By: Jeffrey M. Haber The internal affairs doctrine is a “conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.”[1] Stated differently, “[u]nder the internal affairs doctrine, claims concerning the relationship between the corporation, its directors, and a shareholder are governed by the substantive law of the state or country of incorporation.”[2] However, the “internal affairs doctrine, although potent, has very specific applications.”[3] In particular, the doctrine only “governs the choice of law determinations involving matters peculiar to corporations, that is, those activities concerning the relationships inter se of the corporation, its directors, officers and shareholders.”[4] The doctrine “does not apply to those defendants who are not current officers, directors, and shareholders” of the corporation.[5] The internal affairs doctrine has been consistently invoked by New York courts in derivative actions to apply foreign law on substantive issues, including those affecting a party’s right to sue.[6] [Eds. Note: this Blog previously examined the internal affairs doctrine here.] A plaintiff may sue derivatively so long as the plaintiff is a shareholder of the company “at the time of bringing the action,” and at the time of the alleged wrongdoing.[7] “[A] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing” to sue derivatively.[8] Accordingly, courts have focused on the plaintiff’s stock ownership during both points in time, and in particular at the time of the alleged misconduct. In New York, the contemporaneous ownership rule is “strictly enforced.”[9] To satisfy the requirement, the plaintiff must have “acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired” and continued to own the stock “throughout the course of the activities that constitute the primary basis of the complaint.”[10] “[F]ailure to satisfy the . . . contemporaneous ownership requirement of § 626(b) is such a fundamental lack of capacity that it results in failure to state a cause of action.”[11] For this reason, courts require the plaintiff to plead contemporaneous ownership with particularity rather than through boilerplate assertions.[12] [Eds. Note: this Blog previously examined derivative standing, in particular stock ownership, here.] In Ezrasons, Inc. v. Rudd, 2023 N.Y. Slip Op. 02938 (1st Dept. June 1, 2023) (here), the Appellate Division, First Department examined these principles. As discussed below, the Court affirmed the dismissal of a derivative litigation brought on behalf of Barclays PLC due to the lack of derivative standing by the plaintiff under English law. [Eds. Note: the factual discussion below comes from the record and briefing on appeal.] In Ezrasons, plaintiff, a New York–registered corporation, brought a derivative action on behalf of Barclays PLC under English law against 46 individual defendants and Barclays PLC’s subsidiary BCI for allegedly breaching fiduciary duties to Barclays PLC. BCI and certain individual defendants moved to dismiss the complaint. The moving defendants advanced five reasons for dismissal: (1) the motion court lacked subject-matter jurisdiction under BCL § 1319; (2) plaintiff lacked standing under English substantive law — applicable under the internal affairs doctrine — because it was not a registered member of Barclays PLC; (3) plaintiff did not satisfy the ownership requirement of BCL § 626(b); (4) plaintiff did not allege facts sufficient to excuse the pre-suit demand requirement of BCL § 626(c); and (5) forum non conveniens. In support of their motion, defendants submitted an affirmation from Barclays PLC Assistant Company Secretary stating, among other things, that plaintiff did not appear “as a registered, legal owner of Barclays PLC shares as of April 30, 2021,” on the official share register maintained by Equiniti Limited and Equiniti Financial Services Limited. Defendants also submitted an affirmation from an expert on English law, who opined on the requirements of English law governing shareholder derivative actions under both the Companies Act and common law. Following oral argument, the motion court granted defendants’ motion with prejudice. Speaking to the issue of standing and the internal affairs doctrine, the motion court held that the BCL “does not override the internal affairs doctrine on the issue of standing to bring a derivative claim because it is a mere statutory predicate to jurisdiction.” The motion court rejected plaintiff’s argument that the First Department’s decision in Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC, 118 A.D.3d 422 (1st Dept. 2014) “dictates a different outcome,” because “Culligan concerned regulation of conduct within New York and did not purport to alter settled New York law on the application of the internal affairs doctrine.” Having determined that substantive English law applied, the motion court held that “the membership requirement of the United Kingdom’s Companies Act is a substantive provision that … had to be met here” and that “Plaintiff lacks standing to sue” because it “is not a registered member of Barclays.” The motion court noted that: (1) “[t]here is an admission by [plaintiff’s] attorneys in the course of their opposition that they could become a member which speaks plainly that they are not members”; and (2) “[t]here is an affidavit … searching the record of documents that would show who are or are not members.” Consequently, the motion court rejected the “conclusory statement in the complaint” that plaintiff was a “registered” member of Barclays PLC and found that plaintiff lacked standing. On appeal, the First Department unanimously affirmed. The Court held that “[t]he [motion] court correctly dismissed the complaint based on plaintiff’s lack of standing to bring this shareholder derivative action.”[13] The Court explained that the motion court “correctly ruled that defendants made the showing necessary for dismissal for lack of standing under the ECA [English Companies Act].”[14] The Court found that the “unrebutted affirmation from Barclays [Assistant Company Secretary] stating that inquiries with its registrar showed that plaintiff’s name did not appear as a registered, legal owner of Barclays PLC shares as of April 30, 2021,” to be dispositive “[d]espite the complaint’s verified allegations of plaintiff’s stock ownership and membership.”[15] The Court also found persuasive “plaintiff’s counsel’s clear acknowledgement in its opposition brief to defendants’ dismissal motion that plaintiff was not a member” of Barclays PLC, which it noted was “an informal judicial admission entitled to some evidentiary weight.”[16] The Court rejected plaintiff’s argument that BCL § 1319 regulates the internal affairs of foreign corporations, such that New York law applies to the substantive issues raised in the dispute.[17] In doing so, the Court adopted the rationale of the court in City of Aventura Police Officers’ Retirement Fund v. Arison, 70 Misc. 3d 234 (Sup. Ct., N.Y. County 2020), which ruled that BCL § 1319 merely confers jurisdiction upon New York courts over derivative suits on behalf of a foreign corporation.[18] In that case, the court explained that BCL § 1319 is a jurisdictional provision and “does not require application of New York law in such suits,” and does not “override the internal affairs doctrine.”[19] As such, the court held that the ECA’s requirement that suit be brought by a “member of the company” was an applicable substantive rule in a New York derivative suit. Accordingly, in applying the internal affairs doctrine, the Arison court held that the plaintiff lacked derivative standing under the English Companies Act.[20] The Court also rejected plaintiff’s argument that Cullen silently overruled the application of the internal affairs doctrine.[21] Citing to multiple authorities, the Court stated that if it were to overrule a longstanding principle of law, it would do so explicitly.[22] In conclusion, the Court reiterated that, as it has “demonstrated in many decisions since [Cullen], the internal affairs doctrine continues to apply to derivative actions.”[23] __________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] New Greenwich Litig. Trustee, LLC v. Citco Fund Servs. [Europe] B.V., 145 A.D.3d 16, 22 (1st Dept. 2016), lv. denied, 29 N.Y.3d 917 (2017) (quoting, Edgar v. MITE Corp., 457 U.S. 624, 645 (1982)); see also Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC, 118 A.D.3d 422 (1st Dept. 2014). [2] Davis v. Scottish Re Group Ltd., 138 A.D.3d 230, 233 (1st Dept. 2016). [3] Matter of Am. Intl. Group, Inc., 965 A.2d 763, 817 (Del. Ch. 2009) (cited with approval, New Greenwich, 145 A.D.3d at 23). [4] Id. at 817 (internal quotation marks omitted). [5] Culligan, 118 A.D.3d at 422. [6] See, e.g., Lerner v. Prince, 119 A.D.3d 122, 127-128 (1st Dept. 2014); Hart v. General Motors Corp., 129 A.D.2d 179, 183 (1st Dept. 1987), lv. denied, 70 N.Y.2d 608 (1987). [7] See, e.g., BCL § 626(b); Pessin v. Chris-Craft Indus., 181 A.D.2d 66, 70 (1st Dept. 1992). See also Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984). [8] Lewis, 477 A.2d at1049. [9] Honzawa Holding Co. v. Hiro Enter. USA, 291 A.D.2d 318, 318 (1st Dept. 2002). [10] In re Bank of New York Deriv. Litig., 320 F.3d 291, 298 (2d Cir. 2003). [11] Roy v. Vayntrub, 15 Misc. 3d 1127(A), 2007 NY Slip Op 50868(U), at *6 (Sup. Ct., Nassau County 2007) (citing Barr v. Wackman, 36 N.Y.2d 371 (1975)). [12] See, e.g., In re Computer Sciences Corp. Deriv. Litig., 2007 WL 1321715, at *15 (C.D. Cal. Mar. 26, 2007) (“[G]eneral allegation[s] [are] insufficient to allege contemporaneous ownership during the period in which the questioned transactions occurred.”). [13] Slip Op. at *1. [14] Id. [15] Id. [16] Id. (citing, Matter of Union Indem. Ins. Co. of N.Y., 89 N.Y.2d 94, 103-104 (1996)). [17] Id. [18] Id. [19] Id. (quoting, Arison, 70 Misc. 3d at 244 (internal quotation marks omitted)). [20] Arison, 70 Misc. 3d at 248-253. [21] Slip Op. at *1. [22] Id. at 1-2 (citing, Matter of Orozco v. City of New York, 200 A.D.3d 559,562 (1st Dept. 2021) (“If we are to depart from settled principle, we should do so explicitly and not on the basis of a one-paragraph memorandum opinion that does not cite or discuss the relevant precedent let alone express an intent to overrule it”), lv. granted, 39 N.Y.3d 903 (2022); Arison, 70 Misc. 3d at 245 n.3 (“‘if the court in Culligan wanted to change the clear precedents about the internal affairs doctrine it most assuredly would have said just that, and why’”) (internal brackets omitted) (quoting, Stephen Blau MD Money Purchase Pension Plan Trust v. Dimon, 2015 N.Y. Slip Op., 32909(U), at*8 n.1 (Sup. Ct., N.Y. County 2015)). [23] Id. at *2 (citations omitted).

