defendants Ramiro Jose Sugranes (“Sugranes”), UCB Financial Advisers Inc., and UCB Financial Services Limited engaged in an approximate six-year scheme to divert profitable trades to two accounts believed to be held by Sugranes’ relatives, while at the same time saddling other clients with losing trades. Defendants allegedly used a single account to place trades without specifying the intended recipients of the securities at the time they placed the trades. As alleged, after defendants established a position, if the price of the securities increased during the trading day, defendants usually closed out the position and allocated those profitable trades to the two preferred accounts. Conversely, said the SEC, if the price of the securities decreased during the trading day, defendants usually allocated the unprofitable trades to other client accounts. According to the SEC, the preferred clients, who were named as relief defendants, received approximately $4.6 million from profitable trades, while other clients sustained more than $5 million in first-day losses. By its complaint, the SEC seeks to recover the relief defendants’ unlawful gains, plus prejudgment interest. The SEC alleged that Sugranes and the two UCB entities violated the antifraud provisions of the federal securities laws. As against Sugranes and the UCB entities, the SEC is seeking permanent injunctions, disgorgement, prejudgment interest, and civil penalties. On June 14, the court granted the SEC’s request for emergency relief, including an asset freeze, accounting, and expedited discovery.

Care should be taken when drafting contracts so that the intention of the parties is set forth in a clear and unambiguous way.  When contracts are clearly drafted, all parties should be aware of their rights, remedies and obligations thereunder.  Further, the existence of clear and unambiguous contracts could streamline litigation if a dispute arises. The law is clear that “ hen the terms of a written contract are clear and unambiguous, the intent of the parties must be found within the four corners of the contract, giving practical interpretation to the language employed and the parties’ reasonable expectations.”  Patsis v. Nicolia , 120 A.D.3d 1326, 1327 (2 nd Dep’t 2014) (citation omitted).  The Court of Appeals stated that “ e have long adhered to the sound rule in the construction of contracts, that where the language is clear, unequivocal and unambiguous, the contract is to be interpreted by its own language” because “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms”.  R/S Associates v. New York Job Development Authority , 98 N.Y.2d 29, 32 (2002) (citations and internal quotation marks omitted). Indeed, when a contract is “clear and unambiguous on its face,” “extrinsic and parole evidence is not admissible to create an ambiguity.”  W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 163 (1990) (citations and internal quotation marks omitted).  Whether a contract “is ambiguous is a question of law to be resolved by the courts.”  B&A Realty Management, LLC v. Gloria , 192 A.D.3d 851, 853 (2 nd Dep’t 2021) (citation omitted).  “A lease, like any other contract, is to be interpreted in light of the purposes sought to be attained by the parties.”  112 West 34 th Street Assoc. v. 112-1400 Trade Properties LLC , 95 A.D.3d 529, 531 (1 st Dep’t 2012) (citation and internal quotation marks omitted). On June 10, 2021, the Appellate Division, First Department, decided Noor Staffing Group, LLC v. 622 Third Avenue, LLC , a case that addresses the principals of contract construction discussed herein.  The facts of Noor , some of which were obtained from a review of the e-filed documents in supreme court, are summarized herein.  Plaintiff, as tenant, and defendant, as landlord, entered into a commercial lease for 20,000 square feet of space on the seventh floor of landlord’s building.  Pursuant to the lease, landlord was to build-out the space for tenant.  Landlord also intended to renovate common areas on the seventh floor, including the hallways and restrooms.  Section 2.04 of the lease set forth a “target date” for “substantial completion” of the “Landlord’s Work.” If the target date was not met, and tenant was not in default under the lease, among other things, landlord was obligated to credit tenant’s account $2,778.00 for each day of delay.   Further, Section 15.03 of the Lease provides that: Landlord shall have the right at any time without thereby creating an actual or constructive eviction or incurring any liability to Tenant therefor, to change the arrangement or location of such of the following as are not contained within the Demised Premises: … corridors, … toilets, and other like public service portions of the Building. All parts … of all walls, windows, and doors bounding the Demised Premises (including exterior Building walls, exterior core walls corridor walls, exterior doors and entrances, all space in or adjacent to the Demised Premises used for shafts, stacks, stairways, chutes, pipes, conduits, fan rooms heating, air cooling, plumbing and other mechanical facilities, service closets and other Building facilities are not part of the Demised Premises and Landlord shall have the use thereof, as well as access thereto through the Demised Premises for the purposes of operation, maintenance, alteration and repair.  (End parentheses omitted in original.) In addition, Section 21.03 of the lease provides that: Landlord reserves the right to temporarily interrupt, curtail or suspend the services required to be furnished by Landlord under this Lease when the necessity therefor arises by reason of alterations … or for any other cause beyond the reasonable control of Landlord. Landlord shall use due diligence to complete all required repairs or other necessary work as quickly as possible so that Tenant’s inconvenience resulting therefrom may be for as short a period of time as circumstances will reasonably permit ….  Tenant shall not be entitled to nor shall Tenant make claim for any diminution or abatement of minimum rent or additional rent or other compensation, nor shall this Lease or any of the other obligations of Tenant be affected or reduced by reason of such interruption, curtailment, suspension, work or inconvenience. More than two months after Tenant moved into its space, landlord had not completed work on the common area restrooms and hallways.  Tenant was advised by landlord that the restrooms on other floors were available for use by tenant’s employees and guests during the common area renovations to the seventh floor.  Tenant commenced action against landlord for breach of contract.  In its first cause of action, tenant alleged that landlord failed to timely deliver the premises and, accordingly, was entitled to the liquidated damages set forth in Section 2.04 of the lease.  By its second cause of action tenant sought monetary damages due to the failure of landlord to complete the common area renovations by the time tenant moved into the premises.  Among other things, tenant alleged that because the seventh-floor restrooms were not complete -- forcing employees to take elevators to other floors to use a restroom -- the “productivity and morale of employees” were “significantly impacted”. Landlord moved for summary judgment dismissing the second cause of action based on the plain language of the lease.  Supreme court denied the motion, finding, inter alia , that “on the present record, the Court is not persuaded that Sections 15.03 and 23.01 even apply to the circumstances described in the Complaint” and “ t a minimum, material questions of fact exist as to whether Landlord’s Work, as defined in the Lease, includes the restrooms and the common walkways….”   Relying on Section 15.03 of the lease, the First Department unanimously reversed, finding that “ his provision of the lease precludes ’s recovery related to ’s construction work on the shared restrooms and corridors.  Thus, the First Department held: “A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” ( Excel Graphics Tech. v CFG/AGSCB 75 Ninth Ave. , 1 AD3d 65, 69 <1st dept 2003> , lv dismissed 2 NY3d 794 <2004> ). First, it is clear from the terms of the lease that the restrooms and corridors were contained neither in the premises nor in the scope of work undertaken by the landlord pursuant to the terms of the lease. Moreover, the lease gave the landlord the right to change the arrangement or location of the restrooms and corridors without liability to the tenant. Dismissal is warranted when the documentary evidence –here, the lease –contradicts plaintiff’s pleading and conclusively establishes a defense to the asserted claim as a matter of law (id.). (Hyperlink supplied.)

