“Spoofing is a type of scam in which criminals attempt to obtain someone’s personal information by pretending to be a legitimate business, a neighbor, or some other innocent party.” See Julia Kagan, Spoofing, Investopedia (updated Jan. 29, 2020) (“Spoofing”) (here). Spoofing can occur in any form of online communication, including emails, text messages, telephone calls, and websites. Id. Although spoofing comes in many forms, the goal of spoofing is the same: to deceive people into divulging personal and/or financial information that the scammers can exploit for their personal gain. Common Spoofing Scams Email Spoofing Also known as “phishing”, email spoofing involves the transmission of emails having a falsified “From:” line. The point of the email is to trick the recipient into believing that the message comes from a legitimate source, such as a friend, a bank, or some other known business or entity. Text Message Spoofing Also known as “smishing”, text message spoofing is like email spoofing. The recipient receives a text message that appears to come from a legitimate source, such as a friend or the recipient’s bank, credit card company or phone company. The message typically requests the recipient to call a certain phone number or click on a link within the message, with the goal of inducing the recipient to divulge personal information. Caller ID Spoofing With Caller ID spoofing, the scammer falsifies the phone number from which he/she is calling to get the victim to take the call. The victim’s caller ID will show that the call is coming from a legitimate business or government agency, such as the Internal Revenue Service. As with other forms of spoofing, the goal of the scam is to induce the victim to divulge personal and/or financial information. URL Spoofing URL spoofing occurs when scammers create a fraudulent website to obtain information from victims or to install malware on their computers. For instance, victims might be directed to a website that appears to belong to their bank or credit card company and be asked to log in using their user ID and password. If the person falls for the request and logs in, the scammer has the victim’s information to log into the website of the legitimate entity or government agency and access the victim’s accounts. See Spoofing, supra. URL spoofing is the subject of an enforcement proceeding commenced by the Securities and Exchange Commission (“SEC” or “Commission”) against Denis Georgiyevich Sotnikov (“Sotnikov”), a Florida resident and Russian national, and entities he controlled for allegedly participating in a fraudulent scheme to lure U.S. investors into buying fictitious Certificates of Deposit (“CDs”) promoted through internet advertising and spoofed websites. The March 13, 2020 press release announcing the charges can be found here. In addition to commencing enforcement proceedings, such as Sotnikov, the SEC has issued an investor bulletin to educate investors about detecting URL spoofing and buying CDs from websites that “that mimic the actual sites of legitimate financial institutions.” (Here.) Aside from warning investors about the fraud, the bulletin identifies a number of red flags indicating the presence of fraud. These include, among others: (a) posting interest rates higher than one could find at any other financial institution, with no penalties for early withdrawals; (b) offering CDs only, instead of a full panoply of financial products, such as banking or brokerage accounts, loans, or commercial banking services; (c) requiring a high minimum deposit, often more than $200,000; (d) directing potential investors to wire funds to an account located outside the U.S., or to a U.S.-based account having a different name than the financial institution claiming to sell the CD; (e) claiming that the spoofed financial institution is a member of the Federal Deposit Insurance Corporation (“FDIC”) and that deposits are FDIC-insured; and (f) identifying “clearing partners” who are purportedly registered with the SEC. Some of the foregoing red flags were at issue in the SEC’s enforcement action against Sotnikov and his co-defendants. SEC v. Sotnikov here).=">here)."> Sotnikov concerned an alleged fraudulent scheme in which U.S investors – many of whom are older and using their retirement savings – were lured to websites offering fictitious CDs at above-market rates. Some of the websites spoofed actual U.S.