In the past, we have written about many aspects of arbitration. Our articles have covered issues such as the duty to arbitrate, as well as the bases upon which to confirm or vacate an arbitral award. Rarely, if ever, have we examined a motion to stay a court proceeding pending the outcome of an arbitration. Today, in discussing CMBSW Grp., LLC v. Inverness Counsel, LLC, 2020 N.Y. Slip Op. 32525(U) (Sup. Ct., N.Y. County July 31, 2020) (here), we do so. Typically, a party will move to stay an arbitration because there is no valid agreement to arbitrate. CPLR § 7503(b). Courts will not require a party “to arbitrate unless has clearly consented to do so.” Matter of Chemoleum Corp. , 22 A.D.2d 865, 865 (1st Dept. 1964). The intention to arbitrate “must be clear and direct”. Matter of Marlene Indus. Corp. , 45 N.Y.2d 327, 334 (1978). “An agreement to arbitrate must be express, direct and unequivocal as to the issues or disputes to be submitted to arbitration.” Robert Stigwood Organization, Ltd. v. Atlantic Recording Corp., 83 A.D.2d 123, 126 (1st Dept. 1981) (citations omitted). Sometimes, as in CMBSW Grp., a party moves to stay a court proceeding pending the outcome of an arbitration to avoid the “risk of inconsistent adjudications, application of proof and potential waste of judicial resources.” Zonghetti v. Jeromack, 150 A.D.2d 561, 563 (2d Dept. 1989). Such risks occur because the issues in the arbitration are “inextricably interwoven” with the issues in the lawsuit (e.g., Berg v. Dimson, 151 A.D.2d 362, 363 (1st Dept. 1989); NAMA Holdings. LLC v. Greenberg Traurig, LLP, 62 A.D.3d 578, 579 (1st Dept. 2009)) or “there is such a commonality of parties and issues that the resolution of one proceeding will substantially determine the others.” C.B. Strain & Son, Inc. v. J. Baranello & Sons, 90 A.D.2d 924, 925 (3d Dept. 1982) (stay granted in interest of judicial economy because of overlapping issues and common questions of fact). CMBSW Grp. arose from a dispute between plaintiffs CMBSW Group, LLC (f/k/a the Solaris Group LLC), CMBSW Asset Management LLC (f/k/a Solaris Asset Management LLC), and CMBSW Advisors, LLC (f/k/a Solaris Advisors LLC) (collectively, “Plaintiffs”) and its former employee, Timothy Ghriskey (“Ghriskey”). The gravamen of the dispute concerned an allegation that Ghirskey secretly diverted Plaintiffs’ clients immediately before joining Inverness Counsel, LLC in January 2018. Pursuant to Ghriskey’s employment agreement, on August 7, 2019, Plaintiffs filed a statement of claim and demand for arbitration with the American Arbitration Association against Ghriskey (the “Arbitration”). In the Arbitration, Plaintiffs asserted four claims against Ghriskey: (i) breach of contract; (ii) breach of fiduciary duty; (iii) breach of the duty of loyalty; and (iv) unjust enrichment. Subsequently, on January 27, 2020, Plaintiffs commenced a court proceeding against Defendants alleging: (i) aiding and abetting the breach of fiduciary duty; (ii) tortious interference with contract; (iii) tortious interference with existing and prospective business relationships; and (iv) unfair competition . Defendants moved to stay the court proceeding pending completion of the Arbitration. Defendants argued that a stay was appropriate because (i) the same conduct formed the basis of the claims asserted in the Arbitration as in the court proceeding, (ii) Defendants’ liability in the court proceeding could not be established without proving claims in the Arbitration, namely, whether Ghriskey breached any contractual or fiduciary obligations to Plaintiffs, and (iii) Plaintiffs should be estopped from relitigating Ghriskey’s breach of contract and/or fiduciary duty in the court action. Plaintiffs opposed, arguing that the Arbitration would not resolve the claims in the court action against Defendants and the Arbitration and the lawsuit did not have a complete identity of parties, claims, and damages. The Court granted the motion, finding Plaintiffs’ argument to be “unavailing”. Slip Op. at *3. Finding support in Oxbow Calcining USA Inc. v. American Indus. Partners, 96 A.D.3d 646 (1st Dept. 2012), the Court held that “notwithstanding the lack of total identity of the parties, the rbitration could … dispose of or limit the issues to resolve in the action.” Id. at *4. In Oxbox, the Appellate Division, First Department held that a stay of the lawsuit pending arbitration was appropriate because the arbitration statement of claim and complaint contained overlapping factual allegations and sought the same damages. Oxbox, 96 A.D.3d at 652. The Court explained that, similar to Oxbox, “ he statement of claim in the Arbitration and the Complaint contain nearly identical factual allegations and the same damages – i.e., $10,000,000” and had “overlapping issues of law and common questions of fact.” Slip Op. at *4. In that regard, the Court noted that the underlying elements of Ghriskey’s breach of contract and breach of fiduciary duty claims in the Arbitration were the same as Plaintiffs’ claims for aiding and abetting the breach of fiduciary duty and tortious interference with contract against the Defendants. Id. “Further,” said the Court, “while Mr. Ghriskey’s purported breach of contract and/or breach of fiduciary duty are not dispositive elements of the Plaintiffs’ claims for tortious interference or unfair competition, the Plaintiffs acknowledge that the underlying factual findings are nonetheless relevant to the resolution of these claims.” Id. at *4-*5. “Thus,” concluded the Court, “the resolution of the Arbitration is likely to either limit or dispose of the issues in the present action.” Id. at *5. The Court also found “a significant risk of inconsistent findings of fact with respect to Mr. Ghriskey’s conduct should the Arbitration and action proceed concurrently.” Id. at *5. The Court reasoned that both the Arbitration and the lawsuit alleged “that Mr. Ghriskey conspired with the Defendants to steal the Plaintiffs’ clients and to commit various wrongful acts.…” Id. Finally, the Court rejected Plaintiff’s concerns about the application of collateral estoppel. Id. at *5. Plaintiffs argued “that any award in the Arbitration may have limited estoppel effects against the Defendants” because Plaintiffs would not have “a full and fair opportunity to litigate the issues determined in the arbitration proceeding.” Id. The Court held that “ hile a finding of wrongdoing by Mr. Ghriskey may not be preclusive as to all issues against the Defendants, ‘ ecause mutuality of parties is not required, a defendant may preclude a plaintiff from relitigating an issue resolved against that plaintiff in an earlier arbitration with a different defendant.’” Id. (quoting Bernard v. Proskauer Rose, LLP, 87 A.D.3d 412 (1st Dept. 2011) (explaining that arbitration awards may be given preclusive effect in a judicial action)). Takeaway CPLR § 2201 allows the court to grant a stay of proceedings “upon such terms as may be just.” Parties may invoke CPLR § 2201 based on another pending action or proceeding. As with motions to dismiss under CPLR § 3211(a)(4), the court has broad discretion when making this determination. In order to stay a proceeding, “it is necessary that there be sufficient identity as to both the parties and the causes of action asserted in the respective actions.” White Light v. On The Scene, 231 A.D.2d 90, 93 (1st Dept. 1997). Complete identity is not required; substantial identity will do. See Syncora Guar. Inc. v. J.P. Morgan Sec. LLC, 110 A.D.3d 87, 96 (1st Dept. 2013); White Light, 231 A.D.2d at 94 (“With respect to the subject of the actions, the relief sought must be the same or substantially the same.”) (citations and internal quotation marks omitted). But see Lessard Architectural Grp., Inc. P.C. v. X & Y Dev. Grp., LLC, 88 A.D.3d 768 (2d Dept. 2011) (noting that a stay “should not be granted … unless the other action presents complete identity of parties, causes of action, and relief sought”). Thus, as in CMBSW Grp., where the two proceedings involve substantially similar parties and overlapping subject matter and seek the same damages for substantially the same alleged injuries, a court may properly find that the actions are substantially similar for purposes of CPLR § 2201.

Generally, when a loan is made by a lender that is secured by real property, two of the documents delivered to the Lender by the borrower are a promissory note (which evidences the obligation to repay the borrowed sums) and a mortgage (which secures the obligation to repay the note by giving the lender a security interest in real property).  If a loan secured by a mortgage goes into default and the lender decides to protect its rights through litigation, a choice must be made whether to sue on the note and attempt to collect money damages, or foreclose on the mortgage and have the property sold at foreclosure to fully or partially satisfy the underlying obligation.  See, e.g., Wells Fargo Bank, N.A. v. Goans , 136 A.D.3d 709 (2 nd Dep’t 2016) (“Where a creditor holds both a debt instrument and a mortgage which is given to secure the debt, the creditor may elect either to sue at law to recover on the debt, or to sue in equity to foreclose on the mortgage”).  This choice, called an election of remedies, is mandated by section 1301 of the Real Property Actions and Proceedings Law (“RPAPL”), which provides: 1. Where final judgment for the plaintiff has been rendered in an action to recover any part of the mortgage debt, an action shall not be commenced or maintained to foreclose the mortgage, unless an execution against the property of the defendant has been issued upon the judgment to the sheriff of the county where he resides, if he resides within the state, or if he resides without the state, to the sheriff of the county where the judgment-roll is filed; and has been returned wholly or partly unsatisfied. 2. The complaint shall state whether any other action has been brought to recover any part of the mortgage debt, and, if so, whether any part has been collected. 3. While the action is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought. This Blog has previously addressed RPAPL § 1301 < HERE =">HERE"> and < HERE =">HERE"> . The purpose of RPAPL § 1301 is to “shield the mortgagor from the expense and annoyance of two independent actions at the same time with reference to the same debt” and, “consistent with the legislative purpose of the statute to avoid inappropriate duplicative and vexatious litigation by the same party.”  Central Trust Co. v. Dann , 85 N.Y.2d 767, 772 (1995) (citations, internal quotation marks and emphasis omitted).  Because RPAPL § 1301 “is in derogation of a plaintiff’s common-law right to pursue the alternate remedies of foreclosure and recovery of the debt at the same time,” there is a judicial recognition that the statute “should be strictly construed.”  Old Republic Nat. Title Ins. Co. v. Conlin , 129 A.D.3d 804 (2 nd Dep’t 2015) (citations and internal quotation marks omitted).  In Old Republic , however, the Court permitted an action on a note to proceed despite the pendency of a foreclosure action because while the “foreclosure action was not formally discontinued, the effective abandonment of that action is a de facto discontinuance” which militates against dismissal of the present action pursuant to RPAPL 1301(3).”  Old Republic , 129 A.D.3d at 805 (citations omitted).  The Old Republic Court found that “ llowing the plaintiff to pursue this action on the note, which was commenced more than four years after the foreclosure action was effectively abandoned, is not inconsistent with the purpose of RPAPL 1301(3) ….” Id. In Stone Mountain Holdings, LLC v. Spitzer , decided by the Appellate Division, Second Department, on August 5, 2020 (“Stone Mountain II”), the Court affirmed the grant of leave to a lender pursuant to RPAPL § 1303 to commence an action on the underlying promissory note after a judgment of foreclosure and sale was issued in a prior foreclosure action.  While the facts relative to RPAPL § 1303 are set forth herein, the more convoluted and interesting facts of that case are set forth in an earlier opinion of the Second Department.  Stone Mountain Holdings, LLC v. Spitzer , 119 A.D.3d 548 (2014) (“Stone Mountain I”).  The Stone Mountain borrowers borrowed $3,000,000 on behalf of their company.  The loan was evidenced by a promissory note and was secured by unconditional personal guaranties from the owners of the company.  As additional security, one of the owners and his wife delivered to the lender a mortgage on their residence.   The borrowers defaulted on the loan in 2008, lender commenced a mortgage foreclosure action in 2009 and obtained a judgment of foreclosure and sale in the amount of $4,320,000 in 2010.  “However, rather than proceeding with the foreclosure sale of the … residence, the plaintiff agreed to forgo its right to foreclose on the residential mortgage in exchange for a partial payment of $100,000 against the judgment.”  Stone Mountain II at *1 (citation omitted).  “In the course of its attempts to collect the $4.22 million still owed, the plaintiff discovered that the judgment in its favor authorized only the foreclosure sale and did not authorize it to collect sums due but not satisfied by the sale of the mortgaged property.” Id .  Accordingly, lender sought leave to commence a new action against borrowers to collect the remaining debt because “after final judgment in its favor, a plaintiff may not commence another action to recover a mortgage debt without leave of court.”  Stone Mountain II at *2 (citing to RPAPL § 1303(3) and other cases). In granting leave to lender to pursue the remainder of the debt in excess of $4,000,000, the Court prevented the borrowers from obtaining a windfall and stated: Here, as we noted in our prior decision in this matter < stone mountain i > stone mountain i>, to prevent the plaintiff from seeking to collect the $4.22 million still owed to it would "create a windfall for the defendants by allowing them to obtain satisfaction of the judgment by paying roughly 3.3% of the principal sum borrowed and less than 2.4% of the judgment" (Stone Mtn. Holdings, LLC v Spitzer, 119 AD3d at 550). Accordingly, the Supreme Court providently exercised its discretion in granting the plaintiff's motion for leave to commence a new action to collect the remainder of the debt (see TD Bank, N.A. v 250 Jackson Ave., LLC, 137 AD3d 1006, 1007; see generally Valley Sav. Bank v Rose, 228 AD2d 666, 667). Stone Mountain II at *2