On June 14, 2021, this Blog wrote about FINRA’s fight against the financial exploitation of seniors and vulnerable adults ( here ), in particular, the effort to amend FINRA’s Rule 2165 (“Financial Exploitation of Specified Adults”). Among other things, Rule 2165 permits a member firm to place a temporary hold on the disbursement of funds or securities from the account of a senior or vulnerable adult customer when the member reasonably believes that financial exploitation may be, is likely to be, or is occurring. Under the proposed amendments, member firms would be: (a) given additional time to address suspicious activity in the customer accounts of seniors and vulnerable adults, and allow adult protective services agencies, state regulators and law enforcement to conduct investigations into such activity; and (b) allowed to place a temporary hold on the disbursement of funds or securities or a transaction in securities for an additional 30-business days if the member firm reported the matter to a state regulator or agency or a court of competent jurisdiction. The proposed amendments to Rule 2165 coincide (whether intentionally or not) with World Elder Abuse Awareness Day, which was commemorated on June 15, 2021. World Elder Abuse Awareness Day was launched on June 15, 2006, by the International Network for the Prevention of Elder Abuse and the World Health Organization at the United Nations. The purpose of the day is to provide an opportunity for communities around the world to promote a better understanding of abuse and neglect of older persons by raising awareness of the cultural, social, economic and demographic processes affecting elder abuse and neglect. In recognition of World Elder Abuse Awareness Day, the U.S. Securities and Exchange Commission (“SEC”), the North American Securities Administrators Association (“NASAA”), and the Financial Industry Regulatory Authority (“FINRA”) announced on June 15, 2021 ( here ) a new resource intended to assist securities firms in implementing the training requirements of the Senior Safe Act. The training program, “Addressing and Reporting Financial Exploitation of Senior and Vulnerable Adult Investors,” can be used by firms to train associated persons on how to detect, prevent, and report financial exploitation of senior and vulnerable adult investors. The presentation serves as a resource for firms implementing the requirements of the Senior Safe Act and certain state training requirements relating to senior investment protection. The Senior Safe Act was modeled after a Maine statute with a similar name, the Senior$afe Program. That program was the result of a joint effort between regulators and the financial and legal communities to help financial and banking advisors identify and prevent the financial abuse and exploitation of seniors and vulnerable adults. Like the Senior$afe Program, the Senior Safe Act was intended to “empower and encourage our financial service representatives to identify warning signs of common scams and help prevent seniors from becoming victims.” The Senior Safe Act was included as Section 303 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law on May 24, 2018. The Senior Safe Act addresses barriers financial professionals face in reporting suspected senior financial exploitation or abuse to authorities. Specifically, the Senior Safe Act protects “covered financial institutions” – which include investment advisers, broker-dealers, and transfer agents – and their eligible employees, affiliated persons, and associated persons from liability in any civil or administrative proceeding for reporting a case of potential exploitation of a senior citizen to a covered agency. The immunity established by the Senior Safe Act is provided on the condition that employees receive training on how to identify and report exploitative activity against seniors before making a report. In addition, reports of suspected exploitation must be made “in good faith” and “with reasonable care.” This immunity applies to both individuals and firms. This Blog wrote about the Senior Safe Act here and here . In particular, we wrote about the immunity established under the Senior Safe Act here . “By partnering with FINRA and NASAA to offer this training program, we can help educate financial professionals on how to identify and report financial abuse of older adults,” said SEC Chair Gary Gensler. “I encourage all investors to use the education resources on Investor.gov to ensure they are working with a registered investment professional.” “We are pleased to work collaboratively with our counterparts at the SEC and FINRA to provide this important training resource in the hope that it will promote greater and earlier detection and reporting of suspected financial exploitation of older Americans,” said Lisa A. Hopkins, NASAA President and Senior Deputy Commissioner of Securities and General Counsel with the West Virginia State Auditor’s Office. “FINRA has a longstanding commitment to protecting senior investors through various regulatory programs and initiatives,” said Robert W. Cook, FINRA President and CEO. “FINRA is pleased to collaborate with NASAA and the SEC to provide this free resource to firms as we collectively work to support implementation of the Senior Safe Act and better protect senior and vulnerable adult investors.” The training presentation can be found on:  NASAA’s website at https://www.nasaa.org/industry-resources/senior-issues ;  NASAA’s Serve Our Seniors website at http://serveourseniors.org/about/industry ;  The SEC’s website at https://www.investor.gov/additional-resources/information/seniors ; and FINRA’s website at https://www.finra.org/rules-guidance/key-topics/senior-investors .  In a separate press release about World Elder Abuse Awareness Day ( here ), NASAA focused on the obligation of “financial professionals and the public to be on the lookout for signs of elder financial abuse, including potential exploitation by guardians.” A guardian has a legal obligation to act in the best interest of a protected individual. Guardians often are granted extensive access and control of a protected individual’s assets. Financial abuse or exploitation by guardians typically occurs when the guardian improperly uses the protected individual’s funds, securities, property, or other assets. “A trusted guardian can be a wonderful resource. But sometimes guardians may take advantage of the people or assets in their care,” said Lisa A. Hopkins, NASAA President and West Virginia Senior Deputy Commissioner of Securities. “Taking the time to understand the warning signs of guardian financial abuse and the steps that can be taken to report such abuse are key to helping those who cannot help themselves.” As explained in NASAA’s press release, the association developed resources to help identify the red flags of fraud and suspected financial abuse by legal guardians. One such resource is “Guarding the Guardians”, a publication that provides examples of exploitation and information on how to report suspected elder financial abuse. Examples of suspected guardian abuse include: The guardian takes money from the protected individual’s investment portfolio for personal use. The guardian overcharges for a caregiving service. The guardian does not take the protected individual to medical appointments or purchase their necessary medication. The publication, as well as other resources to help seniors, can be found on NASAA’s Serve Our Seniors website ( www.serveourseniors.org ).