-based financial institutions, while others offered CDs from fake financial firms. The CDs offered by Sotnikov were allegedly fictitious instruments not issued by a legitimate U.S. bank, and, therefore, were not subject to the protections offered by U.S. banking laws. Notwithstanding, said the SEC, to convince investors that the CDs were real, the fictitious CDs mimicked legitimate CDs by purporting to have a fixed maturity and promising a specific and above-market-rate of return. The CDs were offered to the general public and marketed as legitimate securities, alleged the SEC. According to the SEC, the spoofed websites used domain names similar to the domain names of actual financial institutions or that sounded like real financial firms. The SEC maintained that the spoofed websites falsely claimed that the firms offering the CDs to investors were FDIC, FINRA, SIPC, or New York Stock Exchange members, and that the deposits were FDIC-insured. The SEC claimed that the spoofed websites were advertised in search results provided by the two leading internet search and advertising companies. As a result, the spoofed websites appeared at the top of investors’ search results when conducting searches for CDs with high rates of return. Potential investors who visited a spoofed website were allegedly directed to call a telephone number on the website. Believing that they were dealing with a legitimate U.S.-based financial institution offering legitimate CDs, potential investors who called the number on a spoofed website spoke with an individual purporting to be an “account executive” of the firm identified on the website. According to the SEC, potential investors provided an email address, after which they were contacted via email by the fake account executive, who often impersonated a real broker or sales representative of a spoofed financial firm. Investors were allegedly instructed by the fake account executives to wire funds to bank accounts opened on behalf of purported “clearing firms” identified in the emails. Once the funds were received by the purported “clearing firm,” said the SEC, they were quickly transferred to different bank accounts, both domestic and foreign, making it difficult or impossible for investors to regain their funds. Since November 2014, defendants allegedly created websites spoofing at least 24 legitimate financial firms and 8 fictitious financial firms, resulting in over $26 million in known investor losses. As described in the SEC’s Complaint, Sotnikov and the entities he allegedly controls were directly linked to 7 of the spoofed websites, through which investors lost over $1.8 million. According to the SEC, Sotnikov’s participation was essential to the scheme to defraud. He allegedly organized and/or controlled the corporate entities named as defendants (the “Defendant LLCs”), each of which had been represented to investors as “clearing” or “offering” the CDs of a spoofed or fictitious financial firm and received investor funds. The SEC maintained that the Defendant LLCs were not clearing firms and did not offer or sell legitimate CDs or other securities. Instead, alleged the SEC, the Defendant LLCs were created by Sotnikov to serve as conduits to receive wire transfers from defrauded investors in furtherance of the scheme set forth in the SEC’s Complaint. None of the victims received a CD after wiring the funds. “As alleged in our complaint, investors were swindled out of millions of dollars through a web of fake websites and concealed identities,” said SEC Enforcement Division Co-Director Steven Peikin. “Today’s action shows the SEC’s commitment to exposing sophisticated cyber fraud schemes that pose an ever-present risk to Main Street investors.” “Investors should be wary of investment opportunities from websites found only through internet searches,” added SEC Enforcement Division Co-Director Stephanie Avakian. “Online investments that sound too good to be true are red flags of fraud.” In a parallel action, the U.S. Attorney’s Office for the United States District Court for the District of New Jersey announced (here) that it filed related criminal charges and is pursuing asset seizures. Takeaway As this Blog has observed in many posts, retirees and the elderly are particularly vulnerable to financial fraud. Often too trusting or hesitant to ask questions or express skepticism, this demographic easily falls prey to schemes to defraud. Spoofing is another form of fraud that exploits these tendencies. But, as the SEC warned in its bulletin, to protect against spoofing related to CDs, it is important for these investors to overcome the proclivity towards trust and hesitancy to ask questions. Therefore, investors should be skeptical. They should conduct internet searches about the financial institution to see if results appear other than the website that was initially identified and call the financial institution using a telephone number found from another source to determine the legitimacy of the investment opportunity. Moreover, investors should avail themselves of the publicly available resources (whether government, trade or private sector) to verify the claims made in suspicious websites. See SEC Bulletin, Beware of Spoofed Websites Offering Phony Certificates of Deposit – Investor Alert (Oct. 23, 2019) (here).