By: Jeffrey M. Haber In Bent v. Cirone, 2026 N.Y. Slip Op. 03875 (1st Dept. June 18, 2026), the Appellate Division, First Department, addressed the scope of the business judgment rule and the requirements for derivative standing. The dispute arose after a condominium resident claimed that board members retaliated against him for opposing a proposed $3 million capital improvement project. Although the motion court dismissed the claims against the individual board members, finding that their conduct was protected by the business judgment rule and that Plaintiff lacked standing to assert derivative claims, the First Department modified the order (i.e., the motion court’s decision). The Court reinstated the plaintiff's direct claims, holding that allegations of an animus-driven campaign of retaliation and other tortious conduct were sufficient to survive dismissal and were not barred by the business judgment rule at the pleading stage. At the same time, the Court reaffirmed that derivative standing belongs to shareholders/unitholders and cannot be acquired merely through an assignment of litigation claims. Bent arose from a disagreement between Plaintiff and the Condominium Board and Residential Board (“Board”) of the 99 Jane Street Condominium (“Condominium”) over the management of the residential section of the Condominium. Plaintiff and his family live in a unit of the Condominium (“Unit”), which is owned solely by his wife. Just prior to commencement of the action, Plaintiff and his wife executed an agreement in which she “irrevocably sold, conveyed, transferred and assigned” to Plaintiff all of her “ownership, right, title and interest in and to the litigation claims” against Defendants. The Individual Defendants are members of the Board responsible for managing the Condominium’s residential section. According to Plaintiff, in June 2021, he objected to the Board’s proposed plans to conduct $3 million in capital improvements of the building. Plaintiff contended the Board’s response to his objections resulted in improper and retaliatory conduct. In that regard, Plaintiff alleged that (a) Defendants purposefully created unsafe and unhealthy living conditions for him and his family, (b) his family had been denied paid-for services, such as routine maintenance work in the Unit, (c) sewage odors were prevalent in the Unit, of which Defendants were aware, and (d) there were unrepaired issues with the air conditioning, including noise from the ventilation fans. Plaintiff further asserted that Defendants intentionally spread false and malicious communications about Plaintiff in notices distributed to unit owners, among others, through the Condominium’s official, building-wide communication system, impacting his participation in Board elections. Plaintiff commenced the action on September 29, 2023, and amended the complaint on December 22, 2023. Of the ten causes of action, eight were brought individually, and two were brought derivatively on behalf of all the Condominium’s unit owners. Defendants moved to dismiss all causes of action pursuant to CPLR 3211(a)(1), (3), and (7), except for those against the Board for breach of contract and for a permanent injunction. In support of their motion to dismiss, Defendants argued that Plaintiff failed to allege any wrongdoing of the Individual Defendants that would be separate from their action as Board Members, and, in any event, under the exculpation of liability provision of the Condominium’s By-Laws, the Individual Defendants were exempt from liability. They further argued, inter alia, that their actions were protected by the business judgment rule and that Plaintiff failed to demonstrate that he had standing to bring his claims for record inspection and his derivative actions. Relevant to this article, the motion court granted Defendants’ motion to dismiss the amended complaint with respect to the direct and derivative claims asserted against the Individual Defendants. The motion court held that Plaintiff improperly brought his claims collectively against multiple defendants without specifying the precise tortious conduct charged to a particular defendant.[1] The motion court explained that the amended complaint did not specify any individual conduct each Individual Defendant purportedly had undertaken that would result in the tortious conduct warranting damages or the permanent injunction sought by Plaintiff. The motion court also held that even if Plaintiff had been sufficiently specific in his allegations, the Individual Defendants’ conduct was protected under the business judgment rule.[2] The motion court explained that Plaintiff’s causes of action against the Individual Defendants were rooted in the Board’s decision not to perform repairs in the Condominium as requested by Plaintiff. Such conduct, said the motion court, was subject to the business judgment rule. Accordingly, the Individual Defendants could not be held liable under Plaintiff’s tort-based causes of action. Further, the motion court held that Plaintiff, as a non-unit owner, lacked standing to bring derivative claims against the Individual Defendants on behalf of all Condominium unit owners.[3] On appeal, the First Department modified the motion court’s order, to deny the motion as to the direct claims, and otherwise affirmed. The Court held that “Plaintiff adequately stated direct claims against the individual defendants.”[4] The Court explained that the “allegations that the individual board members all participated in, directed, controlled and/or approved the alleged tortious acts that were taken collectively by the condominium board [were] sufficient to sustain the claims at this pre-discovery stage.”[5] The Court also held that the “[t]o the extent the complaint include[d] nonconclusory allegations of an animus-driven campaign of retaliatory actions that constitute[d] tortious conduct, the direct tort claims [were] not properly dismissed at this stage based on the business judgment rule.”[6] The Court further held that Plaintiff’s claims should not have been dismissed based on the Condominium’s by-law provisions that limit the personal liability of the board members, where the members engaged in bad faith or willful misconduct.[7] Finally, the Court held that the motion court “properly dismissed the derivative claims that were asserted against the individual defendants on behalf of the condominium’s unit owners” on standing grounds.[8] Under New York law, “[a] membership interest in a limited liability company is assignable in whole or in part.”[9] However, the assignment of a membership interest “does not . . . entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member.”[10] Rather, “the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled.”[11] The Court found that “neither the assignment, nor any other instrument, transferred to him the membership interest in the condominium that is required for the assertion of derivative claims on behalf of the unit owners.”[12] Takeaway The principal takeaway from Bent is that the business judgment rule will not shield board members from suit when a complaint contains nonconclusory allegations of bad faith, retaliation, or other tortious conduct, but derivative standing remains limited to those who hold a membership interest in the corporation and cannot be acquired merely through an assignment of litigation claims. With respect to the business judgment rule, the motion court viewed the dispute as one involving board decisions concerning repairs, maintenance, and condominium operations, precisely the type of discretionary decisions typically protected under the rule. The motion court, therefore, concluded that the Individual Defendants were insulated from liability because the challenged conduct arose from decisions made within the scope of their authority as board members. The First Department applied the doctrine differently than the motion court. While recognizing the application of the business judgment rule, the Court held that the rule does not require dismissal where a complaint alleges more than mere disagreement with board decisions. In Bent, Plaintiff alleged that the board members engaged in an animus-driven campaign of retaliatory actions in response to his opposition to a multimillion-dollar capital improvement project. According to the Court, allegations that the Individual Defendants participated in, directed, controlled, or approved retaliatory and otherwise tortious conduct were factually sufficient to state claims for relief. As a result, the Court held that the business judgment rule did not warrant dismissal of the direct tort claims at the pleading stage. The Court’s decision reinforces the principle that the rule protects good-faith board decision-making but does not provide blanket immunity for conduct alleged to have been motivated by bad faith, retaliation, or willful misconduct. The First Department similarly rejected reliance on the Condominium’s by-law provisions limiting personal liability of board members. Those protections, the Court noted, do not apply where the complaint adequately alleges bad faith or willful misconduct. Thus, Bent underscores that both the business judgment rule and exculpatory by-law provisions have limits when a plaintiff alleges facts that board members acted with improper motives. The second significant holding of Bent concerns derivative standing. Plaintiff’s wife owned the Unit and assigned him all rights and interests in the litigation claims against Defendants. The First Department held that the assignment was sufficient to give Plaintiff standing to pursue the direct claims. However, it was insufficient to confer standing to assert derivative claims on behalf of the Condominium’s unit owners. The Court emphasized the distinction between the assignment of a cause of action and ownership of the membership interest from which derivative standing flows. A derivative action is not based on an individual’s personal rights; rather, it is an assertion of the rights of the corporation by one of its owners. Because Plaintiff never acquired his wife’s ownership or membership interest in the corporation, only her litigation claims, he lacked the standing necessary to sue derivatively on behalf of the unit owners. The assignment transferred claims, but it did not transfer the ownership interest required to step into the shoes of a Condominium member for derivative purposes. Accordingly, Bent stands for two important propositions: first, factual allegations of bad faith and retaliatory conduct may prevent board members from obtaining dismissal under the business judgment rule at the pleading stage; and second, derivative standing depends on ownership or membership status in the corporation itself, not merely on the assignment of litigation claims. An assignee may pursue the assignor’s direct claims, but absent a transfer of the underlying ownership interest, the assignee cannot maintain derivative claims on behalf of the corporation. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Aetna Cas. & Sur. Co. v Merchants Mut. Ins. Co., 84 A.D.2d 736 (1st Dept. 1981). [2] Berenger v. 261 W. LLC, 93 A.D.3d 175, 184 (1st Dept. 2012) (“[T]he business judgment rule protects individual board members from being held liable for decisions, such as those concerning the manner and extent of repairs, that were within the scope of their authority”). [3] Bd. of Mgrs. of the 28 Cliff St. Condominium v. Maguire, 191 A.D.3d 25, 33 (1st Dept. 2020) (“[a] derivative action proceeds not on the basis of any individual right, but as an assertion of the interest of the entity by one or more of its owners”) (citing Caprer v. Nussbaum, 36 A.D.3d 176, 186 (2d Dept. 2006). [4] Slip Op. at *1. [5] Id., citing Fletcher v. Dakota, Inc., 99 A.D.3d 43, 49 (1st Dept. 2012); see also Stewart Tit. Ins. Co. v. Liberty Tit. Agency, LLC, 83 A.D.3d 532, 533 (1st Dept. 2011). [6] Id., citing Board of Mgrs. of the Alfred Condominium v. Miller, 202 A.D.3d 467, 469 (1st Dept. 2022); Gochberg v. Sovereign Apts., Inc., 119 A.D.3d 431, 432 (1st Dept. 2014). [7] Id. [8] Id. [9] Behrend v. New Windsor Group, LLC, 180 A.D.3d 636, 639 (2d Dept. 2020); see Limited Liability Company Law (“LLC Law”) § 603(a)(1). [10] LLC Law § 603(a)(2); see Behrend, 180 A.D.3d at 639. It is important to note that Section 603(a) of the LLC Law makes clear that an assignment of a membership interest is governed by the statute, “[e]xcept as provided in the operating agreement.” [11] LLC Law § 603(a)(3); see Behrend, 180 A.D.3d at 639. [12] Id., citing Kober v. Nestampower, 243 A.D.3d 902, 904 (2d Dept. 2025); MFB Realty LLC v. Eichner, 161 A.D.3d 661, 661 (1st Dept. 2018).

By: Jeffrey M. Haber In Tiburcio v. Grant Ave. Bronx Realty Corp., 2025 N.Y. Slip Op. 02669 (1st Dept. May 01, 2025) (here), the Appellate Division, First Department was asked to decide whether the statute of limitations expired on all causes of action alleged by the plaintiff or whether the continuing wrong doctrine applied to toll the applicable limitations periods. As discussed below, the Court held that the continuing wrong doctrine to did not apply to save the complaint from dismissal. The continuous wrong doctrine is an exception to the general rule that the statute of limitations runs from the date a cause of action accrues.[1] The doctrine “is usually employed where there is a series of continuing wrongs and serves to toll the running of a period of limitations to the date of the commission of the last wrongful act.”[2] Where applicable, the doctrine will save all claims for recovery of damages but only to the extent of wrongs committed within the applicable statute of limitations.[3] The doctrine “may only be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.”[4] The doctrine is inapplicable where there is one tortious act complained of since the cause of action accrues in those cases at the time that the wrongful act first injured plaintiff and it does not change as a result of “‘continuing consequential damages.’”.[5] In contract actions, the doctrine is applied to extend the statute of limitations when the contract imposes a continuing duty on the breaching party.[6] Thus, where a plaintiff asserts a single breach—with damages increasing as the breach continued—the continuing wrong theory does not apply.[7] [Eds. Note: this Blog has examined the continuing wrong doctrine on numerous occasions. E.g., here, here, here, and here. To find additional articles related to the continuing wrong doctrine, visit the “Blog” tile on our website and enter “continuing wrong” or “continuous wrong” in the “search” box.] Tiburcio involved an alleged fraudulent conveyance of real property located in the Bronx, New York (the “Property”). On March 26, 2014, the parties entered into a contract pursuant to which plaintiff transferred ownership of the Property to defendant for $559,000.00. The purchase price included the underlying remaining mortgage on the property of $534,000, as well as a $25,000 cash payment to the plaintiffs. According to plaintiffs, defendant approached them in connection with a foreclosure proceeding that had commenced in January 14, 2014, and advised them that it would negotiate with plaintiffs’ lender on their behalf, locate a bona-fide purchaser who would buy the Property by way of short sale, and relieve plaintiffs of their obligation under the mortgage. All the foregoing representations, said plaintiffs, were memorized in the written purchase agreement. Based on the alleged fraudulent representation that the mortgage would be paid off, plaintiffs transferred the deed to defendant, which plaintiffs allegedly believed was part of a standard short sale transaction. Consequently, on March 26, 2014, plaintiffs sold the Property to defendant for an additional $25,000.00 subject to the mortgage and all liens. The deed was recorded on April 11, 2014. Plaintiffs alleged that they never received the $25,000 payment and did not receive any consideration for the execution of the deed. Plaintiffs maintained that their attempts to contact defendant regarding the short sale transaction went unanswered. Plaintiff alleged that defendant never had any intention of entering into a short sale agreement and only wanted to use the Property for its own enrichment. According to plaintiffs, they were notified in May 2016 that defendant failed to make payment towards the mortgage in violation of their agreement and, as such, another foreclosure action was commenced. On July 22, 2016, plaintiffs filed a conversion action seeking to nullify and/or void the deed, asserting that it was fraudulently created because defendant never intended to pay the mortgage. On April 20, 2017, the lender/mortgage holder filed a foreclosure action on the Property and against plaintiffs. Defendants moved to dismiss the complaint on the grounds that, inter alia, the statute of limitations expired on plaintiffs’ claims.[8] Plaintiff argued that defendant’s repeated failure to make the payment required under the purchase agreement and the ongoing prosecution of the foreclosure action constituted a “continuous wrong” that rendered all the causes of action asserted in the complaint timely. The motion court granted defendant’s motion to dismiss. On appeal, the First Department unanimously affirmed. [Eds. Note: the underlying facts of Tiburcio were taken from the motion court’s decision, the briefing on appeal, and the First Department’s decision and order.] In a pithy decision, the Court held that “Supreme Court correctly determined that defendant’s alleged failure to pay off the mortgage, resulting in the 2017 foreclosure action, did not qualify as ‘a series of independent, distinct wrongs’ to toll the applicable statutes of limitations under the ‘continuous wrong doctrine’”.[9] The Court explained that the doctrine did not apply because there was only one tortious act complained of – that is, the causes of action (e.g., fraud, conversion, and breach of contract) accrued “at the time that the wrongful act first injured plaintiff” and did “not change as a result of ‘continuing consequential damages.’”[10] Accordingly, the Court held that plaintiffs’ claims were time barred. ________________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice [1] Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). [2] Henry v. Bank of Am., 147 A.D.3d 599, 601 (1st Dept. 2017); Selkirk v. State of New York, 249 A.D.2d 818, 819 (3d Dept. 1998). [3] Jensen v. General Elec. Co., 82 N.Y.2d 77, 83-85, 88 (1993); Sutton Investing Corp. v. City of Syracuse, 48 A.D.3d 1141, 1143 (4th Dept. 2008), lv. dismissed 10 N.Y.3d 858 (2008). [4] Doukas v. Ballard, 39 Misc. 3d 1227(A), 2013 N.Y. Slip Op. 50776(U), *6 (Sup. Ct., Suffolk County 2013) (citation omitted); see also Henry, 147 A.D.3d at 601; Roslyn Sav. Bank v. National Westminster Bank USA, 266 A.D.2d 272 (2d Dept. 1999). [5] Town of Oyster Bay v. Lizza Indus., Inc., 22 N.Y.3d 1024, 1032 (2013); see also Quintana v. Wiener, 717 F. Supp. 77, 80 (S.D.N.Y. 1989); Henry, 147 A.D.3d at 601. [6] Henry, 147 A.D.3d at 601 (citing cases). [7] Id.; see also Kahn v. Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1041 (2d Cir. 1992), cert. denied 506 U.S. 986 (1992). [8] Defendant moved to dismiss pursuant to CPLR 3211(a)(5). To prevail on the latter, the movant must establish a prima facie case that the plaintiff’s time to commence an action has expired; then the burden shifts to the plaintiff to raise a question of fact as to whether it commenced the action within the applicable limitations period, or whether an exception or tolling applies. Williams v. City of Yonkers, 160 A.D.3d 1017, 1019 (2d Dept. 2018) (citation omitted); Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc., 137 A.D.3d 685, 689 (1st Dept. 2016). [9] Slip Op. at *1 (citing Henry, 147 A.D.3d at 601). [10] Id. (citing id.)