As we have noted previously, the financial exploitation of seniors is a significant problem ( e.g. ,  here ,  here ,  here ,  here , and  here ). For many regulators, it is a top priority. here.=">here."> The Financial Industry Regulatory Authority, Inc. (“FINRA”) is one such regulator. To help combat the financial exploitation of seniors and vulnerable adults, FINRA enacted Rule 2165 (“Financial Exploitation of Specified Adults”) ( here ). Among other things, the rule permits a member firm to place a temporary hold on the disbursement of funds or securities from the account of a senior or vulnerable adult customer when the member reasonably believes that financial exploitation may be, is likely to be, or is occurring. here,  here and  here.=">here."> In August 2019, FINRA launched a retrospective review to assess the effectiveness and efficiency of its rules and administrative processes that help protect seniors and vulnerable adults from financial exploitation. The retrospective review indicated that Rule 2165 had been an effective tool in the fight against financial exploitation, but supported amendments to permit member firms to: (1) extend a temporary hold on a disbursement of funds or securities or a transaction in securities for an additional 30-business days if the member firm reported the matter to a state regulator or agency or a court of competent jurisdiction; and (2) place a temporary hold on a securities transaction where there was a reasonable belief of financial exploitation. Currently, Rule 2165 permits a member firm to place a temporary hold on a disbursement of funds or securities from the account of a “specified adult” customer when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, has been attempted or will be attempted. The Rule defines a “specified adult” as a natural person: (1) age 65 and older; or (2) age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests. See Rule 2165(a)(1). The member firm’s reasonable belief is to be based on the facts and circumstances observed in the member firm’s business relationship with the person. Under the current version of the Rule, the temporary hold expires not later than 15 business days after the date that the member first placed the temporary hold on the disbursement of funds or securities, unless otherwise terminated or extended by a state regulator or agency of competent jurisdiction or a court of competent jurisdiction or extended pursuant to Rule 2165(b)(3), which permits an extension of the hold for up to an additional 10 business days. Importantly, a temporary hold may be placed on a particular suspicious disbursement(s) ( e.g. , a payment related to a commonly known scam, such as a lottery scam) but not on non-suspicious disbursements ( e.g. , a regular mortgage payment or assisted living facility payment). Notably, the Rule does not apply to transactions in securities. The retrospective review indicated that even if a temporary hold were placed on a disbursement out of the customer’s account, executing a related transaction could result in significant financial consequences for the customer ( e.g. , adverse tax consequences, surrender charges, the inability to regain access to a sold investment that has been closed to new investors or trading by a perpetrator in inappropriate high risk or illiquid securities). FINRA also surveyed member firms about their experience with Rule 2165. The survey revealed that member firms needed additional time to conduct investigations and resolve matters. Approximately 53% of the firms that responded to a survey on the Rule stated that they had been unable to resolve a matter within the 25-business day period. The most common reason was that the matter was under consideration by a state agency (such as APS) or a court. Other common reasons included: (1) the customer did not respond to inquiries from the firm; or (2) the customer did not believe that he or she was being financially exploited. For matters that took longer to resolve than the 25-business day period, approximately 35% of the survey respondents indicated that it took on average 26-50 days to resolve the matter and approximately 59% of survey respondents indicated that it took on average 51-100 days to resolve the matter.  With the benefit of the review, FINRA proposed the amendments to Rule 2165. By these proposed changes, FINRA seeks to provide member firms with additional time to resolve matters and for APS agencies, state regulators and law enforcement to conduct thorough investigations, and to extend the temporary hold on the disbursement of funds or securities or a transaction in securities for an additional 30-business days if the member firm reported the matter to a state regulator or agency or a court of competent jurisdiction. According to FINRA, if enacted, the proposed amendments will create the first uniform national standard for placing holds on securities transactions related to suspected financial exploitation.  FINRA explained that the proposed amendments will promote investor protection by allowing additional time for member firms to resolve matters and for APS agencies, state regulators and law enforcement to conduct thorough investigations of suspected financial exploitation. FINRA said customers would benefit from the extension because it would provide additional time for a member firm to obtain a positive identification of financial exploitation and prevent the disbursement of funds due to suspicious activities within the account. FINRA further explained that the proposed rule changes could prevent harm to exploited customers, such as being subject to adverse tax consequences, early withdraw penalties or investments that do not align with their investor profiles.  Anyone wishing to submit comments to the proposed amendments must do so within 21 days of their publication in the Federal Register.  The proposed rule changes can be found here .