As a general matter, business entities ( e.g. , for-profit and not-for-profit corporations, limited liability companies, and limited partnerships) formed outside the State of New York (whether in another state or a foreign country) may not do business within the State unless they receive authority to do so. See generally , Business Corporation Law (“BCL”) §§ 1301-1320 (corporations), Limited Liability Company Law (“LLCL”) §§ 801-809 (limited liability companies), Not-for-Profit Corporation Law §§ 1301-1321 (not-for-profit corporations), and Partnership Law §§ 121-901 – 121-908 (limited partnerships).  The failure to receive such authority deprives the foreign entity of the ability to affirmatively access the courts of New York and subjects any action commenced by the foreign entity to dismissal. See United Envtl. Techniques, Inc. v. State Dep’t of Health , 88 N.Y.2d 824, 825 (1996) (finding that foreign corporation was not registered to do business in New York and therefore lacked capacity to sue). Under BCL § 1312(a), also known as the “door-closing statute” ( Netherlands Shipmortgage Corp. v. Madias , 717 F.2d 731, 735 (2d Cir. 1983)),  a foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state unless and until such corporation has been authorized to do business in this state and it has paid to the state all fees and taxes imposed under the tax law or any related statute ….  The purpose of BCL § 1312 is to regulate foreign companies that are conducting business within New York State so that they are not doing business under more advantageous terms than “those allowed a corporation of this State.” Von Arx, A.G. v. Breitenstein , 52 A.D.2d 1049, 1050 (4th Dept. 1976); see also National Lighting Co. v. Bridge Metal Indus., LLC , 601 F. Supp. 2d 556, 566 (S.D.N.Y. 2009) (additional citation omitted). The statute is not intended to permit foreign companies from avoiding their contractual obligations. Id. When applying BCL § 1312(a), the relevant inquiry is whether the foreign entity is “doing business” in the State. Whether a company is “doing business” in New York “depends upon the particular facts of each case with inquiry into the type of business activities being conducted.” Von Arx , 52 A.D.2d at 1050. Notably, “not all business activity engaged in by a foreign corporation constitutes doing business in New York.” Netherlands Shipmortgage , 717 F.2d at 735-36. A foreign corporation is permitted to transact “some kinds of business within the state without procuring a certificate” authorizing it to conduct business in New York. Globaltex Group, Ltd. v. Trends Sportswear, Ltd. , No. 09-CV-235, 2009 WL 1270002, at *3 (E.D.N.Y. May 6, 2009) (quoting Int’l Fuel & Iron v. Donner Steel , 242 N.Y. 224, 229 (1926)).  In order for a foreign corporation to be doing business in New York within the context of BCL § 1312, “the intrastate activity of the foreign corporation be permanent, continuous, and regular.” Manney v. Intergroove Tontrager Vertriebs GMBH , No. 10 Civ. 4493, 2011 WL 6026507, at *8 (E.D.N.Y. Nov. 30, 2011) (quoting Netherlands Shipmortgage , 717 F.2d at 736) (alteration in original). The entity’s activities cannot be “merely casual or occasional.…” United Arab Shipping Co. (S.A.G.) v. Al-Hashim , 176 A.D.2d 569, 570 (1st Dept. 1991); see also Maro Leather Co. v Aerolineas Argentinas , 161 Misc. 2d 920, 923 (Sup. Ct., App. Term 1st Dept. 1994) (“where a corporation’s activities within New York are merely incidental to its business in interstate and international commerce, BCL § 1312(a) is not applicable.”); Schwarz Supply Source v. Redi Bag USA, LLC , 64 A.D.3d 696, 696-97 (2d Dept. 2009) (same); Paper Mfrs. Co. v. Ris Paper Co., Inc. , 86 Misc. 2d 95, 98 (Civ. Ct., N.Y. Cty. 1976) (noting that if a “foreign corporation is engaged in local business on more than an isolated or accidental basis, it must comply with the statute” and obtain authorization before bringing suit). New York courts consider a number of factors, both quantitative and qualitative, when considering the entity’s activity in the State. Netherlands Shipmortgage , 717 F.2d at 738. Among the factors the courts consider are: (a) whether the entity maintains a physical presence or has employees located within the State ( Uribe v. Merchants Bank of New York , 266 A.D.2d 21, 21 (1st Dept. 1999) (Plaintiff was not doing business where it maintained no office or telephone listing, owned no real property and had no employees in the State); (b) the frequency and regularity of activities within the State ( G.P. Exports v. Tribeca Design , 147 A.D.3d 655, 656 (1st Dept. 2017) (a single business transaction within the State did not warrant the application of BCL § 1312(a)); and (c) the volume and nature of the activities within the State ( United Arab Shipping Company v. Al-Hashim , 176 A.D.2d 569 (1st Dept. 1991) (Plaintiff was doing business within the State where its New York office employed approximately 17 full-time employees, actively solicited business, conducted sales activities, negotiated and executed contracts, and generated substantial in-state revenue).  