The elements of a cause of action for breach of contract are: (1) the existence of a contract between plaintiff and defendant; (2) performance by one party; (3) the other party’s failure to perform; and (4) damages resulting from such failure to perform. JP Morgan Chase v. J.H. Elec. of New York. Inc. , 69 A.D.3d 802, 803 (2d Dept. 2010). When a party breaches a contract, that breach may excuse the non-breaching party from further performance if the breach is so substantial that it defeats the parties’ objective in making the contract. Robert Cohn Assocs. Inc. v. Kosich , 63 A.D.3d 1388, 1389 (3d Dept. 2009). In such a case, the non-breaching party is discharged from performing any further obligations under the contract and may elect to terminate the contract and sue for damages. Casita. LP v. Maplewood Equity Partners (Offshore) Ltd. , 17 Misc. 3d 1137(A) (Sup. Ct., N.Y. County 2007). Sometimes, each party claims that the other breached the agreement first. Courts characterize this situation as the “battle of the breaches”. Boston Concessions Grp. v. Criterion Ctr. Corp. , 200 A.D.2d 543, 545 (1st Dept. 1994).  The battle of the breaches is typically inappropriate for summary determination because each party to the contract submits “conflicting affidavits and documentary evidence which cast the other party in the role of the primary contract offender.” Boston Concessions Grp. , 200 A.D.2d at 545. A material question of fact is, therefore, presented regarding the nature and extent of the breaches alleged, which cannot be determined in advance of trial.  In 20 St. Marks, LLC v. St. Marks NY LLC , 2020 N.Y Slip Op. 32512(U) (Sup. Ct., N.Y. County July 28, 2020) ( here ), the Court denied a motion for summary judgment because the record was laden with contested issues of fact that were better left for resolution at trial.   Marks involved a commercial lease dispute.  Plaintiff, a bar owner, entered into a commercial lease with defendants on December 26, 2017. Upon signing the lease, plaintiff tendered $154,000.00 to defendants, representing the first month’s rent (at $22,000 per month), and six months’ rent as security deposit (totaling $132,000 in security). Structural defects prevented the premises from opening to the public as planned by plaintiff. On February 20, 2019, plaintiff terminated the lease. Plaintiff contended that defendants breached the lease by failing to deliver possession of the premises by May 1, 2018, as required under the lease. Pursuant to the lease, plaintiff could, at its “sole option, elect to terminate th Lease” “if for any reason, Landlord unable to give possession to Tenant by May 1, 2018.” Slip Op. at *3. Upon termination, defendants were required to “promptly refund any pre-paid rent together with ’s Security Deposit.” Id. According to plaintiff, in an affidavit executed by one of its members, 14 months after signing the lease, defendants had yet to deliver possession of the premises. Defendants contended, through the affidavit of the premises’ property manager, that they gave plaintiff the keys to the premises immediately after signing the lease. According to defendants, plaintiff changed the locks, and in March 2018, had its engineer perform exploratory probing into the flooring. Id. at *5 (citing Pacific Coast Silks, LLC v. 247 Realty, LLC , 76 A.D.3d 167, 175 (1st Dept. 2010) (holding that the commercial tenant had been given possession of the premises when the keys had been delivered and accepted, and the tenant “actively cooperated in the process of readying the place for contemplated future business operations”)). In addition, and relevant to today’s article, defendants interposed a counterclaim, alleging that plaintiff breached the lease by failing to pay rent and abandoning the premises. Plaintiff responded by arguing that the keys were provided so that it could monitor “ efendants’ progress and so that laintiff could access the space with its own contractors and professionals so that laintiff could begin its construction immediately after efendants’ work was completed.” Id. (citation to the record omitted). Plaintiff maintained that it did not take possession of the premises by taking the keys; instead it was “a mere accommodation.…” Id. The Court found that based upon the record before it, “either party could be the primary contract offender.” Slip Op. at *6. As such, said the Court, “questions as to which party breached first … preclude summary disposition.” Id. (citation omitted). “Therefore,” concluded the Court, “plaintiff’s motion for summary judgment on its claims, and for dismissal of defendants’ counterclaim, sounding in breach of contract, must be denied.” Id. Plaintiff also asserted a claim for unjust enrichment. The Court held that the claim was barred because there was “a valid contract governing the subject matter” of the action and, therefore, “preclude recovery in quasi contract for event arising out of the same subject matter” as the contract. Id. at *6-*7 (citing Adelaide Prods., Inc. v. BKN Intl. AG , 38 A.D.3d 221, 225-226 (1st Dept. 2007) (internal quotation marks and citations omitted). “As such,” the Court denied “plaintiff’s motion for summary judgment on the cause of action, dismissed the cause of action pursuant to CPLR 3212(b). Id. at *7 (citing Abramovitz v. Paragon Sporting Goods Co., Inc. , 202 A.D.2d 206, 208 (1st Dept. 1994)). Takeaway Each party in Marks cast the other in the role of the offender. Thus, a material question of fact existed as to which party breached first. Since the Court’s role on summary judgment is not to determine the credibility of the affiants, summary judgment was denied.

Statutes of limitations limit the duration of a defendant’s liability for all types of alleged wrongdoing. Plaintiffs who do not prosecute their claims within the limitation period will find the courthouse doors closed to their causes of action. The United States Supreme Court has explained that the reason for such statutes is to free a defendant from stale claims. Statutes of limitation, like the equitable doctrine of laches, in their conclusive effects are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. The theory is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and that the right to be free of stale claims in time comes to prevail over the right to prosecute them. Railroad Telegraphers v. Railway Express Agency , 321 U. S. 342, 348-49 (1944). In New York, the statute of limitations for a claim based on fraud is the greater of (a) six years from the date when the cause of action accrued or (b) two years from the time plaintiff discovered the fraud or could with reasonable diligence have discovered the fraud. CPLR § 213(8). The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged” ( Carbon Capital Mgmt., LLC v. Am. Express Co. , 88 A.D.3d 933, 939 (2d Dept. 2011) (citation and alterations omitted)), “even though the injured party may be ignorant of the existence of the wrong or injury.” Schmidt v. Merchants Despatch Transp. Co. , 270 N.Y. 287, 300 (1936). The two-year discovery rule requires an inquiry into “whether a person of ordinary intelligence possessed knowledge of facts from which the fraud could be reasonably inferred.” Kaufman v. Cohen , 307 A.D.2d 113, 123 (1st Dept. 2003) (internal quotation marks and citation omitted); see also Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). “ ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. Eberle , 3 N.Y.2d at 326. “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.” Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978). Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that he/she has been defrauded, a duty of inquiry arises, and if he/she fails to undertake that inquiry when he/she would have developed the truth, and shut his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her. Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011).  The test as to when fraud should with reasonable diligence have been discovered is an objective one. Id. (citation and internal quotation marks omitted). Thus, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued. See Shalik v. Hewlett Assocs., L.P. , 93 A.D.3d 777, 778 (2d Dept. 2012). “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.” Celestin v. Simpson , 153 A.D. 3d 656, 657 (2d Dept. 2017). In Sabourin v. Chodos , 2020 N.Y. Slip Op. 20186 (Sup. Ct., N.Y. County July 30, 2020) ( here ), the foregoing principles were considered by Justice Andrew Borrok in denying defendants’ motion to dismiss plaintiffs’ fraud claim. Background Sabourin concerned a lawyer’s alleged involvement in a complex fraud perpetrated by William Jack Frost (“Frost”), an investor in a fashion and lifestyle magazine known as Z!NK (founded in 2002), on its founders, Isabelle Sabourin (“Sabourin”) and Sheriff Ishak (“Ishak” and with Sabourin, “Z!NK’s Founders”). Although the alleged fraud dates back to 2008, the facts surrounding the lawyer’s involvement are claimed to have been unknown until discovery in an arbitration conducted in 2013-2014 (the “2013-14 Arbitration”).  In 2007, Frost agreed to invest $8 million in Z!NK Magazine in exchange for a 25% equity stake in a new joint venture known as I.T. Global Media, LLC (“ITGM”), which took ownership over Z!NK Magazine and its intellectual property rights. Up until the 2013-14 Arbitration, Z!NK’s Founders understood defendant, Adam Chodos (“Chodos”), to be Frost’s legal representative in the negotiations leading up to the transaction and later ITGM’s legal representative. Frost immediately defaulted on his initial funding obligation, causing Ishak to terminate the deal and remove him as a manager of the company. When Frost later came up with the initial payment, Ishak agreed to revive the deal. That payment was made by one of Frost’s companies, F4 Capital Management, LLC (“F4”). According to plaintiffs, Chodos obtained a portion of the payment from an undisclosed source and transferred that money into F4’s accounts from an account that he controlled. The source of the funds and Chodos’ involvement in the transfer were allegedly not disclosed to Z!NK’s Founders. In June 2008, Frost provided Z!NK’s Founders with a $6 million check drawn on an account in Frost’s father’s name. Frost claimed that his father was a majority equity holder and Chairman of the Board of Synovus Bank in Florida, and that ITGM could earn 1.5% more in interest with Synovus Bank than at any other bank. Z!NK’s Founders agreed to deposit the $6 million check into an account at Synovus Bank. Frost indicated that he would take care of opening the account and depositing the check. Frost allegedly later presented Ishak with forged account statements showing a balance of $6 million. In August 2008, when Sabourin sought to transfer funds from the Synovus Bank account to ITGM’s Commerce Bank account to cover operating expenses, Frost intervened, transferring $230,000 to ITGM’s Commerce Bank account. According to plaintiffs, they did not know that Frost did not transfer the money out of the account at Synovus Bank. Instead, Frost allegedly transferred the money out of his then wife’s account. In September 2008, when Ishak attempted to withdraw money from the Commerce Bank account for payroll, he allegedly learned that there were insufficient funds in the account and that he had been removed as an authorized person on the account. He then allegedly tried to access ITGM’s account at Synovus Bank only to learn that the Synovus Bank account did not exist. Z!NK’s Founders alleged that the foregoing was part of a scheme engineered by Frost and Chodos to wrest control of the Z!NK business and loot its assets. They alleged that, between 2008 and 2010, Frost, with substantial assistance from Chodos, engaged in a campaign of misrepresentations and forgeries in an attempt to take over Z!NK Magazine. On January 27, 2010, Z!NK’s Founders commenced a lawsuit against Frost and others. The complaint was amended on March 18, 2011. Before the commencement of discovery on August 19, 2011, the complaint was dismissed as to certain individuals. On September 13, 2012, the matter was referred to arbitration. Document production in the 2013-14 Arbitration occurred in August 2013 and testimony was taken in September 2013. Through the evidence and testimony adduced in the 2013-14 Arbitration, Z!NK’s Founders alleged that they learned, for the first time, the facts underlying what had transpired. They filed their summons and notice on February 26, 2015, less than two years after the testimony in September 2013. On April 1, 2014, the arbitrator awarded Z!NK’s Founders $56,400,000.00 against Frost. On February 23, 2015, Z!NK’s Founders entered judgment against Frost in the amount of $62,380,605.50. But by the time the judgment was entered, Frost had allegedly disappeared. According to plaintiffs, the documents and testimony adduced during the 2013-14 Arbitration revealed that Chodos had an undisclosed and unknown involvement in the fraud. Z!NK’s Founders alleged that the documentary and testimonial evidence was not known or otherwise available to Z!NK’s Founders concerning Chodos’ alleged participation in the fraud. With the information learned during the 2013-14 Arbitration, Z!NK’s Founders filed suit against Chodos, asserting causes of action for fraud, aiding and abetting fraud, unjust enrichment, aiding and abetting breach of fiduciary duty, civil conspiracy to commit conversion, and tortious interference with economic advantage. Plaintiffs sought damages of not less than $5 million. Chodos moved for summary judgment, arguing that the complaint should be dismissed because (i) the statute of limitations had run, (ii) he should not be held liable for his clients’ actions, and (iii) the damages were not ascertainable. The Court denied the motion in its entirety. The Court’s Decision The Court held that the Z!NK’s Founders did not know or have reason to know that Chodos was allegedly involved in the fraud prior to the 2013-14 Arbitration. Slip Op. at *7. The Court said that “Chodos fail to meet his burden of coming forward with evidence establishing ‘what the Z!NK Founders knew’ and ‘when they knew it,’ or that they could have, with reasonable diligence, discovered any such facts necessary to satisfy CPLR § 3016(b) to have brought an action against him previously.” Id. at *7-*8 (paraphrasing Howard Baker’s oft-quoted question: “What did the President know and when did he know it?”). “In fact,” continued the Court, “the evidence adduced in this case establishe that Z!NK’s Founders were cut-off from records that may have revealed Mr. Chodos’ involvement in the fraud because Mr. Frost literally purloined Z!NK’s business records which theft, based on testimony, was perhaps at the direction and upon advice from Mr. Chodos himself, making it impossible for them to have known the nature and extent of Mr. Chodos’ active participation in the scheme.” Id. at *8. Thus, explained the Court, “Z!NK’s Founders did not know, because they could not have known, about the … conduct by Mr. Chodos until it was disclosed either at the earliest during the document production in August 2013 or when Mr. Chodos and testified on September 18, 2013 during the 2013-14 Arbitration ( i.e. , in either case, well within the 2 year discovery rule as this action was commenced on February 26, 2015).