This BLOG has written extensively on issues related to residential mortgage foreclosure including, but not limited to: the notice requirements of RPAPL 1304 < HERE =">HERE"> , < HERE =">HERE"> , < HERE =">HERE"> , < HERE =">HERE"> , < HERE =">HERE"> , < HERE =">HERE"> and < HERE =">HERE"> ; the acceleration and deacceleration of mortgage debt < HERE =">HERE"> and < HERE =">HERE"> ; and, Article 15 of the RPAPL < HERE =">HERE"> and < HERE =">HERE"> .  All of these issues are relevant to the Second Department’s decision in Everhome Mortgage Company v. Aber , decided on June 9, 2021. The facts in Everhome are straightforward (and some were obtained by reviewing the underlying electronically filed court records).  Defendant Aber borrowed funds from plaintiff’s assignor and secured the repayment obligation with a mortgage on residential property.  Aber defaulted in May 2008 by failing to make the mortgage payment due on May 1, 2008, and each month thereafter.  Plaintiff’s assignor assigned the underlying note and mortgage to plaintiff on April 13, 2009, and a foreclosure action was commenced by plaintiff on April 30, 2009 (“Action No. 1”).  Eight months later, “the subject property was transferred to Equity .”  In October of 2013, Action No. 1 was dismissed, without prejudice, after plaintiff failed to appear at a court conference.   A second foreclosure action against Aber and Equity was commenced on June 24, 2015 (“Action No. 2”).  In their answer to the complaint in Action No. 2, Aber and Equity, inter alia , asserted a statute of limitations defense and asserted a counterclaim seeking to discharge the mortgage pursuant to Article 15 of the RPAPL.  Supreme court granted Equity’s motion to dismiss the complaint pursuant to CPLR 3211(5) (statute of limitations) and for summary judgment on the counterclaim to discharge the mortgage and denied plaintiff’s motion for summary judgment on its complaint and to strike defendants’ answer. An action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4) .  See also , Fed. Nat. Mort. Assoc. v. Schmitt , 172 A.D.3d 1324, 1325 (2 nd Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold , 171 A.D.3d 1029, 1030 (2 nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia , a payment default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne , 171 A.D.3d 34, 37 (2 nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC , 171 A.D.3d at 1030 (citations omitted).  In situations where a mortgage appears as a lien of record on real property, but the statute of limitations has expired for the mortgagee to commence an action to foreclose the mortgage, RPAPL 1501(4) permits the mortgagor (or any other “person having an estate or interest in the real property”) to commence an action to have the encumbrance removed of record.   Since the mortgage debt was accelerated on April 30, 2009, when Action No 1 was commenced, and Action No 2 was commenced on June 24, 2015, more than 6 years later, the Second Department agreed that Equity established its “initial burden” that Action No. 2 was time-barred.  Accordingly, the “burden then shifted to the plaintiff to present admissible evidence to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced this action within the applicable limitations period.”  Everhome, at 3 (citations omitted).  In an effort to meet its burden, Everhome argued, inter alia , that: RPAPL 1304 constitutes a "statutory prohibition" within the meaning of CPLR 204, and therefore, the statute of limitations was tolled by its service of 90-day notices under RPAPL 1304; and, “its commencement of the first action did not accelerate the mortgage debt because questions of fact may exist as to whether it properly accelerated the mortgage debt in accordance with paragraph 22(b) of the mortgage, and therefore, any determination on the issue of whether this action is time-barred is premature.”  Everhome, at 3.  The Court rejected plaintiff’s arguments. CPLR 204 Simply stated, RPAPL 1304 requires that, inter alia : 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; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  "Strict compliance with RPAPL 1304 notice to the borrower … is a condition precedent to the commencement of a foreclosure action."  Everhome, at 3 (citations and internal quotation marks omitted, emphasis in original).  In an effort to tack an extra ninety days to the time it had to commence Action No. 2, Everhome unsuccessfully argued that the 90 day notice requirement of RPAPL 1304 is a “statutory prohibition” under CPLR 204(a) , which provides that that “ here the commencement of an action has been stayed by a court or by statutory prohibition, the duration of the stay is not a part of the time within which the action must be commenced.”  If plaintiff’s argument was successful, it would have had until July of 2015 to commence Action No. 2.  The Court disagreed, recognizing that a “statutory prohibition and a condition precedent are separate concepts.”  Everhome, at 3 (citations and internal quotation marks omitted).  The Court reasoned that “ he salient feature of a ‘statutory prohibition’ is the plaintiff’s lack of control” and because a “plaintiff has complete control over the acts necessary to effectuate compliance with a condition precedent, a condition precedent is not a statutory prohibition.”  Everhome, at 3 (citations and internal quotation marks omitted).  Because plaintiff had control over if and when it sent required notices under RPAPL 1304, “and could have done so at least 90 days prior to the expiration of the statute of limitations, RPAPL 1304 is not a statutory prohibition within the meaning of CPLR 204(a)” and the service of the 90-day notices “did not toll the statute of limitations”.  Everhome, at 3 (citations and internal quotation marks omitted).   Paragraph 22(b) of the Mortgage Among other things, paragraph 22 of the mortgage required lender to send borrower a notice of default and provide an opportunity to cure before the debt could be accelerated.  Plaintiff argued that questions of fact existed as to whether it complied with paragraph 22(b) of the mortgage, “which is a contractual condition precedent to a valid acceleration.”  Everhome, at 3.  Equity urged that, because Action No. 1 was dismissed due to plaintiff’s failure to appear at a conference, “plaintiff’s election to accelerate the mortgage debt in its complaint was never invalidated by the Supreme Court … and, therefore, the mortgage debt remained in an accelerated posture for more than six years, rendering time-barred.”  Everhome, at 4.  In rejecting plaintiff’s argument, the Court held that “ he requirement in paragraph 22(b) of the mortgage that the lender first send the borrower written notice of default, with at least 30 days’ notice of acceleration, is a contractual condition precedent ( see CPLR 3015 ) inserted in the contract solely for the benefit of the borrower, as it gives the borrower additional time to make installment payments before the lender may accelerate the mortgage debt” and, accordingly, “compliance with paragraph 22(b) is enforceable and waivable by the borrower.”  Everhome, at 4 (some citations omitted).  Thus, the Court refused to “condone[]” “plaintiff’s belated attempt to take advantage of its own potential breach of paragraph 22(b) to the prejudice of Equity, whose rights under RPAPL 1501(4) to discharge and cancellation of the mortgage have vested”. The Court also recognized that notwithstanding Equity’s assertion of a defense based on noncompliance with paragraph 22(b), supreme court “ultimately did not invalidate the plaintiff’s election to accelerate the mortgage on that basis since it directed dismissal of the complaint based upon plaintiff’s failure to appear at a court conference.”  Everhome, at 4 (citations omitted).  In addition, the Court also agreed with supreme court that plaintiff’s submissions were insufficient to create triable issues of fact relating to the sufficiency and timing of the required notices. It should be noted that there was a lengthy dissent in which it was concluded that the motion and cross-motion should have been denied by supreme court.