Merely entering into a single contract, engaging in an isolated piece of business, or engaging in an occasional undertaking will not suffice to invoke application of BCL § 1312. Netherlands Shipmortgage , 717 F.2d at 738; Von Arx , 52 A.D.2d at 1049 (the shipment of goods into New York from a foreign country for further shipment within or without the state is considered incidental to interstate and international commerce); Airline Exch., Inc. v. Bag , 266 A.D.2d 414, 415 (2d Dept. 1999) (having a bank account, occasionally using an office in the State, and engaging in three transactions in the State, did not support a finding that the business activity was so systematic and regular and essential to its corporate activities as to constitute doing business in New York); 8430985 Canada Inc. v. United Realty Advisors LP , 148 A.D.3d 428 (1st Dept. 2017) (an investment vehicle not subject to the registration requirements of BCL § 1312(a)). Similarly, “the solicitation of business and facilitation of the sale and delivery of merchandise incidental to business in interstate and/or international commerce is typically not the type of activity that constitutes doing business in the state within the contemplation of section 1312 (a).” Digital Ctr., S.L. v. Apple Indus., Inc. , 94 A.D.3d 571, 572 (1st Dept. 2012) (citation omitted). However, regularly and continuously entering the State to solicit, complete and manage sales to customers in New York may constitute doing business in the State. Highfill, Inc. v. Bruce & Iris, Inc. , 50 A.D.3d 742, 744 (2d Dept. 2008) (corporation was doing business where its regional vice president regularly sent employees to New York to manage “special sales,” and made approximately $6,600,000 in New York sales over several years). The party seeking dismissal under BCL § 1312(a) must show that the business activities within the State were so systematic and regular as to manifest continuity of activity. Maro Leather , 161 Misc. 2d at 923). Absent sufficient evidence to establish that a plaintiff is doing business in the State, “the presumption is that the plaintiff is doing business in its State of incorporation ... and not in New York.” Cadle Co. v. Hoffman , 237 A.D.2d 555 (2d Dept. 1997); see also Highfill , 50 A.D.3d at 744.  “ hether was doing business in New York” is determined by looking “at the time the action was commenced.” Remsen Partners, Ltd. v. Southern Mgmt. Corp. , No. 01 Civ. 4427, 2004 WL 2210254, at *3 (S.D.N.Y. 2004) (citation and internal quotation marks omitted) (alteration in original). Finally, if the foreign business entity is found to have been continuously and regularly conducting business in the State, the courts often refrain from dismissing the action. Tri-Term. Corp. v. CITC Indus., Inc. , 78 A.D.2d 609 (1st Dept. 1980). Instead, the courts conditionally grant the dismissal motion and provide the plaintiff with a reasonable time period to cure its deficiency under BCL § 1320. E.g. , Showcase Limousine, Inc. v Carey , 269 A.D.2d 133, 134 (1st Dept. 2000), mod in part , 273 A.D.2d 20 (1st Dept. 2000); Uribe , 266 A.D.2d at 22 (“In any event, the failure of plaintiff to obtain a certificate pursuant to BCL 1312 may be cured prior to the resolution of the action.); Credit Suisse Int’l v. URBI, Desarrollos Urbanos, S.A.B. de C.V. , 41 Misc. 3d 601, 604 (Sup. Ct., N.Y. County 2013) (ordering plaintiff to comply with BCL § 1312 within 60 days or face dismissal of its complaint). here.=">here."> On March 11, 2020, Justice Louis L. Nock of the Supreme Court, New York County issued a decision in Bilcare GCS, Inc. v. Spring Bio Solutions, Ltd. , 2020 NY Slip Op 30772(U) (Sup. Ct., N.Y. County Mar. 11, 2020) ( here ), in which the Court denied a motion to dismiss under BCL § 1312(a) on the grounds that the plaintiff was not “doing business” in New York.  Bilcare GCS, Inc. v. Spring Bio Solutions, Ltd. Background Bilcare arose from a dispute between two foreign corporations that were both in the business of procurement and supply of rare or difficult to obtain pharmaceutical goods. Plaintiff, Bilcare GCS, Inc. (“Bilcare”), is a Delaware corporation with its principle place of business in Pune, India, and Defendant, Spring Bio Solutions, Ltd. (“Spring Bio”), is an English corporation with its principle place of business in the United Kingdom.  On or about July 7, 2016, Bilcare received an order from non-party Reliant Specialty LLC (“Reliant”) for a supply of certain difficult to obtain pharmaceutical goods, which it was to supply to Reliant in New Britain, Connecticut. By a purchase order dated January 24, 2017 (the “Purchase Order”), Bilcare ordered the pharmaceutical goods from Spring Bio for $990,000. Spring Bio was to deliver the goods to non-party PHSE, USA (“PHSE”) in Elmont, New York. As alleged, Spring Bio delivered or attempted to deliver goods to PHSE that did not conform with the Purchase Order.  