By: Jonathan H. Freiberger Today’s article relates to a decision in a mortgage foreclosure action[1] that combines numerous concepts about which we have previously written. We will quickly revisit CPLR 3215(c)[2], which provides, in pertinent part, that: If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed…. Courts have held that the language of CPLR 3215(c) is “mandatory” in the first instance unless plaintiff demonstrates “sufficient cause” for the failure to timely take proceedings for the entry of a default judgment. U.S. Bank N.A. v. Pane, N.Y.S.3d , 2025 N.Y. Slip Op. 02619 (2nd Dep’t April 30, 2025). We have also addressed the consequences of the death of a party during the pendency of a litigation. See, e.g., [here], [here] and [here]. Because litigation can be a drawn-out process, it is not uncommon for a party to die in the process. CPLR § 1015, which addresses this circumstance, provides, inter alia, that “[i]f a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties.” Significantly, the “death of a party divests the court of jurisdiction and stays the proceedings until a proper substitution has been made pursuant to CPLR 1015(a). Moreover, any determination rendered without such substitution will generally be deemed a nullity.” Hayden v. Brown, 230 A.D.3d 657, 658 (2nd Dep’t 2024) (citations and internal quotation marks omitted); see also Sorcigli v. Lombardo, N.Y.S.3d , 2025 N.Y. Slip Op. 02365 (2nd Dep’t April 23, 2025). The proceedings are generally stayed “pending the substitution of a personal representative for the decedent.” Wells Fargo Bank, N.A. v. Miglio, 197 A.D.3d 776, 777 (2nd Dep’t 2021) (citations and internal quotation marks omitted); see also Sorcigli, supra, at *1. However, “if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution.” Wells Fargo Bank, N.A. v. Miglio, 197 A.D.3d 776, 777 (2nd Dep’t 2021) (citation and internal quotation marks omitted); see also Nationstar Mortgage, LLC v. Persaud, 231 A.D.3d 842 (2nd Dep’t 2024).[3] Against this backdrop, today we discuss U.S. Bank N.A. v. Sanon, a case decided by the Appellate Division, Second Department, on May 7, 2025. In January of 2009, the lender in Sanon commenced an action to foreclose a mortgage delivered by the borrower to secure the repayment of his obligations under a promissory note. The borrower was promptly served with process[4] but failed to appear in the action or answer the complaint and, accordingly, was in default in or about February of 2009. The borrower died in July of 2012. Subsequently, the lender moved for leave to enter a default judgment[5] and for an order of reference. While the motion was unopposed, it was denied by the motion court by an order entered in October of 2015, in which the motion court “also directed dismissal of the complaint pursuant to CPLR 3215(c) based on the [lender]'s failure to take proceedings for the entry of judgment within one year of [the borrower]'s default in appearing or answering the complaint….” Thereafter, in 2020, the lender moved pursuant to CPLR 5015(a)(4)[6] to vacate the dismissal order and to restore the action to the active calendar “arguing that the Supreme Court was without jurisdiction to enter the order because [the borrower] had died prior to the issuance of the dismissal order and, thus, the court was divested of jurisdiction until such time as a legal representative of the estate was substituted for the deceased defendant in this action.” The motion was denied and the lender appealed. The Second Department affirmed. After discussing some of the legal issues addressed, supra, the Court stated: However, if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution. Indeed, a mortgagor who has been duly served with notice of a foreclosure action and defaults in appearing is not entitled to notice of any subsequent judgment or sale. …It is undisputed that [the borrower] failed to appear or answer the complaint. Since [the borrower] defaulted in appearing or answering the complaint approximately 3½ years prior to his death, neither he nor any of his successors in interest was entitled to notice of a judgment of foreclosure or of an ensuing sale of the subject property. Pursuant to CPLR 3215(c), the [lender]’s time to take proceedings for the entry of judgment expired approximately 2½ years prior to [the borrower]’s death. Under the circumstances, the Supreme Court correctly determined that [the borrower]’s death did not affect the merits of this action, and there was no need to strictly adhere to the requirement for a stay pending substitution. Since the court was not divested of jurisdiction upon [the borrower]’s death, the dismissal order was properly issued. Accordingly, the court properly denied the [lender]’s motion pursuant to CPLR 5015(a)(4) to vacate the dismissal order, to restore the action to the active calendar, and to substitute the administrator of [the borrower’s] estate in place of [the borrower]. [Citations and internal quotation marks omitted.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has written dozens of articles addressing various aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosureor other commercial litigation issues that may be of interest to you. [2] This BLOG has written numerous articles addressing CPLR 3215(c). To find such articles, please see the BLOG tile on our website and type “3215(c)” into the “search” box. [3] This BLOG has previously written about Persaud [here]. [4] This BLOG has addressed various issues related to service of process. See, e.g., [here], [here], [here], [here], [here] and [here]. [5] This BLOG has previously addressed default judgments. See, e.g., [here], [here], [here] and [here]. [6] CPLR 5015 permits the court to vacate its own judgment or order under certain circumstances set forth therein. This BLOG has previously written about CPLR 5015. See, e.g., [here], [here], [here], [here].

By: Jeffrey M. Haber This Blog has often noted that “securities fraud comes in all shapes and sizes.” (E.g., here.) Though the alleged fraudulent scheme may differ, the types of schemes implemented tend to fall into one of the following (non-exclusive) categories: financial statement/accounting fraud; pyramid schemes; Ponzi schemes; pump-and-dump schemes; affinity fraud; promissory note fraud; Internet fraud; “microcap” stock fraud; and fraud concerning information about a company, its operations and future prospects (id.). One of the frauds mentioned above – Ponzi schemes – happen all too often, notwithstanding regulatory efforts to stop such frauds.[1] A Ponzi scheme is intended to give investors the false impression that their investment is profitable. In a Ponzi scheme, the fraudster/promoter pays early investors with money that the investor believes is the return on his/her/its investment. In actuality, the money used to pay the investor comes from the investor’s own principal investment dollars or the pooled investment dollars of subsequent investors. As previous investors are “paid” their investment returns, the fraudster/promoter seeks new investors to fund the payments being made. Since Ponzi schemes need a steady supply of new investors to fund payments to early investors, Ponzi schemes ultimately collapse as the fraudster/promoter fails to lure enough new investors to cover the payments due to the prior investors. Once the Ponzi scheme has collapsed, recovering funds can be extremely difficult, especially if all the funds were paid out to earlier investors or misappropriated by the fraudster/promoter. In today’s post, this Blog looks at SEC v. Alexander, et al., Case No. 4:25-cv-00446 (E.D. Tex. Apr. 29, 2025), an enforcement action brought by the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) in which the defendants are alleged to have employed a Ponzi scheme that bilked 200 investors out of at least $91 million. Between May 2021 and February 2024, defendants Kenneth W. Alexander II (“Defendant A”) and Robert D. Welsh (“Defendant B”) allegedly orchestrated a Ponzi scheme, with Defendant Caedrynn E. Conner’s (“Defendant C”) substantial assistance and participation, that raised at least $91 million from more than 200 investors in an unregistered securities offering. Defendants A and B allegedly operated the scheme, which they called the Vanguard JV Cash Program, through Vanguard Holdings Group Irrevocable Trust (“VHG”), a Texas common law trust controlled by Defendant A. Defendants A and B allegedly promoted VHG as a highly profitable international bond trading business that held billions in assets. According to the SEC, they told investors that VHG or its affiliates would use investor funds to trade, or engage in other dealmaking, in the international bond markets. They also allegedly told investors that investments in VHG would have a14-month term, and that investors would receive 12 guaranteed monthly payments of between 3% to 6%, with the principal to be returned at the end of the 14-month term. In truth, said the SEC, VHG used investor funds – not profits from bond trading – to make these payments. As part of their scheme, alleged the SEC, Defendants A and B offered investors the option, for an additional fee, to protect their investments from risk of loss through purported financial instruments that Defendants A and B called “pay orders”. According to the SEC, investors who purchased the pay orders were required to enter into “pooling agreements” with other investors and a purported fiduciary (the “Fiduciary”). The SEC alleged that the Fiduciary was owned and controlled by a longtime associate of Defendants A and B and acted at Defendant A and B’s direction at all relevant times. The SEC further alleged that, pursuant to the pooling agreements, in the event VHG failed to make the guaranteed monthly payments, the Fiduciary was responsible for liquidating the pay order and distributing the proceeds to investors. However, said the SEC, the purported protection offered by the pay orders and the Fiduciary was illusory. The SEC alleged that VHG’s bank records did not reflect the purchase of any pay orders, and the Fiduciary never attempted to liquidate them. The SEC alleged that in July 2022, Defendants A and B authorized Defendant C, who was an early VHG investor and promoter, to create an investment program to pool funds to invest in the Vanguard JV Cash Program. According to the SEC, Defendant C operated this program (the “Benchmark JV Cash Program”) through Benchmark Capital Holdings Irrevocable Trust (“Benchmark”), a Texas common law trust that he controlled. According to the SEC, the Benchmark JV Cash Program was structured like the Vanguard JV Cash Program, including the pay order protection feature, except Benchmark generally promised even higher guaranteed monthly returns. The SEC alleged that Defendant C represented to Benchmark investors that their funds would be pooled to invest in VHG, and that the returns Benchmark received from VHG would fund the guaranteed monthly returns paid to Benchmark investors. Through Benchmark, said the SEC, Defendant C raised approximately $54.9 million from investors, more than $46 million of which he allegedly directed to VHG. According to the SEC, the Fiduciary also served as the purported fiduciary for Benchmark investors who purchased pay orders. The SEC alleged that during all relevant times, VHG had no material sources of revenue. The SEC also alleged that Defendant A misappropriated millions of dollars of investor funds for his personal use and Defendant B received more than a million dollars of investor funds. According to the SEC, Defendants A and B misused investor funds by using them to make Ponzi payments to Vanguard JV Cash Program investors – i.e., using funds from earlier investors to make monthly payments to later investors – and to pay victims of another apparent scheme that they started before, and then operated in parallel with, the VHG Ponzi scheme. For his part, said the SEC, Defendant C misappropriated millions of dollars of Benchmark investor funds.[2] According to the SEC, in or around February 2023, the VHG and Benchmark schemes began to collapse when VHG and Benchmark ceased paying the purported guaranteed monthly returns to nearly all investors. Throughout 2023, said the SEC, Defendants A and B made, and directed the Fiduciary to make, false excuses (such as, blaming banks and attorneys) for VHG’s failure to make the monthly payments. Defendant C allegedly repeated, and directed others to repeat, many of the same false statements to Benchmark investors. The SEC alleged that these statements had the effect of prolonging the Ponzi scheme because Defendants continued to solicit new investments and to encourage existing investors to roll over their principal to new l4-month terms, rather than withdraw their funds as their investment terms expired. Ultimately, the SEC claimed that the VHG and Benchmark schemes resulted in tens of millions of dollars of investor losses. Commenting on the complaint, Sam Waldon, Acting Director of the SEC’s Division of Enforcement, said: “As we allege, the defendants conducted a large-scale Ponzi scheme that caused devastating losses to investor victims, while [Defendants A and C misappropriated millions of dollars of investor funds. We remain unwavering in our commitment to hold individuals accountable for defrauding investors.” The SEC’s complaint (here),[3] filed in the U.S. District Court for the Eastern District of Texas, charged defendants with violating the antifraud and registration provisions of the federal securities laws. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against each of the defendants. A copy of the press release announcing the enforcement action can be found here. ___________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice [1] This Blog has examined Ponzi schemes on numerous occasions. To find the articles related to Ponzi schemes, visit the “Blog” tile on our website and enter “Ponzi scheme” in the “search” box. [2] According to the SEC, Defendant C used the money from the alleged Ponzi scheme to purchase a $5 million home. [3] It is important to remember that a complaint merely contains allegations. Until such time as the claims in the complaint are fully adjudicated, readers should not interpret the allegations as anything more than statements of claimed facts made by the SEC against the defendants.