In P & HR Solutions, LLC v. Ram Capital Funding , LLC, 2021 N.Y. Slip Op. 03554 (1st Dept. June 8, 2021) ( here ), the Appellate Division, First Department was faced with the situation that is all too common in commercial litigation, plaintiffs trying to assert contract and fraud claims without differentiation. In fact, over the past few months, this Blog has written about numerous appellate cases in which the plaintiffs’ fraud claims were dismissed because they were indistinguishable from their contract claims ( e.g. , here , here , here and here ). In addition to the duplication of claims doctrine, the Court was asked to consider whether a sophisticated party took sufficient affirmative steps to protect itself from fraud. Under New York law, a sophisticated party must allege that it exercised due diligence and took affirmative steps “to protect itself against deception.” DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 154 (2010). This means, for example, that a sophisticated party must employ whatever “means of verification were available at the time” of the alleged misrepresentations. VisionChina Media, Inc. v. Shareholder Representative Servs., LLC , 109 A.D.3d 49, 57 (1st Dept. 2013) (citation omitted). Where the falsity of a representation could have been ascertained by reviewing “publicly available information,” courts have not hesitated to dismiss a fraud claim because of the failure to satisfy the justifiable reliance element. E.g. , HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 195 (1st Dept. 2012); see also Churchill Fin. Cayman, Ltd. v. BNP Paribas , 95 A.D.3d 614 (1st Dept. 2012). The Blog wrote about this aspect of the justifiable reliance element of a fraud claim here . Finally, the Court was asked to examine the causation element of Plaintiffs’ fraud claim. Under New York law, a plaintiff must plead and prove both transaction causation and loss causation to withstand a challenge from the defendant. “Transaction causation means that the violations in question caused the to engage in the transaction in question.” AUSA Life Ins. Co. v. Ernst & Young , 206 F.3d 202, 209 (2d Cir. 2000) (citation and internal quotation marks omitted). Loss causation is “the causal link between the alleged misconduct and the economic harm ultimately suffered by plaintiff.” Fin. Guar. Ins. Co. v. Putnam Advisory Co. , 783 F.3d 395, 402 (2d Cir. 2015). It is synonymous with the proximate cause concept found in other tort cases and in the federal securities context. See Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc. , 343 F.3d 189, 196-97 (2d Cir. 2003) (loss causation in common law fraud claims comparable to federal securities fraud claims); Laub v. Faessel , 297 A.D.2d 28, 31 (1st Dept. 2002) (“ oss causation is the fundamental core of the common-law concept of proximate cause”) (citations omitted). This Blog wrote about causation element of a fraud claim here . P&HR arose from two merchant cash agreements (“MCAs”) between plaintiffs, P&HR Solutions LLC (“P&HR”) and Debra Ferguson (“Ferguson”), and defendant Ram Capital Funding LLC (“Ram Capital”). Plaintiffs alleged that defendants breached the MCAs and committed fraud in connection therewith. Relevant to the appeal, plaintiffs sought to hold defendant Jonathan Braun (“Braun”) personally liable for the alleged breach of contract and fraud. The first MCA between Plaintiffs and Ram Capital was executed in August 2018. The agreement provided almost $660,000 worth of P&HR’s future receivables at a collection rate of 10% of its daily receivables, for a cash price of $440,000.00 (the “First Ram Capital Agreement”). As part of the agreement, P&HR had to pay various fees and expenses, among other charges and amounts due.  In September 2018, P&HR entered into a second agreement with Ram Capital in which it refinanced the First Ram Capital Agreement. Under the terms of the September 2018 agreement, Ram Capital purchased almost $975,000.00 worth of P&HR’s future receivables at a collection rate of 10% of P&HR’s daily receivables, for a discounted price of $350,000.00 (“Second Ram Capital Agreement”). Like the first agreement, P&HR was required to pay various fees and expenses.  Both agreements contained reconciliation provisions that required RAM to adjust its debits and credits from the account to meet the agreed upon percentage of monthly debits, while giving Plaintiffs the right to adjust their payments at Ram Capital’s sole discretion.  According to Plaintiffs, from August 6, 2018, to September 28, 2018, Ram Capital had materially underpaid P&HR a total of $239,743.00. Plaintiffs claimed that by December 2018, P&HR could not keep up with its payments. Rather than ask for a reconciliation from Ram Capital to lower the daily payments, Plaintiffs claimed they did nothing because they had discovered, through publicly available documents, that Ram Capital was actually owned by Braun, a person whom Plaintiffs alleged had made previous threats against Ferguson and her business. Plaintiffs brought suit, alleging two causes of action against Braun. In the first cause of action, Plaintiffs claimed that Braun was liable for breach of contract, claiming that he was the alter-ego of Ram Capital and defendant Richmond Capital Group, LLC (“Richmond”). Plaintiffs claimed that Braun “completely dominated such entities and corporate formalities and separateness between such entities ignored ….”   Plaintiffs alleged that the MCAs were breached because, among other things: (1) Defendants overcharged Plaintiffs in connection with the fees and expenses due under the MCAs; (2) the receivables under the agreements were not taken by P&HR, but by Richmond, with whom Plaintiffs did not have an agreement; (3) Ram Capital materially miscalculated the amount that remained due under the First Ram Capital Agreement; and (4) Ram Capital materially underpaid what it owed Plaintiffs under the Second Ram Capital Agreement. In the second cause of action, Plaintiffs sought to hold Braun liable for fraud, alleging, among other things, that he: (1) misrepresented the fees and expenses to be paid in entering the MCAs; (2) materially overstated the amount due under the First Ram Capital Agreement; (3) misrepresented the average monthly amount of receivables generated by Plaintiffs; and (4) misrepresented or concealed his affiliation with the corporate entities. Braun moved to dismiss the action as against him under CPLR §§ 3211(a)(7) and 3016(b). The motion court denied Braun’s motion, finding, among other things, that “Braun’s assertion that the fraud claims not sufficiently particularized … unpersuasive,” because “the pleadings properly allege that defendants fraudulently asserted to plaintiffs that Ram Capital was unaffiliated with Richmond.”  