Bilcare brought the action in November 2018 to recover the damages for the portion of the order that was unfulfilled or non-conforming. On April 26, 2019, Spring Bio filed a pre-answer motion, seeking dismissal of the action pursuant to CPLR § 3211(a)(3) and BCL § 1312(a) on the grounds that Bilcare lacked capacity to bring the action because it is a foreign corporation doing business in New York and had failed to register with the New York Secretary of State. The Court denied the motion. The Court’s Decision The Court held that Spring Bio failed demonstrate that Bilcare was doing business in New York. At most, said the Court, “Defendant … demonstrated that Plaintiff shipped a single sale involving a pharmaceutical to a New York address, utilized a New York bank account, and engaged the services of a third-party company located within New York to receive mail and provide administrative services on its behalf in order to facilitate its business activities.” Slip Op. at *4. “Plaintiff’s use of a New York bank account and engagement of a New York company to receive mail and provide administrative services on its behalf do not constitute ‘doing business’ within the state.” Id. at *5 (citation omitted).  The Court noted that Bilcare did “not own or lease real property in the state, maintain an office, have employees in New York, or conduct advertising or marketing activities in the state.” Id. at *5. Instead, Bilcare took minimal steps to facilitate a transaction “between two foreign corporations” that “took place outside the state.” Id. “ he mere shipment of goods purchased outside the state into New York does not constitute ‘doing business’ for the purposes of BCL § 1312,” said the Court. Id. (citation omitted). Finally, the Court rejected Spring Bio’s contention that because Bilcare’s business “include the purchase, sale, and shipment of pharmaceuticals … that the State[] normally regulates ... even de minimis activity … should constitute ‘doing business’ for the purposes of the statute.” Slip Op. at *6. Such an argument, held the Court was “supported by neither fact nor law.” Id.   In any event, noted Justice Nock, “ he question of Plaintiff’s compliance or non-compliance with relevant portions of governing the sale and distribution of pharmaceuticals is not before this court at this time.” Id. Without evidence and briefing on the issue, the Court held that it could not make a ruling on the argument, especially since the record consisted solely of “the description of a single transaction set forth in the pleadings.” Id. Takeaway Motions to dismiss on BCL § 1312(a) grounds are fact intensive. As Bilcare shows, courts will examine the facts and circumstances to determine whether the business activities of a foreign business entity in New York are “systematic and regular,” intrastate in nature, and essential to the plaintiff’s business. A finding that the entity is not “doing business” in New York, as in Bilcare , can save the case from dismissal under BCL § 1312(a).

Most (lay) people think that a breach of contract action involves nothing more than a failure to perform some requirement in a contract. One need look no further than Wikipedia for such a definition. ( Here (“Breach occurs when a party to a contract fails to fulfill its obligation(s) as described in the contract.…”).) But as today’s post shows, there can be more to a breach of contract action than a simple failure to perform. Schum v. Spatorico , 2020 N.Y. Slip Op. 01816 (4th Dept. Mar. 13, 2020) ( here ). Implied-in-Fact Contracts This Blog has often written about contract issues; in particular, the enforceability of a contract whether it be oral or written. Sometimes, however, a contract can be implied from the conduct of the parties. Are implied-in-fact contracts enforceable? An implied-in-fact contract is a “not really a contract at all, but rather a legal obligation imposed to prevent a party’s unjust enrichment.” Universal Constr. Resources, Inc. v. New York City Hous. Auth. , 2018 N.Y. Slip Op. 32846 (U) (Sup. Ct., N.Y. County 2018), citing Parsa v. State of New York , 64 N.Y.2d 143, 148 (1984). It is an agreement created by the conduct of the parties and the circumstances surrounding their relationship: “A contract implied in fact may result as an inference from the facts and circumstances of the case, although not formally stated in words, and is derived from the ‘presumed’ intention of the parties as indicated by their conduct.” Jemzura v. Jemzura , 36 N.Y.2d 496, 503-504 (1975) (internal citations omitted). The elements of an implied-in-fact contract are the same as those of an express contract: “consideration, mutual assent, legal