By: Jeffrey M. Haber A contract is an agreement between two or more parties to do something (e.g., provide goods or services) in exchange for a benefit. When one or more parties to a contract fail to perform a term in their agreement, they are in breach of that agreement. Most breaches fall into one of two categories: actual or anticipatory.[1] In the former, a party to the contract fails or refuses to perform his/her obligations under the agreement or performs his/her obligations incompletely. In the latter, a party to the contract declares, before performance is required, that he/she does not intend to perform the obligations under the agreement.[2] A breach of contract, regardless of the form it takes, entitles the non-breaching party to bring an action for damages. When one party unconditionally refuses to perform under the contract, regardless of when performance is supposed to take place, the refusal is called a “repudiation” of the contract. A breach may be considered a repudiation even if it is not of an essential term or a material breach of an intermediate term. (This Blog previously wrote about the types of breaches here.) Anticipatory Breach Examined There are two types of anticipatory breaches: (1) express, and (2) implied.[3] In an express repudiation, a party to a contract announces, before performance is required, that he/she will not perform under the agreement. The repudiation must be clear, straightforward, and directed at the other party.[4] The declaration cannot be qualified or ambiguous. (For example, “Unless it stops raining, I will not be able to fix the roof.”) In an implied repudiation, a party takes actions that put the performance of a contract out of his/her power to perform (such as when a contractor sells the tools required to fix his customer’s roof). If the breach can be shown to be repudiatory in nature, then the non-breaching party can terminate the contract, even though the date for performance has not yet occurred or proceed as if the contract is valid.[5] Importantly, the non-repudiating party need not tender performance or prove its ability to perform the contract in the future.[6] Rather, the non-repudiating party is relieved of his/her obligation of future performance and can recover the present value of his/her damages from the repudiating party’s breach of the contract.[7] The decision whether to accept that the contract has been repudiated and terminate or wait until the date for performing the obligation passes and treat the defaulting party as being in actual breach, is not an easy one. One commentator described the difficulty as follows: If the promisee regards the apparent repudiation as an anticipatory repudiation, terminates his or her own performance and sues for breach, the promisee is placed in jeopardy of being found to have breached if the court determines that the apparent repudiation was not sufficiently clear and unequivocal to constitute an anticipatory repudiation justifying nonperformance. If, on the other hand, the promisee continues to perform after perceiving an apparent repudiation, and it is subsequently determined that an anticipatory repudiation took place, the promisee may be denied recovery for post-repudiation expenditures because of his or her failure to avoid those expenses as part of a reasonable effort to mitigate damages after the repudiation.[8] “When one party to a contract commits an anticipatory breach, the nonbreaching party, must choose one of two options: either treat the contract as terminated and seek damages, or ignore the breach and wait for the breaching party to perform.”[9] The nonbreaching party must “make an election and cannot ‘at the same time treat the contract as broken and subsisting. One course of action excludes the other.’”[10] “On learning of the breach, the other party has a reasonable time to elect its remedy.”[11] “In determining which election the nonbreaching party has made, ‘the operative factor … is whether the non-breaching party has taken an action (or failed to take an action) that indicated to the breaching party that [it] had made an election.’”[12] Once the nonbreaching party has chosen a remedy, the choice becomes binding and cannot be altered.[13] Accordingly, asserting a cause of action alleging breach of contract precludes pleading a cause of action alleging anticipatory breach of contract.[14] Whether a party has anticipatorily breached a contract is ordinarily a question of fact reserved for a jury, but a court may decide the issue as a matter of law when the purported repudiation is embodied in an unambiguous writing.[15] Can the Breaching Party Take Back the Repudiation? A breaching party can repudiate the contract and then later retract the repudiation, as long as the non-breaching party has not made a material change in his/her position because of the repudiation. Notwithstanding, retraction cannot be made if the only contractual obligation remaining is for one party to pay money to the other. In that case, the party seeking the payment must wait until the due date for the payment has passed. The Non-Breaching Party’s Duty to Mitigate If one party repudiates the contract, most courts require the non-breaching party to avoid incurring unnecessary costs or expenses. This is referred to as “mitigating damages” and generally means that the non-breaching party cannot sit on his/her rights and let the situation get worse. JP Pizza Eastport, LLC v. Luigi’s Main St. Pizza, Inc. The foregoing principles were recently addressed by the Appellate Division, Second Department, in JP Pizza Eastport, LLC v. Luigi’s Main St. Pizza, Inc., 2025 N.Y. Slip Op. 02915 (2d Dept. May 14, 2025) (here). JP Pizza was an action, inter alia, to recover damages for breach of contract involving certain real property located in Eastport (hereinafter, the “subject premises”) that was owned by defendant Luigi’s on Main, LLC (“Luigi’s, LLC). The subject premises was a mixed-use property with a pizzeria business and residential apartments located thereon. Defendant Luigi’s Main Street Pizza, Inc. (hereinafter, “Luigi’s Pizza”) operated the pizzeria business. In July 2018, Luigi’s Pizza sold the pizzeria business to plaintiff JP Pizza Eastport, LLC (hereinafter, “JP Pizza”). On or around the same date as the closing of the sale of the pizzeria business, Luigi’s Pizza, as lessor, entered into a lease agreement with JP Pizza for a portion of the subject premises used for the operation of the pizzeria business. On or around July 16, 2018, plaintiff 491 Montauk Highway Eastport, LLC (hereinafter, “Montauk Highway, LLC”) entered into a contract to purchase the subject premises from Luigi’s, LLC. JP Pizza and Montauk Highway, LLC were related companies, sharing a common managing member. Pursuant to the contract, Montauk Highway, LLC paid a down payment of $33,250, which was deposited into an escrow account. The contract provided that the closing was to occur on or around September 15, 2018. The contract required Luigi’s, LLC to deliver a “[c]ertificate of [o]ccupancy or other required certificate of compliance, or evidence that none was required, covering the building(s) and all of the other improvements located on the property authorizing their use as a commercial property with permit for restaurant, cottage and apartment rentals” at closing. The contract further provided that Luigi’s, LLC could adjourn the closing up to October 15, 2018, if necessary, in order to cure any defects or objections to title. By letter dated August 22, 2018, plaintiffs advised defendants they had discovered that the pizzeria business and the subject premises lacked “required approvals, permits, and licenses,” declared all agreements entered into between the parties “void ab initio,” and demanded the immediate return of the $33,250 down payment paid by Montauk Highway, LLC, in connection with the contract for the sale of the subject premises and the payment of certain monies allegedly expended by JP Pizza in connection with the purchase of the pizzeria business and the making of improvements to the subject premises. Plaintiffs further advised defendants that JP Pizza would cease operations of the pizzeria business on the following day and that it would return the subject premises to Luigi’s Pizza. JP Pizza vacated the subject premises and ceased operations in August 2018. By letter dated August 27, 2018, defendants responded that they would obtain any required certificates for the subject premises in accordance with the terms of the contract. On September 4, 2018, plaintiffs commenced the action asserting causes of action sounding in, among other things, fraud, rescission, and breach of contract. The complaint did not assert a cause of action seeking specific performance of the contract. Defendants interposed an answer, asserting, inter alia, an affirmative defense alleging that Montauk Highway, LLC, had repudiated the contract and that Luigi’s, LLC, was entitled to retain the down payment as liquidated damages. In May 2019, several months after JP Pizza had vacated the subject premises and stopped paying rent, Luigi’s, LLC, entered into a 10-year lease agreement for the subject premises with a third party. Thereafter, by letter dated November 25, 2019, plaintiffs purported to schedule a time-of-the-essence closing for December 9, 2019. After the completion of discovery, defendants moved, among other things, for summary judgment dismissing the cause of action alleging breach of contract. Plaintiffs cross-moved, inter alia, for summary judgment on that cause of action. In an order dated March 22, 2022, the Supreme Court, among other things, granted that branch of the defendants’ motion and denied that branch of the plaintiffs’ cross-motion. Plaintiffs appealed. The Appellate Division, Second Department, affirmed. The Court held that “the Supreme Court properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging breach of contract and denied that branch of the plaintiffs’ cross-motion which was for summary judgment on that cause of action.”[16] The Court found that “defendants established their prima facie entitlement to summary judgment dismissing the cause of action alleging breach of contract.”[17] The Court explained that defendant established that plaintiffs had anticipatorily breached the contract of sale: Pursuant to the contract, the defendants had until September 15, 2018, to obtain the requisite approvals and were entitled to extend that deadline to October 15, 2018. By declaring the contract void ab initio through their attorney’s letter dated August 22, 2018, and demanding the return of the down payment, the plaintiffs anticipatorily breached the contract.[18] Having found that plaintiffs breached the contact of sale, the Court explained that defendants properly elected their remedy for said breach by ignoring the breach and waiting for plaintiffs to perform.[19] But, as noted, plaintiffs did not perform. Under the circumstances, the Court found that plaintiffs repudiated the contract, entitling defendants to retain the down payment for the subject property: The plaintiffs’ conduct, first by the letter declaring the contract void ab initio and demanding the return of the down payment, and then by the commencement of this action, amounted to a positive and unequivocal expression of their intent not to perform, and the defendants, under the terms of the contract, were entitled to retain the down payment as liquidated damages for the plaintiffs’ anticipatory breach.[20] ________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This Blog has examined cases involving an anticipatory breach of contract on numerous occasions. To find articles related to this topic, visit the “Blog” tile on our website and enter “anticipatory breach” in the “search” box. [2] Princes Point LLC v. Muss Dev. L.L.C., 30 N.Y.3d 127, 133 (2017); Fuoco Group, LLP v. Weisman & Co., 222 A.D.3d 619, 621-622 (2d Dept. 2023); see also 10-54 Corbin on Contracts § 54.1 (2017) (“An anticipatory breach of a contract by a promisor is a repudiation of [a] contractual duty before the time fixed in the contract for . . . performance has arrived”); 13 Williston on Contracts § 39:37 (4th ed.). [3] Norcon Power Partners v. Niagara Mohawk Power Corp., 92 N.Y.2d 458, 463 (1998) (noting that an anticipatory repudiation “can be either a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach or a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach”) (internal quotation marks omitted). [4] Tenavision, Inc. v. Neuman, 45 N.Y.2d 145, 150 (1978) (noting that the expression of intent not to perform must be “positive and unequivocal”). See also Central Park Capital Grp., LLC v. Machin, 189 A.D.3d 984, 986 (2d Dept. 2020) (quoting, Princes Point, 30 N.Y.3d at133). [5] Strasbourger v. Leerburger, 233 N.Y. 55, 59 (1922); see also American List Corp. v. U.S. News & World Report, 75 N.Y.2d 38, 44 (1989). [6] American List Corp., 75 N.Y.2d at 44. [7] Id. [8] Norcon Power, 92 N.Y.2d at 463 (quoting, Crespi, The Adequate Assurances Doctrine after U.C.C. § 2-609: A Test of the Efficiency of the Common Law, 38 Vill. L. Rev. 179, 183 (1993)). [9] Contract Pharmacal Corp. v. Air Indus. Grp., 224 A.D.3d 873, 874 (2d Dept. 2024); see Princes Point, 30 N.Y.3d at 133. [10] Inter-Power of N.Y. v. Niagara Mohawk Power Corp., 259 A.D.2d 932, 934 (3d 1999) (quoting, Strasbourger, 233 N.Y. at 59). [11] Todd English Enters. LLC v. Hudson Home Grp., LLC, 206 A.D.3d 585, 587 (1st Dept. 2022). [12] AG Props. of Kingston, LLC v. Besicorp-Empire Dev. Co., LLC, 14 A.D.3d 971, 973 (3d Dept. 2005) (quoting Bigda v. Fischbach Corp., 898 F. Supp. 1004, 1013 (S.D.N.Y. 1995), aff’d 101 F.3d 108 (2d Cir. 1996)). [13] See Lucente v. International Bus. Machs. Corp., 310 F.3d 243, 258-259 (2d Cir. 2002). [14] Id. at 258-260. [15] Briarwood Farms, Inc. v. Toll Bros., Inc., 452 Fed. App’x. 59, 61 (2d Cir. 2011). [16] Slip Op. at *3. [17] Id. at *2. [18] Id. [19] Id. (citing Contract Pharmacal, 224 A.D.3d at 874). [20] Id. at 2-3 (citation omitted).