…” Id. “In addition,” said the Court, “Mr. Frost’s former employee … testified that she worked for Mr. Frost as his executive assistant and office manager in 2007 and 2008, during which time she communicated with Mr. Chodos on a weekly and sometimes daily basis and that Mr. Frost took all of his direction from Mr. Chodos and never made any decisions without consulting with him.” Id. As she explained, “Mr. Frost ‘didn’t do anything without calling Adam ’ and, Mr. Chodos ‘was the right-hand man with everything. Whether it was money, business advice, anything, he was his guy.’” Id. at *8-*9. “Significantly,” explained the Court, “at some point in Mr. Frost’s absence, Mr. Chodos even took over the company.” Id. at *9. The Court concluded that “without any of this information learned during the 2013-14 Arbitration, the Z!NK Founders could not have known the detailed facts about Mr. Chodos’ involvement in Mr. Frost’s scheme.” Id. “Accordingly,” the Court held that “there issues of fact precluding summary judgment relating, among other things, to (i) the relationship of Messrs. Chodos and Frost; (ii) the likelihood that Mr. Chodos knew, should have known, or maybe played a role in assisting Mr. Frost in forging the documents or stealing all the business records; (iii) the reasons for the delay in the 2013-14 Arbitration and whether it really took Z!NK’s Founders until the 2013-14 Arbitration to have the facts to satisfy CPLR § 3016(b); and (iv) how Mr. Chodos’ alleged ethical breaches may have further altered Z!NK’s Founders’ ability to learn the facts.” Slip Op. at *9. Under such circumstances, the Court denied the motion for summary judgment. Takeaway Inquiry notice is an important component of the statute of limitations analysis. Courts look to whether the facts suggest to a person of ordinary intelligence the probability that he/she has been defrauded. If they do, a duty of inquiry arises. If the plaintiff fails to undertake that inquiry when he/she could have developed the truth and shut his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to the plaintiff.  In Sabourin , the Court found that the facts were concealed from plaintiffs. As explained, plaintiffs “did not know, because they could not have known,” about defendant’s alleged conduct “until it was disclosed either at the earliest during the document production in August 2013 or when Mr. Chodos and testified on September 18, 2013 during the 2013-14 Arbitration.” Without such evidence, plaintiffs could not have been on inquiry notice of the alleged fraud. Since plaintiffs filed suit within two years of 2013-14 Arbitration, plaintiffs timely commenced their lawsuit.

Our country’s teachers are everyday heroes whose hard work and dedication are vital to cultivating our future leaders and ensuring America’s continued strength. Jay Clayton, Chairman, Securities and Exchange Commission. In June 2019, the Securities and Exchange Commission (“Commission” or “SEC”) launched the Teachers’ Initiative and the Military Service Members’ Initiative. The primary purpose of these initiatives is to ensure that public school educators, veterans, and active duty military understand the financial services they are getting, the costs associated with those financial services, and the steps to take when they are offered an investment product that sounds too good to be true. here)=">here)" and="and" commitment="commitment" serving="serving" active="active" military="military" veterans="veterans" through="through" investor="investor" advocacy="advocacy" outreach="outreach" >here).=">here)."> Commenting on the initiatives, Chairman Clayton said the following: Teachers, active duty military, and veterans provide tremendous service to our country, often at great personal and financial sacrifice to themselves and their families, yet far too often are targeted and fall victim to securities fraud and other misconduct. These new initiatives reflect the Commission’s dedication to fighting fraud and to educating retail investors. “The Enforcement Division is committed to fighting for our country’s educators, service members, and veterans, who may be vulnerable to fraud in the securities markets,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “Teachers and members of the military community have already made tremendous financial sacrifices for our country and can quickly face financial ruin as the result of securities fraud,” added Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “Education is the cornerstone of investor protection, and we have no more important constituents than our teachers and members of the military,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “We look forward to working together to help these important groups make the best investment decisions right for them – and protect themselves from fraud.” “State securities regulators have long recognized the importance of protecting those who serve our communities and our nation from financial exploitation. These public servants dedicate their professional lives to helping others and they deserve to know that their state and federal governments are working together to provide them the tools and resources necessary to protect their financial future,” said Michael S. Pieciak, President of the North American Securities Administrators Association and Commissioner of the Vermont Department of Financial Regulation. here.=">here." Teachers="Teachers" find="find" a="a" number="number" of="of" resources="resources" on="on" SEC’s="SEC’s" website="website" through="through" Commission’s="Commission’s" Office="Office" Investor="Investor" Education="Education" and="and" Advocacy="Advocacy" (e.g.,="(e.g.," >here,=">here," >here).=">here)."> The SEC’s commitment to the protection of educators was highlighted by the recent settlement of charges against an investment advisor for failing to disclose millions of dollars in payments to promote services to Florida K-12 teachers. In the Matter of VALIC Financial Advisors, Inc. On July 28, 2020, the SEC announced (here) that it charged Houston-based VALIC Financial Advisors Inc. (“VFA”) in a pair of enforcement actions for failing to disclose to teachers and other investors practices that generated millions of dollars in fees and other financial benefits for VFA. In the first action, the SEC found that VFA failed to disclose that its parent company, Variable Annuity Life Insurance Company (“VALIC”), paid a for-profit entity owned by Florida K-12 teachers’ unions, described by the SEC as the “Teachers Union Entity”, to promote VFA and its parent company services to teachers. In the second action, the SEC found that VFA failed to disclose conflicts of interest regarding its receipt of millions of dollars of financial benefits that directly resulted from advisory client mutual fund investments that were generally more expensive for clients than other mutual fund investment options available to clients. VFA agreed to pay approximately $40 million to settle the charges in both actions. VFA Failed to Disclose Payments Made in Exchange for Referral of Teachers VFA is a financial services vendor in nearly every school district in Florida. According to the SEC’s order (here), for 13 years, VALIC made payments to the Teachers Union Entity in exchange for that entity’s exclusive endorsement of VFA as its preferred financial services partner and the entity’s agreement not to promote or endorse VFA’s competitors. VALIC also provided the entity three full-time employees to serve as “member benefit coordinators.” These coordinators – who, according to the SEC, deceptively presented themselves as employees of the Teachers Union Entity – promoted VALIC and VFA to Florida K-12 teachers, including at benefits, fairs and financial planning seminars, and referred teachers to VFA for investment recommendations. The SEC found that the member benefit coordinators increased VFA’s access to K-12 teachers in Florida, and that VFA did not disclose that the Teachers Union Entity was paid to make VFA its preferred financial services provider. VFA (together with VALIC) earned more than $30 million on the products it sold to Florida K-12 teachers during the period covered by the SEC’s order. “Teachers need and deserve our attention, and we are dedicated to ensuring they receive all of the information they are entitled to when making decisions about their financial futures,” said Chairman Jay Clayton. “Too often educators are targeted with misconduct related to their investments. Our nation’s educators, and our Main Street investors more generally, are entitled to full and accurate information about the incentives and conflicts affecting their financial advisors.” “By failing to disclose to teachers that it was making payments to and providing employees for the union-owned entity in exchange for that entity referring teachers to VFA, VFA took advantage of the trust teachers placed in that entity,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “Like all investors, teachers need full and fair disclosure.” “Financial relationships and affiliations in the K-12 teachers’ retirement sector can impact teachers’ financial interests,” added Steven Peikin, Co-Director of the SEC’s Division of Enforcement. “It is critical that teachers get the information they need to make informed decisions about their retirement options.” VFA Failed to Disclose Conflicts Related to the Receipt of Millions of Dollars from Client Investment in Certain Mutual Funds The SEC separately charged VFA for making false and misleading statements about, and otherwise failing to disclose, conflicts related to its receipt of millions of dollars of financial benefits from client mutual fund investments. According to the SEC’s order (here), VFA’s wrap agreements with its clients provided that the advisory fee the client paid to VFA included the costs to execute securities transactions. The SEC found that VFA either directly invested or instructed its primary sub-adviser to select new mutual fund investments for clients that were part of VFA’s clearing broker’s no-transaction fee program (“NTF Program”), and thus would not incur a transaction fee VFA would be responsible for paying. The NTF Program mutual funds were generally more expensive than other mutual funds available to VFA clients, including instances when a less expensive mutual fund share class for the same fund was available outside the NTF Program. The SEC further found that VFA’s participation in the NTF Program generated three important financial benefits to VFA, and that VFA not only failed to provide disclosures regarding these conflicts, but also provided false and misleading disclosures concerning the conflicts. According to the SEC, VFA received both 12b-1 fees and revenue sharing from the clearing broker for client investment in mutual funds within the NTF Program. In addition, said the SEC, for clients with wrap agreements in which VFA was responsible for client execution costs, VFA financially benefited by not having to pay any transaction fees for mutual funds in the NTF Program. Despite being eligible to do so, VFA did not self-report its receipt of undisclosed 12b-1 fees as part of the Division of Enforcement’s Share Class Selection Disclosure Initiative announced in February 2018 (here). “Investment advisers must disclose conflicts between their financial interests and those of their clients,” said Mr. Peikin. “Here, VFA for years reaped million in benefits at its clients’ expenses while not only failing to disclose the conflicts, but while providing false and misleading information.” “VFA misled clients by telling them that their advisory fee would cover execution costs without also telling them that VFA would put them in more expensive mutual fund share classes and thus avoid paying those costs.” Ms. Avakian added. “By not disclosing these practices as well as the other financial benefits VFA received, the firm deprived its clients of essential information about their relationship with their adviser and violated core fiduciary obligations.” Summary of Settlement Terms In the order concerning Florida K-12 teachers, the SEC found that VFA violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-3 and 206(4)-7 promulgated thereunder. Without admitting or denying the SEC’s findings, VFA consented to a cease-and desist order, a censure, and a civil penalty of $20 million. VFA also agreed to set advisory fees for all Florida K-12 teachers who currently participate in its advisory product in Florida’s 403(b) and 457(b) retirement programs, or who currently or may within the next five years own certain other VALIC Financial Advisors products, at its most favorable rates in the Florida K-12 market. In the order concerning VFA’s mutual fund fee disclosure practices, the SEC found that VFA violated Sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-7 promulgated thereunder. Without admitting or denying the SEC’s findings, VFA consented to a cease-and desist order, a censure, disgorgement and prejudgment interest of over $15.4 million, and a civil penalty of $4.5 million. The foregoing monetary relief is being placed into a fund for distribution to investors affected by the alleged conduct.

Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted). Id. Consequently, courts will interfere as little as possible with the agreement of consenting parties to submit their disputes to arbitration. Id. at 49-50. (citations omitted). Since arbitration is a “creature of contract” ( Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001)), only signatories to a contract containing an arbitration agreement can be compelled to arbitrate. TBA Global, LLC v. Fidus Partners, LLC , 132 A.D.3d 195, 202 (1st Dept. 2015). Consequently, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Communications Workers of Am. , 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582 (1960)). For this reason, “a party will not be compelled to arbitrate and, thereby, to surrender the right to resort to the courts, absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. The agreement must be clear, explicit and unequivocal and must not depend upon implication or subtlety.” Waldron v. Goddess , 61 N.Y.2d 181, 183-84 (1984). If there is a binding agreement to arbitrate and the parties have arbitrated their dispute, any award issued by the arbitrator can be confirmed or vacated by a court of competent jurisdiction.  An arbitration award will be confirmed even when the award does not conform to a court’s sense of justice so long as the arbitrator “offer even a barely colorable justification for the outcome reached.” Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479-80 (2006) (internal quotations omitted); Matter of Daesang Corp. v. NutraSweet , 167 A.D.3d 1, 15 (1st Dept. 2018), lv. denied , 32 N.Y.3d 915 (2019). Thus, an arbitral award will not be subject to vacatur for ordinary errors, even if an arbitrator’s legal and procedural rulings might reasonably be criticized on the merits. Id. As the United States Supreme Court observed: “The potential for . . . mistakes is the price for agreeing to arbitration.” Oxford Health Plans LLC v. Sutter , 569 U.S. 564, 572-573 (2013). See also Wilkins v. Allen , 169 N.Y. 494, 497 (1902) (noting that “however disappointing may be,” parties that have bargained for arbitration “must abide by it”). Under Section 10(a) of the Federal Arbitration Act, a court will vacate an arbitral award for the following reasons: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators . . . ; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10(a)(1)-(4).  Apart from Section 10(a) of the FAA, courts have vacated arbitral awards when an arbitrator manifestly disregards the law. Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 388 (2d Cir. 2003); Goldman v. Architectural Iron Co. , 306 F.3d 1214, 1216 (2d Cir. 2002) (citing DiRussa v. Dean Witter Reynolds Inc. , 121 F.3d 818, 821 (2d Cir. 1997)). See also Matter of Daesang , 167 A.D.3d at 15-16 (citing Wein , 6 N.Y.3d at 480-81). Importantly, the doctrine does not apply to the facts. Wein , 6 N.Y.3d at 483. Application of the doctrine is limited. Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules , 867 F.2d 130, 133 (2d Cir. 1989). It is a doctrine of last resort. Duferco , 333 F.3d at 389. It requires more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law. Id. The doctrine is “limited to the rare occurrences of apparent egregious impropriety on the part of the arbitrators.” Daesang , 167 A.D.3d 1, 15-16. To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. Wallace v. Buttar , 378 F3d 182, 189 (2d Cir. 2004) (quoting Banco de Seguros del Estado v. Mutual Mar. Off., Inc. , 344 F.3d 255, 263 (2d Cir 2003)). See also Wien , 6 N.Y.3d at 480-81 (footnotes omitted). The petitioner bears a heavy burden when invoking the doctrine. As one district court observed, the manifest disregard standard is so difficult to satisfy that it “will be of little solace to those parties who, having willingly chosen to submit to inarticulated arbitration, are mystified by the result; for a party seeking vacatur on the basis of manifest disregard of the law ‘must clear a high hurdle.’” Goldman Sachs Execution & Clearing, L.P. v. Official Unsecured Creditors’ Comm. of Bayou Grp. , 758 F. Supp. 2d 222, 225 (S.D.N.Y. 2010). The grounds for modification or vacatur under CPLR § 7511 are limited.  These include: (1) “corruption, fraud, or misconduct in procuring the award”; (2) partiality of the arbitrator; (3) the arbitrator exceeded his power or imperfectly executed it; and (4) failure to follow the procedures of Article 75 of the CPLR. CPLR § 7511(b)(1)(i)-(iv).  Only when the record demonstrates one of the foregoing will a New York court vacate or modify an award under the CPLR. Matter of New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, AFL-CIO , 6 N.Y.3d 332, 336 (2005). here=">here" and="and" >here.=">here."> Relevant to today’s article is CPLR § 7511 (b) (1) (iii) – vacatur on the basis that the arbitrator exceeded his/her power or so imperfectly executed it. Under that section, vacatur is appropriate “only where the [] award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power.” Matter of New York City Tr. Auth. , at 336; accord Matter of Falzone v. New York Cent. Mut. Fire Ins. Co. , 15 N.Y.3d 530, 534 (2010). “Even where an arbitrator has made an error of law or fact, courts generally may not disturb the arbitrator’s decision.” Falzone , 15 N.Y.3d at 534. A court must “give deference to the decision of the arbitrator … even if the arbitrator misapplied the substantive law in the area of the contract.” New York City Tr. Auth. , 6 N.Y.3d at 336 (internal quotation marks and citations omitted); accord Falzone , 15 N.Y.3d at 534. “‘That reasonable minds might disagree over what the proper penalty should have been does not provide a basis for vacating the arbitral award or refashioning the penalty.’” Matter of Shenendehowa Cent. Sch. Dist. Bd. of Educ. v. Civil Serv. Empls. Assn., Inc., Local 1000, AFSCME, AFL-CIO, Local 864 , 20 N.Y.3d 1026, 1028 (2013), quoting City School Dist. of the City of N.Y. v. McGraham , 17 N.Y.3d 917, 920 (2011). In today’s article, we examine three cases in which the foregoing issues were considered. Kothari v. Brink’s U.S. , 2020 N.Y. Slip Op. 32378(U) (Sup. Ct., N.Y. County July 17, 2020) ( here ); Dora’s Naturals, Inc. v. Guayaki Sustainable Rainforest Prods., Inc. , 2020 N.Y. Slip Op. 32379(U) (Sup. Ct., N.Y. County July 20, 2020) ( here ); and Vitra, Inc. v. Ninety-Five Madison Co., L.P. , 2020 N.Y. Slip Op. 32389(U) (Sup. Ct., N.Y. County July 21, 2020) ( here ). Kothari v. Brink’s U.S.  Kothari involved a dispute over the failure to pay for goods previously delivered and the consequent refusal to deliver a new order of goods until such payment was made. More specifically, Plaintiffs brought suit to recover damages due to defendants’ failure to ship cut and polished diamonds from Mumbai. Defendants claimed that they withheld the shipment because there was an outstanding balance owed to them. Defendants declined to complete delivery until the debt was satisfied. Defendants maintained that the shipments were governed by a contract with a nonparty. Defendants contended that any disputes about the shipments had to be resolved in mandatory arbitration under the governing contract.  Plaintiffs opposed the motion, maintaining that although they were an intended beneficiary of the contract containing the arbitration clause, they were not a party to it and could not be compelled to arbitrate. Plaintiffs contended that they were a consignee rather than a shipper and, therefore, were not a party to the subject shipping contract. Plaintiffs insisted that the unsigned, undated, contract could not compel arbitration.  The Court agreed with Defendants. First, the Court found that Defendants had presented “specific and direct evidence that Mr. Kothari signed the terms and conditions (which indisputably contain an arbitration clause) without specific denials of that evidence.” Slip Op. at *3. Second, the Court found that even if the affidavit evidence was not dispositive, Plaintiffs’ argument was contradicted by its own allegations. Id. In this regard, the Court observed that “plaintiffs suing based on the very contract they claim they never signed.… Plaintiffs cannot have it both ways; they cannot simultaneously seek recovery based on a breach of contract and then claim they are not bound by the provisions of the contract that they don’t like.” Id. Accordingly, the Court granted Defendants’ motion to compel arbitration. Id. at *4. Dora’s Naturals, Inc. v. Guayaki Sustainable Rainforest Prods., Inc. Dora’s Naturals involved a 20-year distribution agreement between Dora’s Naturals, Inc. (“Dora’s”), a distributor of food products, and Guayaki Sustainable Rainforest Products, Inc. (“Guayaki”), a manufacturer of organic beverages (“Distribution Agreement”). Under the Distribution Agreement, Dora’s was appointed the exclusive authorized distributor of all Guayaki products in the New York metropolitan area (with limited specified exceptions).  In 2018, Guayaki terminated the Distribution Agreement, without stating any reasons for the termination, but stating that Dora’s was not entitled to payment from Guayaki because the contract precluded recovery for consequential damages, including lost profits.  The termination of the Distribution Agreement gave rise to the arbitration, at which the primary issue was Dora’s entitlement to damages. As noted by the arbitrators, and not disputed in the court proceeding, Guayaki breached the Distribution Agreement by terminating the Agreement before its expiration without grounds. After an eight-day evidentiary hearing and extensive briefing, the arbitrators awarded Dora’s damages for lost profits in the amount of $4,998,000 (“Final Award”). In support of this holding, the arbitrators reasoned that “whether analyzed under the case law relating to general damages or the case law relating to consequential damages, on the facts presented , lost profits are recoverable.” The arbitrators further held that “any lost profits from a breach would be the ‘natural and probable consequence of the breach,’ as required for general damages.” In the alternative, the arbitrators held that the lost profits claimed by Dora’s would be recoverable if viewed as consequential damages rather than general damages.  In seeking to modify the Final Award to vacate the award of damages, Guayaki argued that the arbitrators’ holdings on damages were based on “manifest disregard of the law.” The Court denied the motion to vacate the Final Award, holding that, “under either standard < i.e. , arbitrator irrationality or manifest disregard of the law> i.e., arbitrator irrationality or manifest disregard of the law>, grounds do not exist for the vacatur of the damages awarded by the arbitrators.” Slip Op. at *4. The Court said that “ n concluding that Dora’s was entitled to an award of lost profits, the arbitrators carefully considered, and rejected, Guayaki’s argument that the lost profits were consequential damages, recovery for which was barred by the terms of the Distribution Agreement.” Id. The Court explained that the arbitrators did not disregard the law; instead, they followed it. Id. at *5 (citing Biotronik A.G. v. Conor Medsystems Ireland, Ltd. , 22 N.Y.3d 799 (2014)). The Court found that “the arbitrators considered the terms of the Distribution Agreement and the nature of the relationship between Dora’s and Guayaki, as reflected in that Agreement” and “concluded that ‘the arrangement between Dora’s and Guayaki mirror in many ways the relationship between the manufacturer and distributor in Biotronik .’” Slip Op. at *5. The Court also found that the arbitrators’ reasoning comported with Biotronik , noting that, “‘as in Biotronik , the arrangement between Dora’s and Guayaki was not simply one between the seller and a buyer who was in the business of reselling’; that the Distribution Agreement clearly contemplated that Dora’s would resell Guayaki’s product; and that “‘any lost profits from a breach would be the natural and probable consequence of the breach, as required for general damages.’” Id. , quoting Final Award, at 14 (internal quotation marks and citation omitted). [Ed. Note: In Biotronik , the Court of Appeals explained that “ ost profits may be either general or consequential damages, depending on whether the non-breaching party bargained for such profits and they are ‘the direct and immediate fruits of the contract.’ Otherwise, where the damages reflect a ‘loss of profits on collateral business arrangements,’ they are only recoverable when ‘(1) it is demonstrated with certainty that the damages have been caused by the breach, (2) the extent of the loss is capable of proof with reasonable certainty, and (3) it is established that the damages were fairly within the contemplation of the parties.’” Biotronik , 22 N.Y.3d at 805-806 (internal citations omitted).]  The Court further found that the arbitrators comported with the law by finding, “in the alternative, that if viewed as consequential damages, the lost profits claimed by Dora’s would be recoverable.” Id. at *6.  The Court explained that the arbitrators properly based their finding on the language of the Distribution Agreement. Id. Section 13 (C) of the Distribution Agreement, on which Guayaki relied, provided that: “Notwithstanding any other provisions of this Agreement, in no event shall either Party be liable to the other for incidental, special or consequential damages, or punitive damages.” Section 13 (C) appeared in the Indemnification Section of the Distribution Agreement. Id. By contrast, noted the Court, the Termination Section of the Agreement also contained a general provision on damages. Id. That section (Section 10 (A)) provided that: “A decision by either party to terminate this Agreement pursuant to this paragraph will not affect either party’s right to seek damages against the other for a breach of the terms of this Agreement.… Nothing contained herein shall be deemed to limit either Party’s right to obtain damages or equitable relief if either Party shall breach its obligations under this Agreement. All remedies shall be cumulative and are intended to be, and shall be non-exclusive.” Id. The arbitrators concluded that Section 10 (A) was dispositive “‘because the limitation on damages nestled in the provisions relating to indemnification and because there is contrary and similarly phrased language relating to damages in Section Ten of the Distribution Agreement relating to termination the language in the specific provision relating to termination, which expressly provide for no limitation on rights to damages, governs.’” Id. , quoting Final Award, at 18 (internal quotation marks omitted).  The Court concluded that regardless of whether the arbitrators were correct in their application of the caselaw or assessment of the evidence, “ he arbitrators unquestionably considered the applicable law and rendered a well-reasoned opinion that not manifestly disregard the law.” Id. at *7. Additionally, the Court held that the Final Award was not “irrational”. Id. Vitra, Inc. v. Ninety-Five Madison Co., L.P. Vitra, Inc. (“Vitra”) manufactures and sells furniture in showrooms and retail stores throughout the United States. Ninety-Five Madison Co., L.P. (“Ninety-Five Madison”) owns property in New York City (“Premises”). On June 18, 2016, the parties entered a lease (“Lease”) pursuant to which Ninety-Five Madison leased to Vitra certain space at the Premises for use as a retail store and showroom. The parties agreed that Ninety-Five Madison would undertake certain construction work before Vitra occupied the Premises. Vitra alleged that Ninety-Five Madison failed to perform its construction work by the agreed-upon date and, as a result, Vitra commenced an action. On December 7, 2017, the parties entered into a Settlement Agreement of the action, which was so ordered by the court. Pursuant to the Settlement Agreement, all disputes arising out of or relating to the interpretation and enforcement of the Settlement Agreement would be decided through arbitration under the auspices of JAMS. The arbitrator rendered a series of awards, which Ninety-Five Madison moved to vacate: (1) the Third Interim Award dated March 10, 2019 (“Third Interim Award”) and the subsequent Order on Respondent’s Motion for Reconsideration of Third Interim Award dated September 18, 2019 (the “September 2019 Order”); and (2) the Arbitrator’s Order on Claimant’s Application for Directions to Respondent dated August 29, 2019 (“August 2019 Order”) and the Arbitrator’s Second Partial Final Award dated January 7, 2020 (“Second Partial Award”). Vitra cross-moved to confirm: (1) the Third Interim Award and for an order directing the Clerk of the Court to enter a money judgment in Vitra’s favor and against Ninety-Five Madison in the sum of $596,291.90, plus interest, as provided for in the Third Interim Award; and (2) the Second Partial Award and for an order directing the Clerk of the Court to enter a money judgment in favor of Vitra and against Ninety-Five Madison in the sum of $525,000.00, plus interest as provided for in the Second Partial Award. The Court confirmed the awards.  The Court held that the Third Interim Award and the September 2019 Order were “rationally based.” Slip Op. at *6. The Court found that the “Arbitrator adequately supported his conclusions, citing the language of the Lease and Settlement Agreement and the supplemental affidavit” of the person who negotiated the Lease on behalf of Vitra. Id. In confirming the award, the Court noted that “Ninety-Five Madison failed to provide its own affidavit from the individual who negotiated the lease on Ninety-Five Madison’s behalf.” Id. at *5. The Court held that “the Arbitrator did not exceed his authority in issuing the Second Partial Final Award.” Id. at *8. The Court noted that prior to the issuance of the Second Partial Final Award, “the parties disagreed about the filing of an online permit application on the Department of Buildings (“DOB”) website for a sidewalk shed.” Id. at *9. Vitra maintained that Ninety-Five Madison was required to file this application in order for Vitra to proceed with its renovations. After Ninety-Five Madison failed to file the application, Vitra applied to the Arbitrator to require Ninety-Five Madison to file the application by a date certain or face monetary sanctions. In response, the Arbitrator issued the August 2019 Order, directing Ninety-Five Madison to file the application by September 3, 2019 or face a monetary sanction of $25,000 per day. Ninety-Five Madison did not file the application until September 24, 2019, twenty-one days after the deadline. Pursuant to the August 2019 Order, Vitra moved for a monetary award against Ninety-Five Madison for the delay and Ninety-Five Madison filed its own motion to reconsider the August 2019 Order. On January 7, 2020, the Arbitrator issued the Second Partial Final Award, granting Vitra’s application for monetary sanctions of $525,000 and denied Ninety-Five Madison’s application to reconsider the August 2019 Order. The Court held that “the Arbitrator’s proffered reasons for the decision to award monetary sanctions ha a sound basis.” Id. at *9. The Court explained that the “Arbitrator considered all the arguments presented by Ninety-Five Madison as to why sanctions should be denied” and “thoroughly explained his decision” to award monetary sanctions. Id. Accordingly, the Court found “the Second Partial Final Award and the August 2019 Order reasonable and rational.” Id. Takeaway The cases discussed in today’s article illustrate three points about arbitration. First, it is a “creature of contract” and the decision whether an agreement to arbitrate exists will be governed by the rules of contract interpretation. Second, courts accord deferential treatment to the decisions made by arbitrators. Finally, the grounds under which vacatur or modification is permitted under CPLR § 7511 are narrow and difficult to overcome.

In our prior Blog “ ’Love Thy Neighbor’ Is Not Always the Case ,” which should be reviewed in conjunction with the instant Blog, section 881 of New York’s Real Property Actions and Proceedings Law (the “RPAPL”) was explored.  Briefly stated, access to a neighboring property is sometimes necessary to improve or repair one’s own property (the “Work”).  In many cases neighbors can amicably resolve such access issues.  This can be done informally or through a formal access agreement.  When formal or informal voluntary access to a neighboring property is denied, §881 of the RPAPL, which provides a mechanism for court ordered access, can be relied upon to carry out the necessary Work.  RPAPL §881 provides: When an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license so to enter pursuant to article four of the civil practice law and rules. The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires. The licensee shall be liable to the adjoining owner or his lessee for actual damages occurring as a result of the entry. On July 23, 2020, the Appellate Division, First Department, rendered a decision in In re Meopta Properties II, LLC v. Pacheco , a case decided under RPAPL §881.  A simplified summary of the facts in Meopta based on a review of the e-filed documents in the underlying action follows.  Petitioner, Meopta, a developer, owned a townhouse sharing a party wall with respondent, Pacheco’s, townhouse.  Meopta commenced renovations of its property and, in conjunction therewith, constructed a stair bulkhead on the party wall.  The bulkhead encroached on respondent’s property.  After Pacheco commenced her own plenary action related to the work being performed by Meopta, Meopta obtained a building permit to remove and relocate the stair bulkhead.  In order to perform such work, and in order to provide NYC Building Code required protections and safeguards to Pacheco’s property, Meopta required access to Pacheco’s property but Pacheco refused.  Thus, petitioner commenced a special proceeding pursuant to RPAPL §881.   The motion court’s order, as reviewed on the e-courts website, granted petitioner a license: for 60 days in order to erect and maintain the necessary protections to respondent’s building while petitioner removes and relocates the roof stair bulkhead which currently is partially on the party wall and thereafter restore the party wall to the original height and install weatherproofing, etc. to petitioner’s easterly wall and install capstones.  Proper insurance to be acquired.  The First Department affirmed the order of the motion court.  In so doing, the Court weighed the interests of the parties and found that “granting petitioner a 60-day license to access a limited exterior portion of respondent’s property for the purpose of performing remedial and protective construction work is reasonable and that any inconvenience to respondent will be slight compared to the hardship to both parties if the license is refused.  (Citations omitted.)  Interestingly, the Court also held that: lthough no license fee was granted, the court ordered petitioner to obtain and maintain insurance to protect respondent’s property interests.  RPAPL 881 merely makes the licensee “liable … for actual damages occurring as a result of the entry.”  If respondent incurs actual damages, she will have a cause of action against petitioner under the statute. (Citations omitted, ellipses in original.)  Finally, the Court held that the motion court did not abuse its discretion in “declining to award attorneys’ and expert’s fees” to respondent “under the circumstances of this case.”