On appeal, the Appellate Division, First Department unanimously reversed the decision and order of the motion court. The Court held that the motion court properly dismissed the contract claims against Braun. The Court noted that the contracts at issue were between P&HR and Ram Capital. “Therefore,” said the Court, “unless veil is pierced to reach Braun, Braun be individually liable for breach of those contracts.” Slip Op. at *1 (citing Skanska USA Bldg. Inc. v. Atlantic Yards B2 Owner, LLC , 146 A.D.3d 1, 12-13 (1st Dept. 2016), aff’d , 31 N.Y.3d 1002 (2018); Andejo Corp. v. South St. Seaport Ltd. Partnership , 40 A.D.3d 407 (1st Dept. 2007); Sheridan Broadcasting Corp. v. Small , 19 A.D.3d 331, 332 (1st Dept. 2005)). As to the alter ego allegations, the Court held that they were “insufficient.” Id. The Court explained that Plaintiffs simply “set[] forth conclusory allegations merely reciting typical veil-piercing factors.” Id. (citing Skanska , 146 A.D.3d at 12). Thus, while “Plaintiffs may have alleged that Ram and defendant Richmond Capital Group, LLC (RCG) alter egos”, they did not allege “that Ram and Braun were alter egos.” Id. Directing its attention to the fraud allegations, the Court held that all but one was “duplicative of the contract claim.” Id. The exception, said the Court, concerned the allegation that Braun concealed or misrepresented his affiliation with Ram Capital. “However,” held the Court, “this fraud allegation fail to state a cause of action.” Id. First, the Court found that Plaintiffs failed to plead justifiable reliance because the information purportedly concealed was discoverable by reviewing publicly available documents. Indeed, noted the Court, “the complaint itself allege that plaintiff Debra Fergerson (P & HR’s principal) confirmed Braun’s ownership of Ram through publicly available documents and by speaking with people in the merchant cash advance industry.” Id. Thus, concluded the Court, because Plaintiffs failed to exercise any due diligence at the time of the alleged misrepresentation (which they conceded they could have performed by exercising such diligence after the fact), their fraud claim could not withstand scrutiny. Id. (citations omitted).  Second, the Court held that Plaintiffs failed to show how the alleged misrepresentation about Braun’s involvement with Ram Capital was “‘the direct and proximate cause of the claimed losses.’” Id. (quoting Friedman v. Anderson , 23 A.D.3d 163, 167 (1st Dept. 2005)). “Plaintiffs may have alleged transaction causation,” said the Court, “but they did not allege loss causation.” Id. (citing Laub , 297 A.D.2d at 31).  The Court found that “ ven if Braun had not been involved with Ram , plaintiffs would still have suffered loss due to the onerous terms of the contracts they signed.” Id. at *2. In other words, Plaintiffs could not demonstrate the causal link between the alleged misrepresentation about Braun’s involvement with Ram Capital and their losses. Takeaway Plaintiffs seeking to pierce the corporate veil carry a heavy burden. They must allege facts, not conclusion. As P&HR shows, merely parroting the elements of a veil piercing claim will not suffice. P&HR is another example of the obstacles plaintiffs encounter when trying to allege a fraud claim with a contract claim. When the former merely masquerades as the latter, as in P&HR (that is, all but one of the fraud allegations), the fraud claim will be dismissed. And, even when the two claims are sufficiently different such that the fraud claim survives application of the duplication of claims doctrine, plaintiffs must still satisfy the particularity requirements of CPLR § 3016(b) as to each element of the claim. In P&HR , Plaintiffs could not do so with respect to the justifiable reliance and causation elements of the claim.

On June 3, 2021, the New York Court of Appeals, the State’s highest court, handed down Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v Matthew Bender & Co., Inc. , 2021 N.Y. Slip Op. 03485 (June 3, 2021) ( here ), a decision involving a claim under General Business Law § 349 (“GBL § 349”), New York’s consumer fraud statute. In a decision written by Judge Jenny Rivera, a majority of the Court made two rulings that will have an impact on future claims under the statute. First, the Court made clear that GBL § 349 focuses on “the seller’s deception and its subsequent impact on consumer decision-making, not on the consumer’s ultimate use of a product.” Second, the Court confirmed that a written disclaimer may “bar a GBL § 349 claim at the pleading stage it utterly refutes plaintiff’s allegations,” and “address the alleged deceptive conduct precisely, so as to eliminate any possibility that a reasonable consumer would be misled.” The primary issue in Himmelstein was whether plaintiffs (who bought the annual edition of a legal resource manual published and sold by defendant) adequately pleaded a deceptive act or practice prohibited by GBL § 349. The claim was based on defendant’s alleged misrepresentations about the completeness of the laws reproduced in one section of the publication. Plaintiffs brought the action on behalf of themselves and a putative class of purchasers of certain annual editions of New York Landlord-Tenant Law (the “Tanbook”), a compilation of New York legal materials on landlord-tenant law, against defendant Michael Bender & Company Inc., the publisher of the Tanbook. Plaintiffs are a law firm that handles landlord-tenant actions, a non-profit corporation that assists pro se litigants in housing court matters, and a tenant advocate and organizer. The amended complaint alleged, inter alia , that defendant engaged in deceptive business practices in violation of GBL § 349 in its marketing and sale of the 2016 and prior editions of the Tanbook. Plaintiffs claimed that defendant materially misrepresented that Part III of the Tanbook contained a complete and accurate compilation of the statutes and regulations applicable to rent-controlled and rent-stabilized apartments in New York City, when, in fact, key portions were omitted or inaccurately presented. Plaintiffs contended that these omissions and inaccuracies rendered the Tanbook of no value to its users. Plaintiffs further alleged that, after receiving complaints, defendant included the omitted statutes and regulations in the 2017 edition, which, although published late in the calendar year, was sold to plaintiffs and other subscribers at full price. Defendant moved to dismiss the amended complaint under CPLR § 3211(a). Supreme Court granted defendant’s motion and dismissed the complaint in its entirety. The Appellate Division, First Department affirmed the order of dismissal, in part on different grounds. 172 A.D.3d 405 (1st Dept. 2019) ( here ). The Court of Appeals granted plaintiffs leave to appeal (34 N.Y.3d 908 (2020)) and affirmed the First Department’s decision. The Court held that the alleged misrepresentations constituted consumer-oriented conduct under the statute – that is, the misrepresentations were contained in a manual that was marketed to and available for purchase by consumers. In so holding, the Court rejected the First Department’s view of who is a “consumer” under the statute. Under Department-wide authority, which Supreme Court relied upon, consumers are defined as those “who purchase goods and services for personal, family, or household use” ( Himmelstein , 2018 WL 984850, at *5, quoting Med. Socy. V. Oxford Health Plans, Inc. , 15 A.D.3d 206, 207 (1st Dept. 2005)); they are not business purchasers of “a widely sold service that can only be used by businesses.” Id. (quoting Cruz v. NYNEX Info. Resources , 263 A.D.2d 285, 286, 290 (1st Dept. 2000)). The Court explained that “there no textual support in GBL § 349 for a limitation on the definition of ‘consumer’ based on use.” In fact, noted the Court, “any such narrowing of the term ‘consumer’ would be contrary to the legislative intent to protect the public against all forms of deceptive business practices.” (Citations omitted.) The Court made clear that the text and purpose of GBL § 349 did “not support the importation of other statutory definitions (as the First Department had done in its decisions ( see , e.g. , Cruz , 263 A.D.2d at 289)) because, unlike other provisions, section 349 broadly prohibit ‘ eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.’” (Quoting GBL § 349). Significantly, the Court made clear that “the consumer-oriented element” of the statute did not “depend on the use to be made of the product, as what matters is whether the defendant’s allegedly deceptive act or practice is directed to the consuming public and the marketplace.” “In other words,” concluded the Court, “GBL § 349 is focused on the seller’s deception and its subsequent impact on consumer decision-making, not on the consumer’s ultimate use of a product.” Given the foregoing, the Court rejected defendant’s argument that its conduct was not consumer oriented because the Tanbook was marketed to legal professionals ( i.e. , lawyers, judges, and tenant advocates) rather than consumers. “The fact that persons and businesses working in the legal field purchase the Tanbook to assist in their professional endeavors,” said the Court, did “not mean that the defendant’s conduct was not consumer oriented.” Indeed, noted the Court, “ egal professionals merely a subclass of consumers and, as recently clarified, ‘consumer-oriented conduct’ need not ‘be directed to all members of the public.’” (Quoting Plavin , 35 N.Y.3d at 13). Plavin="Plavin" here.