By: Jeffrey M. Haber In Libman v. Hershey Co., 2025 N.Y. Slip Op. 31769(U), (Sup. Ct., N.Y. County May 5, 2025) (here), the motion court was asked to consider whether a front-of-the-package label on the Twizzlers candy wrapper violated General Business Law (“GBL”) §§ 349 and 350. Front-of-package labels are labels that manufacturers put on the front of packaged foods to give consumers basic nutrition information in a way that is easy to understand and allows them to compare different products more efficiently and effectively. These labels typically highlight when foods contain high levels of nutrients that are commonly overconsumed and linked to adverse health outcomes (e.g., sodium, added sugar, and saturated fat). By contrast, the nutritional facts label on the back of the packaging provides comprehensive nutrition information per serving for the product. It includes all nutrients, serving size, and % Daily Value, and is intended to help consumers understand the nutritional content of a specific food and how it fits into their overall diet. Thus, while front-of-package labeling focuses on key nutrients (like saturated fat, sodium, and added sugars) and may use a “Low,” “Med,” or “High” scale for easy understanding, the nutrition facts label provides comprehensive nutrition information per serving for the product. GBL Section 349 prohibits “[d]eceptive acts or practices,” and Section 350 bars “[f]alse advertising.” To plead a cause of action under either section, a plaintiff must allege that the defendant “engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.”[1] Notably, the deceptive practice does not have to rise to “the level of common-law fraud to be actionable under section 349.”[2] In fact, “[a]lthough General Business Law § 349 claims have been aptly characterized as similar to fraud claims, they are critically different.”[3] For example, while reliance is an element of a fraud claim, it is not an element of a GBL § 349 claim.[4] Whether a statement is misleading is governed by an objective reasonable consumer standard. Under that standard, the statement must be “likely to mislead a reasonable consumer acting reasonably under the circumstances.”[5] “Accordingly, “plaintiffs must do more than plausibly allege that a label might conceivably be misunderstood by some few consumers.”[6] Instead, “[p]laintiffs must plausibly allege that a significant portion of the general consuming public or of targeted customers, acting reasonably in the circumstances, could be misled.”[7] “[A] court may determine as a matter of law that an allegedly deceptive advertisement would not have misled a reasonable consumer.”[8] “[I]n determining whether a reasonable consumer would have been misled by a particular advertisement, context is crucial.”[9] Relevant to today’s article, courts examining allegedly misleading product claims will rely on common-sense observations and judicial experience.[10] “Courts have also found that the presence of a disclaimer or similar clarifying language, such as a Nutrition Fact Panel, may defeat a claim of deception.”[11] “Thus, where the allegedly deceptive practice is fully disclosed, there is no deception claim.”[12] Finally, a plaintiff must prove “actual” injury to recover under the statutes, though not necessarily pecuniary harm.[13] And, the plaintiff must prove the deceptive act caused the injury.[14] Libman v. Hershey Company Libman was brought as a putative class action in which plaintiffs asserted claims for deceptive business practices and false advertising pursuant to GBL §§ 349 and 350 on behalf of a proposed class of New York State consumers who purchased strawberry-flavored Twizzlers King-Size Candy (“Twizzlers”), which is produced by defendant. Plaintiffs alleged that the front-of-the-package branding of Twizzlers as a “low fat snack” mislead consumers into believing that Twizzlers is “specially made or altered” to be low fat and that the product is not just low fat but also low sugar. Defendant moved, pre-answer, to dismiss the amended complaint pursuant to CPLR 321l(a)(7) (i.e., failure to state a claim). Plaintiff opposed the motion. As discussed below, the motion court granted the motion. Plaintiff alleged that the front-of-the-package branding of Twizzlers as a “low fat snack” is misleading to consumers as it lulls them into believing the candy is “specially made or altered” to be low fat and that the candy is also low sugar. Plaintiffs admitted, however, that Twizzlers is “low fat,’ containing zero grams of “Total Fat,” as accurately reflected in the Nutrition Facts label on the reverse side of the product packaging. The motion court ruled that plaintiffs failed to adequately allege facts demonstrating that reasonable consumers were likely to be misled in the manner they claimed.[15] The motion court noted that the “specially made or altered” claim was premised on an alleged technical violation of an FDA food-labelling regulation that allows for the use of “low fat” on food labels, but requires additional disclosure language on the label “[i]f the food meets these conditions without the benefit of special processing, alteration, formulation, or reformulation to lower fat content.”[16] The motion court further noted that “private plaintiffs are not authorized to sue for violations of the Federal Food, Drug, and Cosmetic Act, FDA regulations, or identical New York labeling requirements under New York’s Agriculture and Markets Law.[17] Thus, concluded the motion court, plaintiffs’ claim, that the Twizzlers’ packaging violated the FDA’s food-labelling regulation because it omitted the required additional disclosure language despite being a type of candy that is inherently low fat without any special alteration, had to be dismissed. Turning to the GBL allegations, the motion court held that plaintiffs failed to allege “facts sufficient to allow a reasonable inference that the labeling of Twizzlers as a ‘low fat snack’ constitute[d] false advertising or a deceptive business practice.”[18] The motion court explained that plaintiffs did not “allege that reasonable consumers [were] aware of the federal regulation, much less that they incorporate[d] the regulation into their day-to-day marketplace expectations.”[19] Similarly, said the motion court, plaintiffs failed to “supply extrinsic evidence that the perceptions of ordinary consumers align[ed] with the FDA’s labeling standards, such that they would understand any product labelled as a ‘low fat snack’ as having been ‘specially made or altered’ to be low fat absent the regulation’s additional disclosure language.”[20] In facts, noted the motion court, “plaintiffs concede[d] that reasonable consumers [understood] that Twizzlers is ‘candy,’ as is … expressly stated on the front of the product’s packaging.”[21] Accordingly, concluded the motion court, “it is beyond cavil that reasonable consumers understand that candy, as a category, is not inherently low fat.”[22] With respect to plaintiffs’ other theory of liability – that ‘low fat snack’ is likely to mislead consumers into thinking that Twizzlers are also low sugar – the motion court found that plaintiffs made several concessions that were fatal to their claims under GBL 349 and 350.[23]For example, plaintiffs conceded “that: Twizzlers does not expressly market itself as ‘low sugar’; the Nutrition Facts and Ingredient List included on the product packaging accurately disclose[d] its total and per-serving added sugar content and percentage Daily Value of added sugars; the front of the product packaging describes the product as ‘candy’; and reasonable consumers understand that Twizzlers is ‘candy’ made from sugar.”[24] “These concessions,” concluded the motion court, were “fatal to plaintiffs’ claim, as no reasonable consumer, understanding that Twizzlers is candy made from sugar, would reasonably assume the product was low in sugar absent any express claim to that effect, especially given the accurate disclosure of the product’s sugar content on the reverse side of the product packaging.”[25] ______________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] Koch v. Acker, Merrall & Condit Co., 18 N.Y.3d 940, 941 (2012); Goshen v. Mut. Life Ins. Co. of New York, 98 N.Y.2d 314, 324 n.l (2002) (explaining the “standard for recovery under [GBL] § 350, while specific to false advertising, is otherwise identical to section 349”). [2] Boule v. Hutton, 328 F.3d 84, 94 (2d Cir. 2003) (citing Gaidon v. Guardian Life Ins. Co., 94 N.Y.2d 330, 343 (1999)). [3] Gaidon, 94 N.Y.2d at 343. [4] Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000); Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55-56 (1999). [5] Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26 (1995). [6] Jessani v. Monini N. Am., Inc., 744 Fed. App’x 18, 19 (2d Cir. 2018). [7] Id. [8] Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013) (citing Oswego, 85 N.Y.2d at 26). [9] Id. at 742. [10] See, e.g., Warren v. Coca-Cola Co., 670 F. Supp. 3d 72, 80-83 (S.D.N.Y. 2023). [11] Mazella v. Coca-Cola Co., 548 F. Supp. 3d 349, 357 (S.D.N.Y. 2021). [12] Id. (citing Broder v. MBNA Corp., 281 A.D.2d 369, 371 (1st Dept. 2001). [13] Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000); Oswego, 85 N.Y.2d at 26. [14] Id.; Oswego, 85 N.Y.2d at 26. [15] Slip Op. at *3. [16] Id. (quoting 21 C.F.R. § 101.62(b)(2)(ii)) (internal quotation marks omitted). [17] Id. (citing 21 U.S.C. § 337(a); Steele v. Wegmans Food Markets, Inc., 472 F. Supp. 3d 47, 49 (S.D.N.Y. 2020)). [18] Id. [19] Id. [20] Id. at 3-4 (citing Warren v. Whole Foods Mkt. Grp., Inc., 574 F. Supp. 3d 102, 113-14 (E.D.N.Y. 2021); N. Am. Olive Oil Ass’n v. Kangadis Food Inc., 962 F. Supp. 2d 514, 519 (S.D.N.Y. 2013); Wynn v. Topco Assocs., LLC, No. 19-CV-11104 (RA), 2021 WL 168541, at *3 ([S.D.N.Y. Jan. 19, 2021)). [21] Id. at *4. [22] Id. [23] Id. [24] Id. [25] Id.