Over the past several months, this Blog has examined cases in which plaintiffs brought contract claims and fraud claims in the same action ( here , here and here ). As discussed in those posts, the courts dismissed the cases because the plaintiffs failed to allege an independent basis upon which the claims could stand side-by-side.  Similarly, this Blog has examined cases involving veil piercing and the Statute of Fraud. As to the former, the courts dismissed the actions because the plaintiffs failed to demonstrate with particularity the abuse of the corporate form by the corporate officer or shareholder. As to the latter, the disposition of many of the actions depended upon whether the plaintiffs could demonstrate the capability of the agreement being fulfilled within one year.  In Osman v. Brown , 2020 N.Y. Slip Op. 32319(U) (Sup. Ct., N.Y. County July 17, 2020) ( here ), the subject of today’s post, the foregoing issues were considered by the Court.  Osman v. Brown Osman arose out of a commercial transaction involving the purchase of Defendant J. Streicher & Co., LLC (the “Company”). To effectuate the transaction, Plaintiff J. Streicher, LLC (the “Buyer”) was formed by Plaintiff Bulent Osman (“Osman”), Defendant J. Streicher Group, LLC (the “Seller”) and Defendant Spiorad Capital Partners, LLC (“Spiorad”), with the founders holding 80%, 10%, and 9% of the Buyer’s ownership interest, respectively.  The Buyer and the Seller signed the Purchase Agreement on October 24, 2017, which provided for the completion of the purchase through two closings.  Plaintiffs alleged de facto compliance with all obligations set forth in the Purchase Agreement; specifically, transferring $200,000 to Defendants on March 11, 2017, paying $850,000 to third-party ALC Manufacturing, and providing assistance to Defendants in connection with a $2,500,000 deal with another third-party.  Osman alleged that Defendant Thomas Brown stated that a final $150,000 payment would then be sufficient to complete the Second Closing. Plaintiffs alleged that they complied, with Osman personally transferring the requested amount to Brown, but that Defendants became “unavailable” after receiving the transfer and failed to deliver the 100% ownership interest in the Company.  Defendants delivered to Osman a notice of termination of the Purchase Agreement on August 29, 2018. The notice of termination contained numerous exhibits detailing Company meetings, Company emails with FINRA, and a proposed contract delivered by Osman detailing “a new source of recapitalization from a third party” that deviated from the terms of the Purchase Agreement. Slip Op. at *2. Osman was then removed as a member of the Buyer entity by board resolution on December 17, 2018, with Spiorad and the Seller absorbing his ownership interest.  Plaintiffs filed suit on May 20, 2019, alleging claims for 1) breach of contract; 2) specific performance; 3) injunctive relief; 4) fraud; 5) negligent misrepresentation; 6) unjust enrichment; 7) breach of contract against Thomas Brown; 8) unjust enrichment against Thomas Brown; and 9) civil conspiracy.  Defendants moved to dismiss. The Court granted the motion in part and denied it in part. We look at the Court’s decision with respect the contract claims and the fraud claim. The Court’s Decision Defendants moved to dismiss the contract claims alleged against the individual defendants ( i.e. ,  Brown, Plum, Frey, and Pickett) and the corporate defendants ( i.e. , Spiorad and the Company (J. Streicher & Co., LLC)), on the grounds that the members of a corporation are not individually liable for the corporation’s breach of a contract. The Court granted the motion. Generally, “ director is not personally liable for a corporation’s breach of an agreement merely by virtue of his or her decisions or actions that resulted in the corporation’s promise being broken.” Hixon v. 12-14 E. 64th Owners Corp. , 107 A.D.3d 546, 547 (1st Dept. 2013). “ nly parties to a contract can be sued for breach.” Shapiro v. Ninah Consulting, Inc. , 2019 WL 3854919, at *2 (Sup. Ct., N.Y. County 2019) (citing Leonard v. Gateway II, LLC , 68 A.D.3d 408 (1st Dept. 2009)). “Under New York law, the corporate veil can be pierced where there has been, inter alia , a failure to adhere to corporate formalities, inadequate capitalization, use of corporate funds for personal purpose, overlap in ownership and directorship, or common use of office space and equipment.” Forum Ins. Co. v. Texarkoma Transp. Co. , 229 A.D.2d 341, 342 (1st Dept. 1996). “Given the courts’ reluctance to disregard the corporate form, a plaintiff must allege, with the requisite ‘particularized statements detailing fraud or other corporate misconduct,’ facts that would warrant piercing the corporate veil.” State Ins. Fund v. Iovine , 2007 WL 2175523 (Sup. Ct., N.Y. County 2007) (quoting Sheridan Broadcasting Corp v. Small , 19 A.D.3d 331, 332 (1st Dept. 2005)). here,=">here," >here=">here" and="and" >here.=">here."> The Court found that the complaint “fail to include any specific allegations that these eight Defendants exercised complete domination and/or abused the corporate form to commit wrongdoing.” Slip Op. at *6. “Rather,” said the Court, “Plaintiffs merely allege that ‘Plaintiffs entered into the valid Agreement with Defendants under which Defendants were obligated to sell the Company to Plaintiffs pursuant to the terms of the Agreement dated October 24, 2017’, despite the fact that the Purchase Agreement was signed only by the Buyer (J. Streicher, LLC) and Seller (J. Streicher Group, LLC).” Id. (citations to record omitted). The Court concluded that “ ecause these … Defendants were not signatories to the Purchase Agreement and Plaintiffs failed to sufficiently plead facts showing a basis to pierce the corporate veil,” the contract claims against Defendants Brown, Plum, Frey, Pickett, Spiorad, and the Company (J. Streicher & Co., LLC) could not stand. In addition, Plaintiffs alleged that Defendant Brown breached an oral agreement to repay a loan. The claim involved an alleged meeting between Osman and Brown in which Brown asked Osman for a loan of $100,000 to pay off legal bills. Osman alleged that he provided two loans to Brown, both in the amount of $15,000. Defendants moved to dismiss the claim for breach of contract on the grounds that the alleged contract was an oral contract of an infinite duration and was therefore unenforceable pursuant to the Statute of Frauds. “Under the statute of frauds, an oral agreement that cannot be performed within a year of its creation is void.” Cohen v. HDS Trading Corp. , 2014 WL 2195401, at *1 (Sup. Ct., N.Y. County 2014) (citing General Obligations Law § 5-701)). “Wherever an agreement has been found to be susceptible of fulfillment within that time, in whatever manner and however impractical, this court has held the one-year provision of the Statute to be inapplicable, a writing unnecessary, and the agreement not barred.” D & N Boening, Inc. v. Kirsch Beverages, Inc. , 63 N.Y.2d 449, 455 (1984). here,=">here," >here=">here" and="and" >here.=">here."> The Court found that the “alleged loan contract could have been completed, i.e. repaid, within one year.” Slip Op. at *8. “As such,” concluded the Court, “the motion to dismiss based on the Statute of Frauds is denied.” Id. The Court also held that Plaintiffs sufficiently alleged a claim for breach of contract against J. Streicher Group, LLC (the Seller). The Court explained that there was “at least an attempted performance of the First Closing obligations” by Plaintiffs and an allegation “that Seller became unavailable and terminated the contract, resulting in damages.” Id. At the pleading stage, such allegations were enough to withstand a challenge. Having sustained most of the contract claims, the Court turned its attention to the fraud claim. As this Blog has noted in numerous posts, “ fraud claim should be dismissed as redundant when it merely restates a breach of contract claim, i.e. , when the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract.” First Bank of Americas v. Motor Car Funding, Inc. , 257 A.D.2d 287, 291 (1st Dept. 1999). “A fraud-based cause of action may lie, however, where the plaintiff pleads a breach of a duty separate from a breach of the contract.” Manas v. VMS Assocs., LLC , 53 A.D.3d 451, 453 (1st Dept. 2008). The Court held that “the allegations in the Complaint insufficient to withstand the motion to dismiss.” Slip Op., at *10. The Court found that the complaint “merely boilerplate language and fail to identify any specific misrepresentation of a material fact made by Defendants that Plaintiffs relied upon to their detriment.” Id. “Further,” observed the Court, “the claim for fraud duplicative of the claim for breach of contract because Plaintiffs fail to identify a separate breach of duty aside from the Defendants’ nonperformance of the Purchase Agreement.” Id. Accordingly, the Court dismissed the fraud cause of action. Finally, the Court addressed the issue of derivative standing by Osman.  Business Corporation Law § 626 provides that a derivative action may be brought on behalf of a corporation by a shareholder, but the plaintiff must be a shareholder both “at the time of bringing the action and … at the time of the transaction of which he complains<.> ” BCL § 626 (a), (b). This requirement is known as the “contemporaneous ownership rule” and is “strictly enforced” by the courts ( Honzawa Holding Co. v. Hiro Enterprise USA, Inc. , 291 A.D.2d 318, 318 (1st Dept. 2002)) because “only current shareholders have a continuing interest in the welfare of the company” ( Zentz v. Intl. Foreign Exch. Concepts, L.P. , 33 Misc. 3d 1212 , at *8 (Sup. Ct., Kings County 2011)). See Schorr v. Steiner , 46 AD3d 435, 436 (1st Dept. 2007) (“the individual plaintiffs’ lack of legal capacity to pursue a derivative action was demonstrated by, inter alia , their failure to adduce any evidence that they were … shareholders or “beneficial” owners at the time of the alleged fraud and when they commenced this action”) (emphasis in original)). The Court held that Osman lacked the capacity to bring the action on behalf of the Buyer. Slip Op. at *4. The Court explained that Osman had been removed as a member of the Buyer on December 17, 2018, by written consent of its other members, JSG and Spiorad, resulting in the splitting up of Osman’s ownership interest among those remaining members. Id. “Despite his removal,” said the Court, “Osman commenced this lawsuit on behalf of both himself and the Buyer entity on May 20, 2019.” Id. Such action violated the “contemporaneous ownership rule”, concluded the Court. Id. here=">here" >here.=">here.">

Risk. Every investment decision carries with it some degree of risk. The greater the risk, the greater the reward. Of course, the flip side is also true. The greater the risk, the greater the potential to lose some or all of the money invested. Thus, when it comes to investing, there is no such thing as a sure thing. Notwithstanding, there are people who promise no risk, no loss investing. They claim that they can place a person’s money into a “can’t miss” investment, where the risk of loss is minimal, if not non-existent, and the returns are above market. Sounds too good to be true. Not for the Ponzi scheme organizer. What is a Ponzi Scheme? “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. With little or no legitimate earnings, Ponzi schemes require a constant flow of money from new investors to continue. Ponzi schemes inevitably collapse, most often when it becomes difficult to recruit new investors or when a large number of investors ask for their funds to be returned.” Seehttps://www.sec.gov/spotlight/enf-actions-ponzi.shtml. Shutting down Ponzi schemes and holding the organizers accountable for such frauds is an important part of the SEC’s enforcement mission. Recently, the SEC announced action it had taken against an alleged Ponzi-like scheme organizer responsible for bilking investors out of $60 million. The SEC Files Charges Against Chief Investment Officer Behind a $60 Million Ponzi-Like Scheme On July 17, 2020, the Securities and Exchange Commission (“SEC” or “Commission”) announced that it charged David Hu (“Hu”), the co-founder and chief investment officer of Manhattan-based International Investment Group LLC (“IIG”), with fraud for his role in a $60 million Ponzi-like scheme. In its complaint, the SEC alleged that, from October 2013, Hu orchestrated multiple frauds on IIG’s investment advisory clients (here). According to the SEC, Hu grossly overvalued the assets in IIG’s flagship hedge fund, resulting in the fund paying inflated fees to IIG. In addition, through IIG, Hu allegedly sold at least $60 million in fake trade finance loans to other investors and used the proceeds to pay the redemption requests of earlier investors and other liabilities – a classic form of a Ponzi scheme. The SEC alleged that Hu deceived IIG clients into purchasing these loans by directing others at IIG to create and provide to the clients fake loan documentation to substantiate the non-existent loans, including fake promissory notes and a forged credit agreement. “As alleged, Hu’s deception caused substantial losses to a retail mutual fund, and other funds IIG advised,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office. “The SEC remains committed to holding accountable individual wrongdoers who seek to take advantage of investors for personal gain, including when they employ elaborate means to cover up their fraud.” The SEC’s complaint, filed in the United States District Court of the Southern District of New York, charged Hu with violating the antifraud provisions of the federal securities laws. The SEC is seeking permanent injunctive relief, disgorgement, and civil penalties. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Hu (here). The Government alleged that, over a period of more than 10 years, HU perpetrated an over $100 million scheme to defraud investors in IIG’s funds, including by creating fictitious investments and overvaluing investments used to generate funds to pay off earlier investors in a Ponzi-like manner. Hu was charged with investment adviser fraud, securities fraud, and wire fraud. A copy of the Information can be found here. Acting Manhattan U.S. Attorney Audrey Strauss said: “As alleged, David Hu directed a multimillion-dollar, years-long scheme to defraud investors. Putting profit ahead of his fiduciary duties, Hu allegedly mismarked millions of dollars of loan assets to cover up millions in losses. Hu also created fake entities and loans, and falsified paperwork to deceive auditors and avoid detection. Now David Hu stands charged with federal crimes and faces time in federal prison.” The SEC previously charged IIG with fraud on November 21, 2019, and revoked IIG’s registration as an investment adviser on November 26, 2019 (here). On March 30, 2020, the SEC obtained a final judgment (here) on consent that enjoined IIG from violating the antifraud provisions of the federal securities laws and required IIG to pay more than $35 million in disgorgement and prejudgment interest.