=">here."> The Court also held that the alleged misrepresentations were not actionable because no reasonable consumer would find them to be so. As such, said the Court, the amended complaint was properly dismissed. Under New York law, a defendant’s actions are materially misleading when they are “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Gaidon v. Guardian Life Ins. Co. of Am. , 94 N.Y.2d 330, 344 (1999). What is objectively reasonable depends on the facts and context of the alleged misrepresentations and “may be determined as a matter of law or fact (as individual cases require).” Oswego , 85 N.Y.2d at 26 (1995). The Court held that “defendant’s conduct could not materially mislead a consumer into believing that defendant guaranteed the accuracy or currentness of the publication” at issue. First, observed the Court, “the legal materials contained in Part III subject to legislative amendment at any time,” thereby “seriously undermining plaintiffs’ contention that yearly publication was a representation that the Tanbook was complete and accurate.” Second, the Court held that to the extent “defendant’s statements misrepresented the contents of the Tanbook, such purported misrepresentations not materially misleading.” The Court noted that the terms and conditions of the contract for purchase of the publication provided that in addition to the Tanbook, plaintiffs would automatically receive “any supplementation, releases, replacement volumes, new editions and revisions . . . made available during the annual subscription period” along with invoices for the additional cost of any updated materials. Therefore, explained the Court, “defendant expressly offered, and plaintiffs chose to receive, automatic serial mailings of the year’s Tanbook edition upon its publication, with any updates to that edition—if and when they became available—at an additional and separate cost charged by invoice and sent with the update.” In short, said the Court, it was “clear to a consumer that the Tanbook not a completely accurate compilation of the law.” Moreover, explained the Court, the written disclaimer that defendant did “NOT WARRANT THE ACCURACY, RELIABILITY OR CURRENTNESS OF THE MATERIALS CONTAINED IN THE PUBLICATIONS” was specific to the alleged deceptive practice “so as to eliminate any possibility that a reasonable consumer would be misled.” Under New York law, a disclaimer may not bar a GBL § 349 claim at the pleading stage unless it utterly refutes plaintiff’s allegations. Goshen , 98 N.Y.2d at 326; Fink v. Time Warner Cable , 714 F.3d 739, 742 (2d Cir. 2013). This means that the disclaimer must address the alleged deceptive conduct precisely, so as to eliminate any possibility that a reasonable consumer would be misled. Id. However, where the overall impression of the representations are misleading, notwithstanding the disclaimer, the disclaimer is not a defense as a matter of law. See Goshen , 98 N.Y.2d at 326; Delgado v. Ocwen Loan Servicing, LLC , 2014 WL 4773991, at *9 (E.D.N.Y. 2014). The Court rejected plaintiffs’ argument that the alleged deception was an attempt to hide the Tanbook’s lack of “completeness”, as opposed to “accuracy” or “currentness”. The Court found the words of the disclaimer – “the accuracy, reliability or currentness” – to be “equivalent to a disclaimer of completeness.” “Indeed,” said the Court, “plaintiffs’ allegation that the Tanbook incomplete turn entirely on whether the content accurate, reliable, and current.” “The fact that a purchaser might not buy the Tanbook without an accurate and complete reproduction of the statutes and regulations—because, as plaintiffs allege , that would render the Tanbook unreliable—goes to whether defendant offering an item worth buying, not whether defendant ha deceived consumers about the nature of its product”, concluded the Court. “GBL § 349 is concerned only with the latter conduct.” In sum, concluded the Court, “ he Tanbook’s susceptibility to revision at any time, coupled with the fact that the disclaimer addresse the precise deception alleged in plaintiffs’ complaint, no possibility that a reasonable consumer would have been misled about the contents of the Tanbook.” Judge Eugene M. Fahey dissented in part. Judge Fahey agreed with the majority that the conduct at issue was consumer oriented: “It is irrelevant that the Tanbook was primarily marketed to and purchased by businesses and professionals. A business may be a consumer.” However, he did not agree that the alleged misrepresentation was not actionable. Judge Fahey rejected the majority’s view that the disclaimer in the contract barred plaintiffs’ claim as a matter of law. “A disclaimer is not a per se bar to a GBL § 349 cause of action,” said Judge Fahey, “even when it is specific.” The reason, explained Judge Fahey, is to prevent “routine disclaimers” from “render the consumer protections, codified by the statute, meaningless.” According to Judge Fahey, “defendant’s disclaimer must be considered as one part of the overall analysis in determining whether the alleged deceptive conduct was ‘likely to mislead a reasonable consumer acting reasonably under the circumstances.’” (Quoting Oswego , 85 N.Y.2d at 26). Based upon that wholistic approach, Judge Fahey found that plaintiffs “adequately pleaded that element, which not amenable to resolution at the motion to dismiss stage.” “In concluding otherwise,” said Judge Fahey, “the majority has treated defendant’s motion to dismiss as a motion for summary judgment.” Judge Fahey also addressed the First Department’s holding that plaintiffs sustained no injury. He found that the court erred in holding that an injury under GBL § 349 must be more than the cost of the goods purchased. Such an injury, said Judge Fahey, is consistent with the legislative purpose of the statute as well as common sense. “The use of deception to induce a consumer to buy a product,” concluded Judge Fahey, “is precisely the kind of conduct the legislature sought to prohibit with GBL § 349.” Takeaway Himmelstein makes clear that the consumers protected by GBL § 349 include businesses and non-businesses alike. The decision also makes clear that the focus of the courts should be on “the seller’s deception and its subsequent impact on consumer decision-making, not on the consumer’s ultimate use of a product.” Himmelstein is, therefore, a departure from decisions of the First Department. Himmelstein also makes clear that disclaimers specific to the alleged act or practice, which neutralize any deception such that no reasonable consumer would be misled, will bar a claim under GBL § 349.