By: Jeffrey M. Haber A claim for fraud requires “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.”[1] In First Trinity Life Ins. Co. v. Advance Funding LLC, 2025 N.Y. Slip Op. 03133 (1st Dept. May 22, 2025) (here), discussed below, knowledge of falsity (i.e., scienter) and reliance were the elements at issue. First Trinity concerned the assignment of lottery winnings. A former defendant won a New York State Lottery game in April 2008 that had a minimum prize of $2 million. In August 2016, the former defendant entered into an agreement with defendant Advance Funding, LLC (“AF”) in which he agreed to assign 32 months of prize payments totaling over $800,000 in exchange for a lump sum payment of $465,000. AF then assigned its right to the money to plaintiff in exchange for a payment in excess of $500,000. Plaintiff alleged that although AF represented that the former defendant had been paid in full by AF (and even included a wire transfer), the former defendant never received what he was owed and, therefore, plaintiff paid AF but did not receive any lottery payments. In connection with the assignment to AF, the former defendant filed a petition in Schenectady, New York to approve the transfer. However, the former defendant later moved to strike the assignment and disavow an affidavit he signed in which he agreed to the transaction. He later withdrew the order to show cause in exchange for an increased lump sum payment. Thereafter, the former defendant brought an application seeking to stop any more payments by the state’s Lottery Commission because AF allegedly did not make the additional payments promised to him in the settlement. Defendant moved for summary judgment dismissing the action on the grounds that she was without knowledge of the circumstances underlying the action. Defendant claimed that, as a favor to her boss, she assisted his brother’s company, defendant AF, to broker structured settlements for various winners (such as lottery winners) with large institutional funders, such as plaintiff. Defendant claimed that when she was reviewing documents to close AF’s transaction with plaintiff, she was provided with a wire transfer that plaintiff alleged to be fraudulent. This wire transfer showed that the former defendant was paid $335,000. Defendant claimed that she had no reason to doubt the authenticity of that document. According to defendant, she was employed by Northeastern Capital Funding LLC (“Northeastern”) from May 2006 until June 2017 and never had any ownership interest in that entity. She emphasized that her job responsibilities included contacting funding entities to inform them of transactions between Northeastern and winners/settlement recipients. Defendant argued that she never had interactions with winners or structured settlement recipients. Defendant provided similar services for AF. Plaintiff maintained that defendant helped to facilitate hundreds of transactions for AF and Northeastern. It insisted that in each transaction it entered into with AF and Northeastern, its sole contact person was defendant and that she held herself out as a senior officer for AF. Plaintiff further alleged that for the transaction at issue—the purchase from AF of the former defendant’s lottery winnings for $552,000—it was defendant who provided the closing binder and other documents to plaintiff. Plaintiff claimed that it relied upon those documents and other representations from defendant when executing the transaction. Plaintiff alleged that the wire transfer was fraudulent, that the former defendant never received the money he was owed by AF, and that plaintiff did not receive the stream of lottery payments for which it paid $552,000. Plaintiff claimed that bank statements showed that defendant received significant payments from Majestic Funding LLC (“Majestic”), an LLC owned by the same principals that owned AF and Northeastern, despite the fact that she never worked for Majestic. Plaintiff contended that defendant was a key point person at AF and was not a mere low-level employee. Defendant argued that plaintiff did not show that she knew the wire confirmations were fake and that the agreement between AF and plaintiff was an arm’s length transaction, thereby vitiating plaintiff’s reliance on her statements. Defendant also argued that she could not be held personally liable for AF’s alleged fraud. Defendant moved for summary judgment, claiming, inter alia, that the court lacked personal jurisdiction over her and that plaintiff failed to demonstrate that she perpetrated a fraud on it.[2] The motion court denied the motion. First, the motion court held it that it possessed jurisdiction over defendant. The motion court noted that “[t]here [was] no dispute that this case involves a New York resident … who won a lottery in New York and a transaction between AF and [the former defendant] about those lottery winnings in New York (including a litigation in New York to approve the transaction between AF and [the former defendant).” The motion court found that defendant “signed her emails with a signature block that indicated that she was the director of the legal department for AF and included an address on Wall Street.” Under such circumstances, the motion court concluded that defendant could not “claim surprise that she [was] subject to a lawsuit in New York about a New York lottery winner when she worked for a company that did business out of a New York office and represented to others that she did business out of that New York office.” “Simply put,” concluded the motion court, “there [were] numerous contacts to satisfy New York’s long-arm statute, even despite [defendant’s] claim that she never lived in New York.” Second, the motion court found that issues of fact precluded the grant of summary judgment, noting that “a jury could conclude that [defendant] was part of the [alleged] fraudulent scheme as she was the main contact person involved on behalf of AF,” while at the same time believing “[defendant’s] account … that she was not a part of the alleged fraud.” The motion court found “multiple issues of fact” concerning defendant’s knowledge of the false wire transfer and her intent to induce reliance. Among other things, the motion court noted that defendant provided AF with a closing binder of transaction documents, which included, inter alia, identification documents for the former defendant, including his photo ID and W-9 form, affidavits by both AF and the former defendant indicating that the assignment was fully authorized, as well as the court documents approving the assignment. Most critically, said the motion court, plaintiff requested, and defendant provided, confirmation that the former defendant had been paid what he was due. According to plaintiff, defendant provided the sought after proof of funding and payment. The motion also found that there was an issue of fact regarding defendant’s personal liability for the alleged fraudulent scheme. Defendant maintained that she was a low-level employee even though she signed her emails with the signature line “Director, Legal Dept.”, which is an officer position. “That raises an issue about her role with AF and that she might be considered a corporate officer,” said the motion court. Under New York law, noted the motion court, “a corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced.”[3] Defendant appealed. The Appellate Division, First Department affirmed the portions of the motion court’s order involving personal jurisdiction and fraud. The Court held that the motion court “properly found that it had personal jurisdiction over [defendant] under New York’s long-arm statute, as the second amended complaint allege[d] that she engaged in purposeful actions directed at New York and that her actions substantially related to plaintiff’s claims.”[4] The Court explained that, “[a]lthough an employee ‘acting on behalf of his employer does not create jurisdiction upon the employee individually’…, the record support[ed] a finding that [defendant] was acting in her individual capacity as part of the fraudulent scheme, and not simply conducting business on behalf of defendant Advance Funding, LLC.”[5] The Court noted that “[i]f it is true, as plaintiff allege[d], that [defendant] knowingly sent a fake wire transfer to plaintiff in an effort to fraudulently induce the underlying transaction, she would not have been conducting legitimate business on behalf of the corporation.”[6] Further, said the Court, “the transaction at issue was specifically tied to New York.”[7] The Court found that defendant “allegedly consented to and benefitted from that transaction, and it [was] uncontested that she was paid for the services she undertook on behalf of Advance Funding.” The Court also held that the motion court “properly denied [defendant’s] motion with respect to the fraud cause of action.”[8] “At a minimum,” said the Court, “there are factual issues surrounding whether [defendant] made a material misrepresentation of fact with knowledge as to its falsity, and whether plaintiff relied on the representation and on the allegedly fraudulent wire transfer documentation.”[9] The Court noted that in her motion, defendant merely raised issues of credibility which were more properly resolved by the jury: With respect to the underlying transaction, plaintiff requested confirmation that the lottery winner had been paid in full by Advance Funding. In response, [defendant] provided a copy of a check that was issued to the winner and a purported wire transfer in the amount of $335,000, which was later discovered to be a fraud. [Defendant] also represented that the winner had been fully paid, and in fact that he had been overfunded by $10,000. Although [defendant] asserts that she had no idea that the wire transfer was fraudulent, this assertion merely raises an issue of fact as to [defendant’s] credibility that cannot be properly resolved on the summary judgment motion.[10] The Court also found that there were “some factual issues regarding whether plaintiff’s reliance on the fraudulent wire transfer was reasonable.”[11] The Court noted that defendant “provided Trinity with a closing binder containing more than 20 documents,” which “Trinity reviewed …, asked questions [about], and … requested written confirmation from Advance Funding regarding the accuracy of its representations.”[12] In response to plaintiff’s inquiries, defendant “provided Trinity with the fraudulent wire transfer and her own assurances that the lottery winner had actually been paid more than he was owed.”[13] The Court concluded that plaintiff “was entitled to rely on [those] representations.”[14] ____________________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009); Braddock v. Braddock, 60 A.D.3d 84 (1st Dept.), appeal withdrawn 12 N.Y.3d 780 (2009). [2] This Blog has examined cases involving fraud and personal jurisdiction on numerous occasions. To find articles related to these topics, visit the “Blog” tile on our website and enter “personal jurisdiction”, “fraud”, “fraudulent inducement” and any of the elements of a fraud claim in the “search” box. [3] Am. Exp. Travel Related Services Co., Inc. v. N. Atl. Resources, Inc., 261 A.D.2d 310, 311 (1st Dept. 1999). [4] Slip Op. at *1 (citing, CPLR 302(a)(1); Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 71 (2006)). [5] Id. (quoting Laufer v. Ostrow, 55 N.Y.2d 305, 313 (1982); and citing Grosso v. Cy Twombly Found., — A.D.3d —, 2025 N.Y. Slip Op. 02007, *1 (1st Dept. 2025)). [6] Id. [7] Id. [8] Id. [9] Id. (citing, Eurycleia, 12 N.Y.3d at 559 (2009). [10] Id. [11] Id. [12] Id. at 1-2. [13] Id. [14] Id. (citing, DDJ Mgmt., LLC v. Rhone Group LLC, 15 N.Y.3d 147, 156 (2010)).

By: Jeffrey M. Haber The allure of guaranteed profits from sophisticated crypto asset and foreign exchange trading served as the underlying predicate for the claims asserted by the Securities and Exchange Commission (“SEC”) against Ramil Palafox (“Defendant”), the founder of Praetorian Group International Corporation (“PGI Global”), a now-defunct entity he controlled, in S.E.C. v. Palafox, Case 1:25-cv-00681 (E.D. Va. 2025). The case marks the first crypto enforcement action under Paul Atkins, the new Chairman of the SEC. According to the SEC, from in or about January 2020 through in or about October 2021 (the “Relevant Period”), Defendant orchestrated an international securities fraud scheme to misappropriate millions of dollars of investor funds he obtained through PGI Global. PGI Global claimed to be a crypto asset and foreign exchange (“Forex”) trading company. The SEC alleged that Defendant and PGI Global associates working at his direction represented to investors that PGI Global was generating large returns from crypto asset trading and Forex trading. According to the SEC, investors who purchased PGI Global “membership packages” were promised large passive returns from these purported trading operations. Though investors were promised such returns merely in exchange for their investments in PGI Global, said the SEC, PGI Global also allegedly offered members a multi-level marketing style system of referral incentives to encourage PGI Global membership package holders to recruit new investors.[1] Defendant allegedly secured over $198 million in Bitcoin (BTC) and fiat currency investments for PGI Global during the Relevant Period. The SEC maintained that Defendant obtained these funds from victims who purchased PGI Global membership packages based on false promises that their investments would guarantee them large low-risk returns from Forex and crypto asset trading. According to the SEC, Defendant misappropriated over $57 million of the funds he obtained through PGI Global’s unregistered securities offerings. Rather than trade with these funds as promised, the SEC alleged that Defendant used investor money to enrich himself and various insiders, including members of his family and certain other PGI Global associates—purchasing, among other things, real estate, Lamborghinis, and items from retailers including Cartier, Versace, and Louis Vuitton. The SEC also alleged that Defendant transferred funds, assets, vehicles, and other items purchased with PGI Global investor funds to the relief defendants. The SEC claimed that Defendant used the vast majority of the remaining PGI Global investor funds to pay certain other investors—payments that ostensibly represented profits and other rewards those investors had earned from PGI Global’s trading operations. The SEC alleged that this money represented funds circulated from new investors to old investors. The SEC further alleged that these payments allowed Defendant to continue PGI Global’s Ponzi-like scheme until its collapse in late 2021. According to the SEC, PGI Global never filed a registration statement in connection with its offerings of securities in the form of PGI Global membership packages. Defendant and others nevertheless offered and sold these PGI Global securities via general solicitations to investors worldwide, alleged the SEC. Commenting on the action, Scott Thompson, Associate Director of the SEC’s Philadelphia Regional Office, said: “As alleged in our complaint, [Defendant] attracted investors with the allure of guaranteed profits from sophisticated crypto asset and foreign exchange trading, but instead of trading, [Defendant] bought himself and his family cars, watches, and homes using millions of dollars of investor funds. We will continue to investigate and take action against bad actors who take advantage of investors with promises of guaranteed passive income and other lies and deceit.” “[Defendant] used the guise of innovation to lure investors into lining his pockets with millions of dollars while leaving many victims empty-handed,” said Laura D’Allaird, Chief of the Commission’s new Cyber and Emerging Technologies Unit. “In reality, his false claims of crypto industry expertise and a supposed AI-powered auto-trading platform were just masking an international securities fraud.” The SEC’s complaint (here),[2] filed in the U.S. District Court for the Eastern District of Virginia, charges Defendant with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing Defendant from participating in multi-level-marketing programs involving the offer or sale of securities and offerings of crypto assets bought or sold as a security, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. The complaint also names a number of persons and entities as relief defendants and seeks disgorgement of their ill-gotten gains and prejudgment interest. In a parallel action, Defendant was arraigned on criminal charges brought by the U.S. Attorney’s Office for the Eastern District of Virginia. ___________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice [1] A multi-level marketing program is a relative of pyramid scheme. “[A] pyramid scheme is an illegal investment scam based on a hierarchical setup.” See Investopedia.com, What Is a Pyramid Scheme? How Does It Work? (Updated June 3, 2024) (here). In the classic pyramid scheme, “participants attempt to make money solely by recruiting new participants, usually where: [t]he promoter promises a high return in a short period of time; [n]o genuine product or service is actually sold; and [t]he primary emphasis is on recruiting new participants.” See Investor.gov, Pyramid Schemes (here). To lure recruits into the scheme, pyramid scheme promoters work hard to make the operation look legitimate. But they are not and ultimately collapse because the promoter cannot raise enough money from new investors to pay earlier ones. This Blog has examined multi-level marketing schemes on numerous occasions. To find the articles related to multi-level marketing schemes, visit the “Blog” tile on our website and enter “Multi-Level” or “Multi-Level Marketing Schemes” in the “search” box. [2] It is important to remember that a complaint merely contains allegations. Until the claims in the complaint are fully adjudicated, readers should not interpret the allegations as anything more than statements of claimed facts made by the SEC against the defendant.