This Blog has previously addressed issues concerning mortgage contingency clauses.  < HERE =">HERE">   Briefly stated, mortgage contingency clauses in contracts for the sale of real property make the sale contingent on the purchaser obtaining a purchase money mortgage consistent with the clause’s requirements.  The failure to obtain a mortgage commitment after a diligent effort to do so, permits the potential purchaser to cancel the contract and demand the return of a down payment without being in breach of that contract.  See, e.g. , Schramm v. Solow , 91 A.D.3d 624, 626 (2 nd Dep’t 2012) (citations omitted) (“the buyer met her burden of establishing her prima facie entitlement to judgment as a matter of law by tendering evidence in admissible form that she attempted to secure a mortgage loan, but was unable to obtain the requisite firm commitment as required by the terms of the mortgage contingency clause of the contract and, thus, was entitled to recover her down payment.”)  “A mortgage contingency clause protects a contract vendee from being obligated to consummate the transaction in the event mortgage financing cannot be obtained in the exercise of good faith through no fault of the purchaser.”  Creighton v. Milbauer , 191 A.D.2d 162, 166 (1 st Dep’t 1993) (citations omitted).  A purchaser has “an obligation under mortgage contingency clause to make a diligent, prompt, and truthful application to a bona fide lending institution for a mortgage.”  Big Apple Meat Market, Inc. v. Frankel , 276 A.D.2d 657, 659 (2 nd Dep’t 2000) (citations and internal quotation marks omitted).   In many cases a “mortgage contingency clause a condition precedent inuring to the benefit of both parties, and therefore be waived unilaterally by the .”  Degree Security Systems, Inc. v. F.A.B. Land Corp. , 17 A.D.3d 402, 403 (2 nd Dep’t 2005) (citation omitted).  Indeed, “unless the contract clearly states otherwise, provisions are meant to protect the seller as well as the buyer, on the theory that the issuance of a mortgage commitment to the prospective buyer increases in direct proportion to the amount of the mortgage commitment itself, the chances that the buyer will in fact be able to perform his obligations in a timely manner.”  Ting v. Dean , 156 A.D.2d 358, 360 (2 nd Dep’t 1989) (citations omitted). If a purchaser seeks a mortgage commitment that is inconsistent with the mortgage contingency clause, the failure to procure a commitment will not provide purchaser with grounds to cancel the contract and have the down payment returned.  For example, the mortgage contingency clause in Post v. Mengoni , 198 A.D.2d 487 (2 nd Dep’t 1993), required purchaser to obtain a $2,000,000 mortgage commitment.  Purchaser was deemed to be in breach of the contract, and was not entitled to the return of his down payment, because his application for a mortgage in the amount of $2,100,000 was denied.  In Kweku v. Thomas , 144 A.D.3d 1109 (2 nd Dep’t 2016), the Court dismissed purchaser’s complaint for the return of a down payment because “ ll three of the buyer’s successive mortgage loan applications indicate that he applied for a loan in an amount that exceeded the $625,950 amount set forth in the mortgage contingency clause y applying for a mortgage in an amount greater than that stated in the contract, the buyer breached the contract, as a matter of law.”  Kweku , 144 A.D.3d at 1111 (citations omitted).  The Kweku Court also found purchaser in breach by applying for an “FHA” mortgage loan when such a loan was prohibited by the contract.  Kweku , 144 A.D.3d at 1111 Needless to say, mortgage contingency clauses give rise to a significant amount of litigation.  On July 15, 2020, the Appellate Division, Second Department, decided Bigfoot Media Properties, LLC v. Cushman In T, LLC , a case in which the Court was called upon to interpret a mortgage contingency clause.  The defendant in Bigfoot was the owner of a single-family house (the “Property”).  Plaintiff limited liability company, as purchaser, entered into a contract to purchase the Property from defendant.  The purchase price for the Property was $3,150,000 and plaintiff made a $200,000 down payment (the “Down Payment”) at the time the contract was executed.  The Down Payment was deposited into the escrow account of defendant’s attorney. The subject contract “contained a mortgage contingency clause that provided that the plaintiff shall make a prompt application for a ‘conventional’ 30-year mortgage loan in the sum of $2,000,000, and that the plaintiff would be entitled to cancel the contract and receive a refund of the down payment plus accrued interest in the event that the application was denied.”  Plaintiff, however, never applied for a loan.  “Instead, Jeffrey Gerson, the sole member of the plaintiff, applied to Wells Fargo Bank, N.A…., for a $2,000,000 mortgage loan for himself, submitting his own personal financial information rather than the financial information of the plaintiff.”  Because the Property was being purchased as “investment property” and was appraised at $3,000,000, the bank issued a commitment letter approving a mortgage loan in the amount of $1,950,000.  Defendant’s offer to loan plaintiff an additional $50,000 on the same terms as the bank’s loan was rejected by Plaintiff.  Based on the bank’s appraisal (which was $150,000 less than the purchase price), plaintiff tried to cancel the transaction and demand the return of the Down payment, which request defendant refused. Plaintiff commenced the underlying action for the return of the Down Payment.  The motion court denied plaintiff’s motion for summary judgment and granted defendant’s cross-motion for the same relief.  The Second Department affirmed the motion court’s order and remitted the matter for the “entry of a judgment, inter alia, declaring that the defendant is entitled to retain the down payment.” (Citation omitted).  The Court found that plaintiff “breached the contract without lawful excuse by failing to apply for a mortgage loan.”  (Citation omitted.)  The Court agreed that the application for a mortgage loan by plaintiff’s sole member “on his own behalf” “did not satisfy the plaintiff’s obligation, as a limited liability company is a separate legal entity from its members.”  (Citation and internal quotation marks omitted.)

In today’s article, we examine ASV Techs., Inc. v. Sterling Natl. Bank , 2020 N.Y. Slip Op. 32208(U) (Sup. Ct., N.Y. County July 7, 2020) ( here ). ASV involved the Statute of Frauds and the impact emails can have on the court’s analysis in deciding whether the Statute of Frauds will bar a breach of contract claim. Background AVS involved an alleged breach of a computer program end-user license agreement (“EULA”) between plaintiff, AVS Techs., Inc. , and the predecessor-in-interest of defendant, Sterling National Bank (“Sterling”).  ASV is a software technology company that markets signature verification and check fraud detection software for use in the banking industry. In 2003, AVS entered into an End User License Agreement (“2003 EULA”) with Hudson Valley Bank (“Hudson”), Sterling’s predecessor-in-interest. The 2003 EULA granted Hudson a three-year license to copy and use ASV’s eBank Discovery program, which was customized for Hudson’s use and included all necessary hardware and software to run the program. Upon termination of the 2003 EULA, the parties entered a new EULA, which took effect August 31, 2006 (“2006 EULA”). The 2006 EULA allowed Hudson to continue to use the eBank Discovery software program for a fee of $2,000 per month. The 2006 EULA provided for an initial term of three years with automatic one-year renewals, subject to Hudson’s power to terminate upon ninety days written notice. ASV alleged the 2006 EULA remained in effect through December 31, 2014. In January 2015, ASV sent Hudson a new EULA, which ASV intended would “supersede or supplant the 2006 EULA” (the “2015 EULA”). Under the 2015 EULA, Hudson would continue to pay a monthly license fee of $2,000 but would also pay an “additional $833 per month for license use of 310/312 custom module”, a new custom add-on module. The 2015 EULA provided for an initial term of three years with automatic two-year renewals. The 2015 EULA stated that “ y installing, copying or otherwise using the SOFTWARE PRODUCT, you agree to be bound by the terms of this EULA.” The parties did not sign the 2015 EULA. ASV alleged that Hudson manifested its acceptance of the 2015 EULA by continuing its use of ASV’s software products, as per a mode of acceptance stated in the contract. As a “courtesy,” ASV claimed to have deferred the $833 per month payments for license use of the 310/312 custom module. Sterling succeeded Hudson by reason of a merger in May 2015 and assumed Hudson’s contractual rights and obligations to ASV. By letter dated May 8, 2016, Sterling sent ASV a notice of termination of the 2006 EULA, effective August 30, 2016. ASV alleged that the termination was “ineffective and void” and the 2015 EULA did not expire until October 1, 2017. Subsequently, ASV billed Sterling “for the work performed at specific request and served Sterling with a written demand to cease use of ASV’s software and return all proprietary hardware, software, and support manuals.” ASV commenced the action for breach of contract, alleging that Sterling breached the 2015 EULA by (1) failing to make required payments for the 310/312 custom module for the period of June 1, 2015 to October 30, 2017, and (2) refusing to return ASV’s proprietary hardware, software, and support manuals despite revocation of the license. Sterling moved to dismiss the amended verified complaint, pursuant to CPLR 3211 (a) (1) and (7), on the grounds that: (1) the 2015 EULA was unsigned and, therefore, void and nonbinding in accordance with the Statute of Frauds and the written terms of the 2006 EULA; (2) Sterling properly terminated the 2006 EULA; and (3) the documentary evidence submitted in support of the motion refuted ASV’s argument of a breach. The Court granted the motion. The Court’s Decision On a motion to dismiss under CPLR 3211 (a) (7), the court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory.” Leon v. Martinez , 84 N.Y.2d 83, 87-88 (1994). “ are legal conclusions, as well as factual claims which are either inherently incredible or flatly contradicted by documentary evidence” cannot survive a motion to dismiss. Summit Solomon & Feldesman v. Lacher , 212 A.D.2d 487, 487 (1st Dept. 1995) (citation omitted). To prevail on a CPLR 3211 (a) (1) motion to dismiss, the movant has the “burden of showing that the relied upon documentary evidence ‘resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff’s claim.’” Fortis Fin. Servs. v Filmat Futures USA , 290 A.D.2d 383, 383 (1st Dept. 2002) (citation omitted). “A cause of action may be dismissed under CPLR 3211 (a) (1) ‘only where the documentary evidence utterly refutes plaintiff’s factual allegations, conclusively establishing a defense as a matter of law.’” Art and Fashion Group Corp. v Cyclops Prod., Inc. , 120 A.D.3d 436, 438 (1st Dept. 2014) (citation omitted). “The documents submitted must be explicit and unambiguous” ( Dixon v. 105 West 75th St. LLC , 148 A.D.3d 623, 626 (1st Dept. 2017) (citation omitted)), and their content “essentially undeniable” ( VXI Lux Holdco S.A.R.L. v. SIC Holdings, LLC , 171 A.D.3d 189, 193 (1st Dept. 2019) (citation omitted)). Correspondence through letters and emails may be properly considered by the court as documentary evidence under CPLR 3211 (a) (1). See Tozzi v. Mack , 169 A.D.3d 547, 548 (1st Dept. 2019); Art and Fashion Group , 120 A.D.3d at 438. The Court found that Sterling National satisfied the foregoing standards. 1. Statute of Frauds Under General Obligations Law § 5-701(a) (1), “ very agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith ... if such agreement, promise, or undertaking by its terms is not to be performed within one year of the making thereof ….” A contract that is unsigned, and by its own terms, “terminable within one year only upon a breach by one of the parties” is void under the Statute of Frauds. D & N Boening, Inc. v. Kirsch Beverages, Inc. , 63 N.Y.2d 449, 456 (1984). The Court found that the Statute of Frauds barred recovery because the 2015 EULA was unsigned and not capable of performance within one year. Slip Op. at *5-*6. The Court noted that, by its terms, the 2015 EULA would remain in effect for a minimum of three years, at which point Sterling could terminate by providing ASV with ninety days written notice. Sterling had no option to terminate the 2015 EULA as a matter of right prior to October 1, 2017 – a point that ASV conceded. Id. at *5. Thus, said the Court, “Sterling had no ability to perform the 2015 EULA within a year of its creation.” Id. The Court rejected ASV’s argument that Hudson had manifested its acceptance of the 2015 EULA by acknowledging receipt of the 2015 EULA and through its subsequent performance by continuing to use the ASV software. The Court explained that “this alleged mode of acceptance insufficient to remove the 2015 EULA from the Statute of Frauds unless ‘there a note, memorandum or other writing sufficient to indicate that a contract ha been made, signed by the party against whom enforcement is sought ….’ or the parties’ partial performance ‘unequivocally referable’ to the 2015 EULA.” Id. at *6 (citing GOL § 5-701 (b) (3) (d) and Anostario v. Vicinanzo , 59 N.Y.2d 662, 664 (1983)). A. Insufficient Written Evidence of a Contract ASV argued that emails exchanged between the parties evidenced Hudson’s acceptance of the 2015 EULA. The Court found the argument unavailing. One of the emails relied upon by ASV, noted the Court, was sent “prior to any alleged acceptance of the 2015 EULA.” Slip Op. at *6. Therefore, there could be no acceptance of the 2015 EULA by this email. Id. A string of emails sent days after the alleged agreement in January 2015 was entered did “not convey Hudson’s clear agreement or acquiescence to the 2015 EULA,” noted the Court. Id. Although the law permits the courts to piece together writings (such as emails) to determine whether the Statute of Frauds applies, they must clearly evidence an agreement to be bound by the terms in the writings. Kelly v. P & G Ventures 1, LLC , 148 A.D.3d 1002, 1003 (2d Dept. 2017) (citations omitted). The Court found that the emails “merely communicated” an intention to send the 2015 EULA up the chain for review. Slip Op. at *7. The Court further found that the emails did not satisfy the requirements of the Statute of Frauds because their content did not “meet all the requirements of the governing statute.” Id. (citing Naldi v. Grunberg , 80 A.D.3d 1, 3 (1st Dept. 2010). “ t least one writing, the one establishing a contractual relationship between the parties, must bear the signature of the party to be charged ….” Id. (quoting Scheck v. Francis , 26 N.Y.2d 466, 471 (1970)). The Court held that the automated signature block of the employee at Hudson did not meet this standard because it was not made “with intent to authenticate the information therein.” Id. (quoting Scheck , 26 N.Y.2d at 471). See also Parma Tile Mosaic & Marble Co. v. Estate of Shoff , 87 N.Y.2d 524, 526-28 (1996). B. No Unequivocal Partial Performance ASV argued that an agreement, although unsigned, may be enforceable when the parties’ conduct or performance demonstrates objective evidence that the parties reached a binding agreement. See Flores v. Lower E. Side Serv. Ctr. , 4 N.Y.3d 363, 365-66 (2005) (written but unsigned agreement is enforceable where general contractor has performed work and received payment in accordance with alleged agreement); Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp. , 41 N.Y.2d 397, 398-99 (1977) (parties’ “course of conduct” established the existence of a binding agreement). ASV asserted that Hudson, and therefore, Sterling, accepted the 2015 EULA through their subsequent performance, and that the parties conducted themselves in a manner that amounted to unequivocal performance under the 2015 EULA. Under the Statute of Frauds, “ he doctrine of part performance may be invoked only if plaintiff’s actions can be characterized as unequivocally referable to the agreement alleged.” Anostario , 59 N.Y.2d at 664. “ he actions alone must be ‘unintelligible or at least extraordinary,’ explainable only with reference to the oral agreement.” Id. (citations omitted). The Court found that “neither parties’ alleged performance unequivocally referable to the 2015 EULA because it be alternatively explained through continued adherence to the terms of the 2006 EULA.” Slip Op. at *8. ASV claimed that installing the 310/312 custom module to Sterling’s existing signature verification and check fraud software was evidence of its performance under the 2015 EULA. The Court rejected the argument because the 2006 EULA obligated ASV to provide Sterling with “updates and modifications to the Software” and offered “full product upgrades and support assuring ASV customers will always have the best available technology.” Id. at *8-*9. Further, observed the Court, “ ny customization or modification of the Software and any other services not specifically provided for in th Agreement … shall be deemed consulting services for which Licensee agrees to pay Licensor in accordance with Licensor’s then current hourly rates.” Id. at *9. Therefore, concluded the Court, “ASV’s installation of the 310/312 custom module not ‘explainable only with reference to the <2015 eula> ’ because the performance logically be referenced to the 2006 EULA.” Id. (quoting Anostario , 59 N.Y.2d at 664). 2. Explicit Intent to be Bound Only by a Written and Signed Document The Court also found that any oral agreement surrounding the 2015 EULA would be void due to “Sterling’s explicit and expressed intent to not be bound to any agreement absent a written and signed document.” Id. at *10. The Court explained that “ he 2006 EULA state that the document comprise the ‘entire agreement’ and only be ‘amended by a writing executed by both Licensee and Licensor.’” Id. Such language, said the Court, was “documentary evidence of Sterling’s clear intent not to be bound by the terms of any unsigned agreement.” Id. (citing Scheck , 26 N.Y.2d at 469-70). “Courts should give ‘considerable weight’ to explicit statements that a party does not intend or desire to be bound by oral agreements,” noted the Court. Id. (quoting R. G. Group, Inc. v Hom & Hardart Co. , 751 F.2d 69, 75 (2d Cir. 1984). Takeaway In a prior post (“Does An Agreement Really Have To Be In Writing?”), we said that “ n a perfect world, all contracts would be reduced to writing and signed by both parties, so that courts could determine the rights and obligations of the parties to the agreement.” Here . “Unfortunately, we do not live in a perfect world. Id. Therefore, it is always best for people to reduce their agreements to a writing that is signed by all involved parties. If they do not have a written agreement, it does not necessarily mean that they cannot enforce their agreement, but it does mean that there are many impediments to overcome to convince a court to enforce it. AVS highlights those impediments.

It is not uncommon for plaintiffs to assert breach of contract and fraud in the same action. It is also not uncommon for the fraud claim to be dismissed as duplicative of the contract claim. Indeed, the reporters are brimming with cases in which the fraud claim is dismissed because it is nothing more than a breach of contract claim dressed up in the language of fraud. The cases we examine today, East Coast Int’l Tire Group, Inc. v. New York Tire Factory, Inc. , 2020 N.Y. Slip Op. 03769 (2d Dept. July 8, 2020) ( here ), and Rosenthal & Rosenthal of California, Inc. v. Malka , 2020 N.Y. Slip Op. 32165(U) (Sup. Ct., N.Y. County June 30, 2020) ( here ), are no different. Quick Primer of the Law “A cause of action for fraud does not arise when the only fraud charged relates to a breach of contract.” Krantz v. Chateau Stores of Can. Ltd. , 256 A.D.2d 186, 187 (1st Dept. 1998) (citations omitted).  “To plead a viable cause of action for fraud arising out of a contractual relationship, the plaintiff must allege a breach of duty which is collateral or extraneous to the contract between the parties.” Id. (citations and quotation marks omitted). One way to satisfy this requirement is to allege a present intent to deceive. In doing so, however, the plaintiff cannot allege “a mere misrepresentation of an intention to perform under the contract.” WIT Holding Corp. v. Klein , 282 A.D.2d 527, 528 (2d Dept. 2001) (citation omitted); see also Gorman v. Fowkes , 97 A.D.3d 726, 727 (2d Dept. 2012). Another way to satisfy the requirement is to allege a misrepresentation of material fact, which is collateral to the contract and serves as an inducement for the contract. Id. at 528 (citation omitted).  East Coast Int’l Tire Group, Inc. v. New York Tire Factory, Inc. East Coast International Tire involved an alleged failure to pay for goods. Plaintiff commenced the action against New York Tire Factory, Inc. (“Tire Factory”), and its president, Richard A. Entel (“Entel), alleging that Tire Factory had purchased a substantial number of tires from plaintiff, and failed to pay the agreed-upon price. In its first cause of action, plaintiff alleged breach of contract by Tire Factory. In its third cause of action, plaintiff alleged that Entel falsely represented that Tire Factory had sufficient funds to pay for the tires, and that he later issued checks on behalf of Tire Factory for which he subsequently stopped payment. After an apparent bankruptcy stay, plaintiff moved to restore the action to the court’s calendar. Defendants cross-moved, inter alia , pursuant to CPLR § 3211(a)(7) and CPLR § 3016(b), to dismiss the third cause of action. The motion court, among other things, granted defendants’ cross-motion to dismiss the fraud cause of action. Plaintiff appealed. The Appellate Division, Second Department affirmed, holding that “the third cause of action did not allege any misrepresentation of present fact which induced the plaintiff to enter into the contract …, but only a misrepresentation of a future intent or ability to perform under the contract.” Slip Op. at *1-*2 (citations omitted). Plaintiff alleged that “Entel used his domination and control over to defraud the Plaintiff, by accepting delivery of the goods in question and by refusing to pay for them, thereby causing Plaintiff to sustain injury and monetary damages.” ( See Compl. ¶ 36.) Rosenthal & Rosenthal of California, Inc. v. Malka Rosenthal arose from a factoring agreement (the “Agreement”) between plaintiff and non-party Halston Operating Company, LLC (“HOC”) pursuant to which HOC assigned its receivables to plaintiff in exchange for cash.  HOC promised that the assigned receivables were “bona fide, existing and enforceable obligations of Customers arising out of sales or services … ,  free and clear of all security interests, liens, claims and Disputes whatsoever other than Permitted Liens.” HOC further warranted that “to knowledge the Customer will accept the Inventory and/or such services without any offset or counterclaim.”  In early 2017, HOC and a related entity defaulted on a loan given by Bank Hapoalim, B.M. (the “Bank”). Plaintiff alleged that to restructure the debt and generate a payment stream, defendant, among other things, structured a new supply arrangement of product to retailers. Under the arrangement, HOC assumed risks originally borne by the retailers by guaranteeing “minimum gross margins” for the sale of its products. Apart from giving retailers “guaranteed minimum margins and return rights,” the restructuring also increased royalty payments that were “timed to the payments” in connection with repaying the debt. Plaintiff alleged that the new structure was “driven solely by a desire” for defendant “to enhance his financial interests” in other related entities by agreeing “to do their bidding” by satisfying the Bank debt. Plaintiff alleged that the new structure breached the Agreement because customers could claim deductions if the minimum profit margins were not met even after the receivables had been assigned to plaintiff.  According to plaintiff, a related entity developed “a new secret plan” under which HOC would keep borrowing from plaintiff by falsely representing there were no claims or offsets on the receivables. Defendant allegedly colluded in the “scheme” by “arrang for customers to defer their chargebacks” to ensure that plaintiff would remain “in the dark about the extent of the margin guarantees” and customer claims while advancing further funds for the misleadingly valued receivables. Plaintiff alleged that defendant falsely told plaintiff that there were no deductions on the receivables. Plaintiff asserted that defendant directed a non-party, Hudson’s Bay, to defer a claim for a $2 million deduction to perpetuate the “scheme” against plaintiff. In late 2018, defendant advised plaintiff he had resigned from HOC and that HOC had entered into an assignment for the benefit of creditors. Plaintiff attempted to liquidate the collateral but faced “disaster ” “customer dilutions in the range of 75% from one … major customer” ( i.e. , Hudson’s) and other offsets resulting in “millions of dollars” in losses. In sum, plaintiff alleged it incurred more than $10 million in damages as a result of HOC’s wrongdoing. Defendant moved to dismiss the complaint. With regard to the fraud the claim, the Court granted the motion. Defendant argued that plaintiff’s fraud claim was simply a “repackaged claim that HOC breached the Agreement.” Slip Op. at *8. The Court agreed, finding that “Plaintiff not allege facts suggesting that Defendant had an independent duty to provide information regarding HOC’s financial position or to ensure HOCs performance under the Agreement.” Accordingly, the Court dismissed the fraud claim because plaintiff failed to allege “a breach of duty collateral or extraneous to the contract between the parties.” Krantz , 256 A.D.2d at 187.  Takeaway New York courts do not allow a fraud claim to survive a motion to dismiss when the claim arises from an alleged breach of contract or failure to perform an obligation under the contract. Indeed, courts routinely dismiss a fraud claim where “ he existence of a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraud claim can stand side-by-side with “a simple breach of contract” claim. Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). Today’s examination of East Coast International Tire and Rosenthal highlights the difficulty plaintiffs often have identifying a legal duty independent of the contract at issue. As discussed above, in both cases, the plaintiffs were unable to satisfy this standard.