It is an understatement to say that the impact of the COVID-19 pandemic on all aspects of life was far reaching.  This Blog has written numerous articles specifically addressing the impact of COVID-19 on the New York court system and its litigants.  Among others, < Here =">Here"> , < Here =">Here"> < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> , < Here =">Here"> and < Here =">Here"> .  Today, this BLOG will discuss Brash v. Richards , a case decided on June 2, 2021, by the Second Department.  As discussed further herein, Brash held that Governor Cuomo’s COVID-19 Executive Orders (the “Executive Orders”) “tolled” court filing deadlines as opposed to “suspending” them.  This distinction is critical for litigants. The Brash Court explained the difference between a “toll” and a “suspension” as follows: A toll suspends the running of the applicable period of limitation for a finite time period, and " he period of the toll is excluded from the calculation of the " ( Chavez v Occidental Chem. Corp. , 35 NY3d 492, 505 n 8 <2020> ; see Foy v State of New York , 71 Misc3d 605 <2021> ). "Unlike a toll, a suspension does not exclude its effective duration from the calculation of the relevant time period. Rather, it simply delays expiration of the time period until the end date of the suspension" (Foy v State of New York, 71 Misc3d at 608).   (Hyperlink and some brackets added.) The Executive Law authorizes the Governor to issue executive orders, including those like the ones issued relating to the pandemic.  Executive Law § 29-a(1) provides that “ ubject to the state constitution, the federal constitution and federal statutes and regulations, the governor may by executive order temporarily suspend specific provisions of any statute, local law, ordinance, or orders, rules or regulations, or parts thereof, of any agency during a state disaster emergency, if compliance with such provisions would prevent, hinder, or delay action necessary to cope with the disaster.”  Executive Law 29-a(2)(d) , which places limitations on the “suspensions pursuant to subdivision one of this section,” provides that “the order may provide for such suspension only under particular circumstances, and may provide for the alteration or modification of the requirements of such statute, local law, ordinance, order, rule or regulation suspended, and may include other terms and conditions.” On March 20, 2020, the first related Executive Order ( No. 202.8 ) was issued by the Governor, by which certain time limits were “temporarily suspended or modified” and “tolled” for 30 days.  “Governor Cuomo later issued a series of nine subsequent executive orders that extended the suspension or tolling period, eventually through November 3, 2020.”  Brash , at page 2.  Not all of the related Executive Orders, however, used the word “toll.”  Brash at p. 2.  However, they all contained identical or “nearly identical” language indicating that “the Governor ‘hereby continue the suspensions, and modifications of law, and any directives, not superseded by a subsequent directive, ‘made in the prior executive orders.’”  Brash at p. 3.  The Executive Orders issued on October 5, 2020, and November 3, 2020, which both use the term “toll,” indicate that the “toll” will no longer be in effect after November 3, 2020.  Questions abounded as to whether the Executive Orders effectuated a “toll” or a “suspension” of applicable filing deadlines.  Again, the Second Department in Brash , held that the Executive Orders effectuated “tolls” of filing deadlines. Brash involved the timeliness of the filing of a notice of appeal.  The respondent in Brash served a copy of an order with notice of entry on October 2, 2020, and appellant’s related notice of appeal was served on November 10, 2020.  Pursuant to CPLR 5513 (a), a notice of appeal must be served within 30 days of service of the judgment or order appealed from with notice of entry.  If the Executive Orders effectuated a “toll”, the appeal would be timely, as the appellant would have had 30 days from November 3, 2020, to file a notice of appeal.  If the Executive Orders, merely, effectuated a suspension, the appellant’s time to file a notice of appeal would have expired on or about November 3, 2020.  Accordingly, appellant argued in favor of “toll” and respondent argued in favor of “suspension.”  Respondent further urged that while some of the Executive Orders contained “toll” language, Executive Law § 29-a did not permit Governor Cuomo to issue “tolls” but only “suspensions”.  The Brash Court found respondent’s argument in this regard “unpersuasive,” holding that the language of Executive Law 29-a(2)(d) “authorized the Governor “to do more than just ‘suspend’ statutes during a state disaster emergency; he or she may ‘alter[]’ or ‘modif ’ the requirements of a statute, and a tolling of time limitations contained in such statute is within that authority.”  Brash , at 3 to 4 (citing to Foy ).  The Brash Court further found that even though most of the Executive Orders did not use the term “toll,” they used the term “modification” and “ ince the tolling of a time limitation contained in a statute constitutes a modification of the requirements of such statute within the meaning of Executive Law § 29-a(2)(d), these subsequent executive orders continued the toll that was put in place by Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8).” For similar reasons, the Court of Claims, in Foy, supra , held that the Executive Orders effectuated a “toll” as opposed to a “suspension”. While the Second Department made its position clear, the Court of Appeals will likely opine on this issue at some point in the future.