By: Jeffrey M. Haber On many occasions, we have written about Ponzi schemes that have been the subject of enforcement actions brought by, and/or settlements with, the Securities and Exchange Commission (“SEC” or the “Commission”). We remain unsurprised by the frequency with which people operate a Ponzi scheme and do so by exploiting the trust and friendship that exist in groups of people who have something in common, such as a religious group, an ethnic group, or a community – also known as affinity fraud.[1] Today, we examine an enforcement action brought by the SEC involving a Ponzi-like scheme that targeted retired senior citizens that the defendant met through his church community.[2] S.E.C. v. Mattson On May 22, 2025, the SEC announced (here) that it charged the former CEO of LeFever Mattson (“defendant”), a real estate investment firm, with defrauding approximately 200 investors of at least $46 million by selling them fake interests in real estate investment limited partnerships. Many of these investors were retired senior citizens that defendant met through his church community. According to the SEC, from approximately 2007 through April 2024, defendant orchestrated a Ponzi-like scheme that involved offering and selling fake interests in various legitimate limited partnerships created and managed by his company LeFever Mattson, a California corporation (“LeFever Mattson”). The limited partnerships in which defendant purported to sell interests (the “affiliated limited partnerships”) were real and invested in residential and commercial real estate. The affiliated limited partnerships were managed and partly owned by LeFever Mattson, a Citrus Heights, California-based company, which defendant co-founded and ran as both the entity’s chief executive officer and chief financial officer. LeFever Mattson has been in business since 1989 and boasted an approximately $400 million portfolio of real estate investments, most of which consisted of ownership interests in 50 limited partnerships. While the affiliated limited partnerships were real, and were in fact owned by a defined set of real investors, the SEC alleged that defendant fraudulently raised funds from another set of investors by falsely purporting to sell them ownership stakes in those same affiliated limited partnerships. Defendant allegedly told the investors that their investments would buy them a portion of LeFever Mattson’s ownership interests in specific affiliated limited partnerships and would entitle them to proportional distributions of the income generated by the underlying properties. According to the SEC, these representations were materially false. The SEC alleged that defendant took steps to hide his alleged fraudulent scheme from people associated with LeFever Mattson, including by using a personal post office box to receive documents from investors, receiving investor funds and sending purported distributions from a bank account in the name of LeFever Mattson that only defendant could fully access, and instructing his personal assistant not to discuss the investors with anyone else at LeFever Mattson. According to the SEC, defendant kept documents related to his alleged fraudulent scheme, including commercial bookkeeping records, on his laptop, which the SEC alleged he deleted after receiving an investigative subpoena from the staff of the Commission’s Division of Enforcement that required him to produce certain records concerning, among other things, the affiliated limited partnerships. Because defendant allegedly concealed his fake limited partnership sales from people associated with LeFever Mattson, said the SEC, the fake sales were not reflected in the legitimate records demonstrating ownership percentages of the affiliated limited partnerships. As a result, the SEC alleged that the investors who purchased interests in the affiliated limited partnerships from defendant never became actual limited partners or acquired any actual ownership interests, and they never received legitimate distributions from the limited partnerships in which they thought they invested. Instead, alleged the SEC, defendant commingled new investor funds with other personal and business funds in a bank account that he controlled and allegedly used the commingled funds to make Ponzi-like payments to existing investors. The SEC also alleged that defendant misappropriated investor money to fund certain real estate transactions through his personal partnership, relief defendant KS Mattson Partners LP (“KS Mattson Partners”), pay expenses of KS Mattson Partners, and pay for personal expenses. According to the SEC, defendant concealed from investors the fact that he was orchestrating a Ponzi-like scheme by, among other things, using some new investor funds to make payments to deceive existing investors, and providing investors with altered limited partnership documents. Defendant also allegedly prepared a separate set of false tax records for the defrauded investors, which contradicted the legitimate annual tax filings for the affiliated limited partnerships that he signed and submitted to the Internal Revenue Service. The SEC maintained that LeFever Mattson discovered defendant’s alleged misconduct in late 2023. In around April 2024, following an internal investigation, defendant resigned from his positions as chief executive officer and chief financial officer. In September 2024 and October 2024, LeFever Mattson and all of its affiliated limited partnerships filed for Chapter 11 bankruptcy protection. As a result of the conduct alleged in the SEC’s complaint (here),[3] the SEC charged defendant with violating the antifraud provisions of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) as well as the securities registration provisions of the Securities Act. The SEC claimed that KS Mattson Partners was unjustly enriched by defendant’s violations. The SEC seeks a permanent injunction against defendant, disgorgement of ill-gotten gains with prejudgment interest, and civil monetary penalties. The Commission also seeks an order prohibiting defendant from serving as an officer or director of a public company as well as from participating in the issuance, purchase, offer, or sale of any security. Finally, the SEC seeks disgorgement of ill-gotten gains with prejudgment interest from KS Mattson Partners. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This Blog has examined Ponzi schemes and affinity fraud on numerous occasions. To find the articles related to Ponzi schemes and affinity fraud, visit the “Blog” tile on our website and enter “Ponzi scheme” or “affinity fraud” in the “search” box. [2] This Blog has examined financial elder abuse on numerous occasions. To find the articles related to financial elder abuse or financial exploitation of seniors, visit the “Blog” tile on our website and enter “financial elder abuse” in the “search” box. [3] The SEC filed its complaint in the U.S. District Court for the Northern District of California. It is important to remember that a complaint merely contains allegations. Until the claims in the complaint are fully adjudicated, readers should not interpret the allegations as anything more than statements of claimed facts made by the SEC against the defendant.

By: Jonathan H. Freiberger In today’s Blog, we revisit the requirement in RPAPL 1351(1) that a foreclosure sale occur within 90 days of the date of the judgment of foreclosure and sale.[1] By way of brief background, and as previously discussed in this BLOG, the 90-day requirement became effective in December of 2016. However, the rule does not apply in situations where the sale occurred prior to the effective date of the amendment. U.S. Bank, N.A. v. Peralta, 191 A.D.3d 924, 925 (2nd Dep’t 2021). Moreover, in order to set aside a foreclosure sale pursuant to RPAPL 1351(1), the borrower must demonstrate that the delay “prejudiced a substantial right.” Wells Fargo Bank, N.A. v. Singh, 204 A.D.3d 732, 734 (2nd Dep’t 2022); Bank of America, N.A. v. Lynch, 85 Misc.3d 1273(A), *5 (Supreme Court Suffolk Co. 2025). Also relevant to today’s BLOG is CPLR 5015(a)(1), which permits a court to “relieve a party” from a judgment or order on the ground of “excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry.” “A party seeking to vacate a default pursuant to CPLR 5015(a)(1) must demonstrate a reasonable excuse for his or her delay in appearing and answering the complaint and a potentially meritorious defense to the action.” Wells Fargo Bank, N.A. v. Besemer, 131 A.D.3d 1047, 1049 (2nd Dep’t 2015) (citations, internal quotation marks and brackets omitted). Whether an excuse is “reasonable” is a determination “within the sound discretion” of the motion court. HSBC Bank USA, N.A. v. Gias, 215 A.D.3d 810, 812 (2nd Dep’t 2023). Against this backdrop, we can discuss HSBC Bank USA, N.A. v. Gallo, a mortgage foreclosure action[2] decided on May 28, 2025 by the Appellate Division, Second Department. The borrower in Gallo defaulted in her repayment obligation under a note and mortgage. The lender commenced suit, and the defendant answered the complaint. The lender served motions for summary judgment and for a judgment of foreclosure and sale on the borrower’s counsel, who failed to oppose either motion. Both motions were granted. A judgment of foreclosure and sale was entered on January 18, 2017, and a foreclosure sale was held on September 28, 2018. The borrower moved, pursuant to CPLR 5015(a)(1), to vacate the summary judgment order and the judgment of foreclosure and sale, to set aside the foreclosure sale and to vacate the referee’s deed because the property was not sold within 90 days of the judgment of foreclosure and sale. The borrower supported her application with, inter alia, the claim that her attorney was negligent and was publicly censured for professional misconduct. The lender opposed the motion by submitting evidence of the borrower’s bankruptcy proceeding and her two orders to show cause seeking to stay the foreclosure sale. The motion court denied the motion and the borrower appealed. In affirming, the Second Department rejected the borrower’s arguments under CPLR 5015(a)(1). The Court noted that even though CPLR 5015(a)(1) requires a motion to vacate be made within one year after the service of the order or judgment with notice of entry, “the Supreme Court has the inherent authority to vacate an order in the interest of justice, even where the statutory one-year period under CPLR 5015(a)(1) has expired.” (Citation omitted.) The borrower’s motion was made more than two and a half years after notice of entry of the judgment of foreclosure and sale. In any event, the Court found that the borrower failed to demonstrate a reasonable excuse for failing to oppose the summary judgment motion or the motion for a judgment of foreclosure and sale and, accordingly did not have to consider whether the borrower “demonstrated the existence of a potentially meritorious opposition to those motions.” (Citation omitted.) The Court also rejected the Borrower’s arguments pursuant to RPAPL 1351(1) and stated: The Supreme Court properly rejected the [borrower’s] contention that the foreclosure sale should be set aside and the referee's deed should be vacated pursuant to RPAPL 1351(1). RPAPL 1351(1) was amended, effective December 20, 2016, to provide that a judgment of foreclosure and sale shall direct that the subject property be sold “within ninety days of the date of the judgment”. Here, the [borrower] waived any objection to the omission of the language required by RPAPL 1351(1) by failing to oppose the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, and by waiting more than two years to move to vacate the order and judgment of foreclosure and sale. In any event, under the circumstances of this case, the court providently exercised its discretion in excusing the [lender]'s delay in conducting the foreclosure sale pursuant to CPLR 2004. (Citations and internal quotation marks omitted, hyperlink added.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has previously written about RPAPL 1351(1) [here]. [2] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest you.

By: Jeffrey M. Haber In today’s Fraud Notes, we examine Yudkin v. Evergreen Terrace 888 Corp., 2025 NY Slip Op 03223 (2d Dept. May 28, 2025) (here), and Lapin v. Verner, 2025 NY Slip Op 03184 (2d Dept. May 28, 2025) (here). Yudkin involved the statute of limitations for fraud and the continuing wrong doctrine. Lapin involved the failure to plead the elements of a fraud claim.[1] Yudkin v. Evergree Terrace 888 Corp. “A defendant who moves to dismiss a complaint pursuant to CPLR 3211(a)(5) on the ground that it is barred by the statute of limitations bears the initial burden of proving, prima facie, that the time in which to sue has expired.”[2] “The burden then shifts to the nonmoving party to raise a question of fact as to the applicability of an exception to the statute of limitations, as to whether the statute of limitations was tolled, or as to whether the action was actually commenced within the applicable limitations period.”[3] A cause of action sounding in breach of contract is governed by a six-year statute of limitations,[4] which “begins at the time of the breach, even when no damage occurs until later, and even though the injured party may be ignorant of the existence of the wrong or injury.”[5] A cause of action based upon fraud must be commenced within six years from the time of the fraud or within two years from the time the fraud was discovered, or with reasonable diligence could have been discovered, whichever is longer.[6] The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged,”[7] “even though the injured party may be ignorant of the existence of the wrong or injury.”[8] Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud. In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.”[9] “[M]ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud.[10] “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.”[11] Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that s/he has been defrauded, a duty of inquiry arises, and if s/he fails to undertake that inquiry when it would have developed the truth and shuts his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her.[12] The test as to when fraud should with reasonable diligence have been discovered is an objective one.[13] Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued.[14] “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.”[15] The foregoing principles were at issue in Yudkin. Yudkin was an action to recover damages for breach of contract and fraud. As alleged in the amended complaint, in January 2012, plaintiff entered into a contract with defendant Evergreen Terrace 888 Corp., the sponsor of an offering plan to convert a rental building in Brooklyn, N.Y. to a condominium building, to purchase a unit in the building. Plaintiff tendered a down payment of $11,000 in connection with the contract. On April 15, 2013, the sponsor’s broker informed plaintiff that the building was going to remain a rental building and agreed to return plaintiff’s down payment. In an email dated April 22, 2013, the sponsor informed plaintiff that the sponsor decided to keep the building as a rental building due to “sign off issues and appraisal issues.” In June 2014, the sponsor sold the building to defendant 888 Oscar & August, LLC, and another entity. On August 11, 2014, the sponsor officially abandoned its offering plan for the condominium conversion. In November 2020, plaintiff commenced the action to recover damages for breach of contract and fraud against, among others, defendants. Defendants moved pursuant to CPLR 3211(a) to dismiss the amended complaint insofar as asserted against each of them on the ground, among others, that it was barred by the statute of limitations. Plaintiff opposed the motions and cross-moved pursuant to CPLR 306-b to extend the time to serve one of the defendants with the summons with notice. In an order dated October 7, 2022, the motion court granted the defendants’ motions and denied, as moot, plaintiff’s cross-motion. Plaintiff appealed. The Appellate Division, Second Department affirmed. The Court found that defendants established that plaintiff’s breach of contract cause of action was time-barred, since plaintiff commenced the action more than six years after the alleged breach occurred in April 2013.[16] The Court held that plaintiff failed to raise a question of fact as to when the claim accrued.[17] Regarding the fraud claim, the Court found that defendants established that plaintiff’s fraud cause of action was time-barred.[18] The Court explained that “plaintiff did not commence [the] action until November 2020, more than six years after the alleged fraud and more than two years after the plaintiff possessed knowledge of facts from which the alleged fraud could have been discovered with reasonable diligence.”[19] The Court held that plaintiff failed to raise a question of fact as to when the fraud claim accrued. The Court also rejected plaintiff’s contention that the continuing wrong doctrine tolled the statute of limitations.[20] Under New York law, the doctrine “may only be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.”[21] The Court found that the sponsor’s official abandonment on August 11, 2014, of its offering plan for the condominium conversion was predicated entirely on the alleged wrong of the earlier misrepresentations made to the plaintiff, and therefore, the continuing wrong doctrine did not apply.[22] Lapin v. Verner It is well settled that “[a] cause of action alleging fraud requires the plaintiff to plead: (1) a material misrepresentation of a fact, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance, and (5) damages.”[23] Under CPLR 3016(b), each of the foregoing elements must be pleaded “in detail.”[24] Conclusory allegations will not suffice.[25] Neither will allegations based on information and belief.[26] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[27] Claims of “[f]raud and fraudulent inducement are not pleaded with the requisite particularity under CPLR 3016(b)” unless “the words used by defendants” are set forth.[28] This means that general descriptions of what was said will not suffice. The plaintiff must identify the “who, what, where, when and how” of the alleged fraud.[29] The plaintiff also must allege a misrepresentation of present or existing fact. “[A]llegations of fraudulent misrepresentations which amount to no more than ‘[v]ague expressions of hope and future expectation’,[30] or ‘mere opinion and puffery’[31] . . . provide an insufficient basis upon which to predicate a claim of fraud.”[32] Thus, for example, representations related to the expected return on an investment are not actionable because “a prediction of something which is expected to occur in the future will not sustain an action for fraud.”[33] As this Blog has noted in several articles, many cases involving an alleged fraud often rise and fall on the scienter element of the cause of action. To allege scienter, a plaintiff must allege with particularity that the defendant had an “actual intent to deceive, manipulate, or defraud.”[34] Scienter must be pleaded with “sufficient detail[]”; “conclusory statement[s] of intent” are insufficient.[35] To succeed, therefore, the plaintiff must allege facts from which there is some “rational basis for inferring that the alleged misrepresentations were knowingly made.”[36] Scienter is a very difficult element to plead. In fact, the scienter element is the hardest to plead because the evidence of intent most often rests solely with the defendant. Because of this difficulty, intent is often inferred from circumstantial evidence.[37] Another element of a fraud claim that is difficult to plead is “justifiable reliance.” The New York Court of Appeals has emphasized the importance of the justifiable reliance element, noting that it is a “fundamental precept” of a fraud claim and is critical to the success of such a claim.[38] Determining whether a plaintiff justifiably relied on a misrepresentation or omission, however, is “always nettlesome” because it is so fact intensive.[39] Recognizing this difficulty, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.”[40] 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.[41] The same is true with regard to documents that a party signs, such as contracts, offering plans, and private placement memoranda. “A party who signs a document without any valid excuse for not having read it is ‘conclusively bound’ by its terms.”[42] When that happens, the plaintiff’s failure to read the document prevents him/her from establishing justifiable reliance.[43] It is important to remember that fraud does not always involve an affirmative statement. Sometimes a person can perpetrate a fraud through the omission of a material fact. Where fraud by omission is claimed, the plaintiff must allege that the defendant had a duty to disclose the omitted fact. A duty to disclose arises when (1) the defendant speaks on the subject, in which case he/she must speak truthfully and completely about the matter[44]; (2) there is a fiduciary relationship between the plaintiff and defendant[45]; or (3) the defendant possesses “special facts” about the matter not known by the plaintiff.[46] A fraud by omission claim is not sustainable where information allegedly withheld is ascertainable through publicly available sources.[47] Nor is an omission case sustainable where the omitted information could have been discovered by the plaintiff through the exercise of ordinary intelligence.[48] Both of the foregoing circumstances will negate application of the special facts doctrine. Finally, as in a fraud by misrepresentation case, the plaintiff must satisfy the other elements of the claim – namely, intent to defraud, justifiable reliance and injury. And the plaintiff must do so with particularity.[49] All of the foregoing principles were at issue in Lapin. In Lapin, plaintiff commenced the action against defendants to recover damages for breach of fiduciary duty and fraud in relation to a failed real estate investment. Plaintiff alleged, inter alia, that an agent of defendants deceived plaintiff into investing in a real estate project being overseen by the individual defendant. Plaintiff alleged that the agent misrepresented that the individual defendant, who is the chief executive officer of defendant Springhouse Partners, Inc., was a “real estate mogul,” and that the investment was “conservative” and would generate an annual 5% return with distributions within 18 to 24 months. Plaintiff further alleged that defendants made material omissions of fact by failing to disclose their involvement in certain other concomitant investments, and by failing to disclose that “the project was overleveraged” and “susceptible to interest rate changes.” Prior to interposing an answer, defendants moved, inter alia, pursuant to CPLR 3211(a) to dismiss the cause of action alleging fraud on the ground, among others, that plaintiff failed to state a cause of action. In an order dated August 3, 2023, the motion court, inter alia, granted that branch of defendants’ motion. Plaintiff appealed. The Appellate Division, Second Department affirmed. The Court held that “plaintiff failed to state a cause of action for fraud.”[50] The Court found that the “allegations of fraudulent misrepresentations amount[ed] to ‘no more than vague expressions of hope and future expectation’ or ‘mere opinion and puffery,’ and [were, therefore,] nonactionable.”[51] Moreover, said the Court, plaintiff failed to allege facts to support an inference of scienter or that plaintiff reasonably relied on the representations alleged to have been made by defendants.[52] Further, the Court found that “the allegations of material omissions of fact … fail[ed] to support a cause of action for fraud.”[53]The Court explained that plaintiff failed to plead “facts … which might give rise to a reasonable inference that the alleged omissions were material or that the defendants otherwise had a duty to disclose the alleged omissions to the plaintiff, or that the plaintiff justifiably relied on the alleged omissions.”[54] Accordingly, the Court concluded that the motion court “properly granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a) to dismiss the cause of action alleging fraud.”[55] Takeaway Yudkin highlights the need for litigants to act on the facts and circumstances from which it can be reasonably inferred that they were the victims of fraud. The failure to bring suit when the facts suggest fraud will result in dismissal. Thus, even though the discovery rule allows the victim of fraud to bring suit when the very nature of the fraud prevents him/her from knowing that he or she was defrauded, the courthouse doors will, nevertheless, close on the litigant who sits on his/her rights when the facts indicate that a wrong has been done. Lapin highlights the need to satisfy each element of a fraud claim. As made clear by the Court, the failure to allege each element of the claim with particularity will result in the dismissal of cause of action. _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] To find articles related to the elements of a fraud claim and the statute of limitations related to a fraud claim, visit the “Blog” tile on our website and enter the search terms desired (e.g., misrepresentation or omission, scienter, justifiable reliance, statute of limitations) or any other related search term in the “search” box [2] Lautman v. 2800 Coyle St. Owners Corp., 223 A.D.3d 658, 659-660 (2d Dept. 2024) (internal quotation marks omitted); Kaul v. Brooklyn Friends Sch., 220 A.D.3d 939, 940-941 (2d Dept. 2023). [3] Lautman, 223 A.D.3d at 660; Plaza Invs. v. Capital One Fin. Corp., 165 A.D.3d 853, 854 (2d Dept. 2018). [4] CPLR 213(2). [5] Houtenbos v. Fordune Assn., Inc., 200 A.D.3d 662, 666 (2d Dept. 2021); Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). [6] CPLR 213(8); Seidenfeld v. Zaltz, 162 A.D.3d 929, 934 (2d Dept. 2018). [7] Carbon Capital Mgmt., LLC v. Am. Express Co., 88 A.D.3d 933, 939 (2d Dept. 2011) (citation and alterations omitted). [8] Schmidt v. Merchants Despatch Transp. Co., 270 N.Y. 287, 300 (1936). [9] Erbe v. Lincoln Rochester Trust Co., 3 N.Y.2d 321, 326 (1957). [10] Id. [11] Trepuk v. Frank, 44 N.Y.2d 723, 725 (1978). [12] Gutkin v. Siegal, 85 A.D.3d 687, 688 (1st Dept. 2011). [13] Id. (citation and internal quotation marks omitted). [14] See Shalik v. Hewlett Assocs., L.P., 93 A.D.3d 777, 778 (2d Dept. 2012). [15] Celestin v. Simpson, 153 A.D. 3d 656, 657 (2d Dept. 2017). [16] Yudkin, Slip Op. at *2 (citing CPLR 213(2) and Kaul, 220 A.D.3d at 941. [17] Id. [18] Id. [19] Id. (citing Kotlyarsky v. Abrazi, 188 A.D.3d 853, 855 (2d Dept. 2020); Coleman v. Wells Fargo & Co., 125 A.D.3d 716, 716-717 (2d Dept. 2015)). [20] Id. [21] Blaize v. New York City Dept. of Educ., 205 A.D.3d 871, 874 (2d Dept.2022) (citations and internal quotation marks omitted). [22] Yudkin, Slip Op. at *2 (citing Fricke v. Beauchamp Gardens Owners Corp., 222 A.D.3d 718, 720 (2d Dept. 2022)). [23] Benjamin v. Yeroushalmi, 178 A.D.3d 650, 654 (2d Dept. 2019) (citing Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)). [24] Stortini v. Pollis, 138 A.D.3d 977, 978–79 (2d Dept. 2016). [25] Id. [26] See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). [27] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014). [28] Gregor, 120 A.D.3d at 447; Orchid Constr. Corp. v. Gottbetter, 89 A.D.3d 708, 710–11 (2d Dept. 2011) (dismissing complaint where plaintiff failed to allege, among other things, “the time or place” of alleged misrepresentations); Saul v. Cahan, 153 A.D.3d 947, 950 (2d Dept. 2017) (citations omitted) (dismissing fraud claim because plaintiff failed to alleged “specific dates and items” relative to the “circumstances underlying” the cause of action for fraud). [29] INTL FCStone Mkts., LLC v. Corrib Oil Co. Ltd., 172 A.D.3d 492, 493 (1st Dept. 2019). [30] International Oil Field Supply Servs. Corp. v. Fadeyi, 35 A.D.3d 372, 375 (2d Dept. 2006). [31] DH Cattle Holdings Co. v. Smith, 195 A.D.2d 202, 208 (1st Dept. 1994). [32] High Tides, LLC v. DeMichele, 88 A.D.3d 954, 958 (2d Dept. 2011). [33] Dragon Inv. Co. II LLC v. Shanahan, 49 A.D.3d 403, 403 (1st Dept. 2008) (internal quotation marks and citation omitted); Lipman v. Shapiro, 150 A.D.3d 517 (1st Dept. 2017) (citations omitted) (dismissing plaintiff’s fraud claim because the alleged representations were based on a future event, not an existing fact). [34] Zutty v. Rye (NOR), 33 Misc. 3d1226(A), 2011 WL 5962804 at *11 (Sup. Ct., N.Y. Co. Apr. 15, 2011). [35] Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495 (1st Dept. 2006) (citation omitted); Fried v. Lehman Bros. Real Estate Assoc. III, L.P., 156 A.D.3d 464, 464–65 (1st Dept. 2017) (citation omitted) (dismissing complaint because “conclusory” allegations of scienter were “not pleaded with the requisite particularity”); Giant Group v. Arthur Andersen LLP, 2 A.D.3d 189, 190 (1st Dept. 2003). [36] Houbigant, Inc. v. Deloitte & Touche LLP, 303 A.D.2d 92, 93 (1st Dept. 2003). [37] Pludeman v. N. Leasing Sys., Inc., 10 N.Y.3d 486, 488 (2008). [38] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018). [39] DDJ Mgt., LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). [40] Curran, Cooney, Penney v. Young & Koomans, 183 A.D.2d 742, 743) (2d Dept. 1992). See also Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322 (1959). [41] 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). [42] Ferrarella v. Godt, 131 A.D.3d 563, 567-568 (2d Dept. 2015) (quoting Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 11 (1988)); see also Sorenson v. Bridge Capital Corp., 52 A.D.3d 265, 266 (1st Dept. 2008). [43] Stortini, 138 A.D.3d at 978; Sorenson, 52 A.D.3d at 266. [44] Bank of Am., N.A. v. Bear Stearns Asset Mgmt., 969 F. Supp. 2d 339, 351 (S.D.N.Y. 2013). [45] Balanced Return Fund Ltd. v. Royal Bank of Canada, 138 A.D.3d 542, 542 (1st Dept. 2016). [46] Pramer S.C.A. v. Abaplus Int’l Corp., 76 A.D.3d 89, 99 (1st Dept. 2010). “The ‘special facts’ doctrine holds that ‘absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.’” Greenman-Pedersen, Inc. v. Berryman & Henigar, Inc., 130 A.D.3d 514, 516 (1st Dept. 2015), lv. denied, 29 N.Y.3d 913 (2017) (quoting, Pramer, 76 A.D.3d at 99). [47] Northern Group Inc. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 135 A.D.3d 414 (1st Dept. 2016). [48] Black v. Chittenden, 69 N.Y.2d 665, 669 (1986); Schumaker v. Mather, 133 N.Y. 590, 596 (1892). [49] CPLR 3016(b). [50] Lapin, Slip Op. at *2. [51] Id. (citations omitted). [52] Id. (citations omitted). [53] Id. [54] Id. (citations omitted). [55] Id.