capacity and legal subject matter.” Maas v. Cornell Univ. , 94 N.Y.2d 87, 93-94 (1999). Like an express contract, an implied-in-fact contract requires a showing that there was a meeting of the minds . I.G. Second Generation Partners, L.P. v. Duane Reade , 17 A.D.3d 206, 208 (1st Dept. 2005). A contract implied-in-fact “is just as binding as an express contract … since in the law there is no distinction between agreements made by words and those made by conduct.” Id . A cause of action for breach of an implied contract is not viable where this is an express contract covering the same subject matter, as “the theories of express contract and of contract implied in fact … are mutually exclusive.” Bowne of New York, Inc. v. International 800 Telecom Corp. , 178 A.D.2d 138, 138 (1st Dept. 1991). here.=">here."> Causation and Damages Like any express contract, to prevail on a breach of an implied contract claim, the plaintiff must allege that his/her damages were proximately caused by the breach. JP Morgan Chase v. J.H. Elec. of N.Y., Inc. , 69 A.D.3d 802, 803 (2d Dept. 2010) (the elements of a breach of contract cause of action are “the existence of a contract, the plaintiff’s performance under the contract, the defendant’s breach of that contract, and resulting damages.”). In other words, the plaintiff must establish that the damages “were fairly within the contemplation of the parties when they entered into the contract.” Nitti v. Goodfellow , 256 A.D.2d 1082, 1083 (4th Dept. 1998). But what if the plaintiff demonstrates proximate causation but no monetary damages at the time of the breach? Can the plaintiff continue to pursue his/her breach of contract claim? In a word, yes. “A breach of contract accrues at the time of the breach even if no damage occurs until later.” Bratge v. Simons , 167 A.D.3d 1458, 1459-1460 (4th Dept. 2018) (internal quotation marks omitted); see also Ely-Cruikshank Co. v. Bank of Montreal , 81 N.Y.2d 399, 402 (1993). Moreover, since “ ominal damages are always available in breach of contract actions” ( Kronos, Inc. v. AVX Corp. , 81 N.Y.2d 90, 95 (1993) (citations omitted)), all the “elements necessary to maintain a lawsuit and obtain relief in court” are present at the time the claim accrues. Ely-Cruikshank , 81 N.Y.2d at 406 (dissenting op.). With these principles in mind, this Blog examines Schum v. Spatorico . Schum v. Spatorico Schum concerned a real estate transaction involving three pieces of property (“subject properties”). Plaintiff, an attorney, represented non-party Homestead NY Properties, Inc. (“Homestead”) in the transaction. The subject properties, as well as numerous other properties owned by Homestead, were encumbered by mortgages held by defendants’ client as well as a lien held by a third party. Defendants Derrick A. Spatorico and his law firm Pheterson Spatorico LLP represented the mortgagee. Homestead was separately represented with respect to the lien, as was the lienholder. When Homestead sought to sell the subject properties, the four attorneys entered into a series of negotiations, culminating in an agreement regarding the discharge of the mortgage and the release of the lien related to the subject properties. At the closing for the subject properties, plaintiff executed a guaranty providing that the lien on the subject properties would be released. Plaintiff thereafter forwarded to defendants two checks, one made out to defendant representing the money due to the mortgagee and one made out to the lienholder’s law firm in the amount of $1,500, i.e. , the amount due to the lienholder for the release of the lien. In the letter accompanying those checks, plaintiff wrote that he was enclosing them “in accordance with advice,” and asked that defendant forward to him the “completed discharge of mortgage” as well as “ he originals of the . . . release of judgment releasing the from the lien.” Defendant forwarded the relevant amount of money to the mortgagee and “caused the discharge to be filed.” With respect to the check to be forwarded to the lienholder, defendant let that check “s t on desk” because he believed a different agreement with respect to the lien release would ultimately be negotiated. Several weeks later, defendant, the attorney representing Homestead with respect to the lien and the attorney representing the lienholder reached a separate agreement related to the lien and all properties “owned by Homestead.” Defendant then approached plaintiff’s law partner and had that partner renegotiate the lien release check to make it payable to defendant’s law firm. Defendant later remitted those funds to his client, the mortgagee. The lien release was not recorded for the subject properties, presumably because the subsequent agreement did not release the lien on those properties. Maximum Income Partners, Inc. v. Webber , 158 A.D.3d 1090 (4th Dept. 2018), aff’g , 58 Misc. 3d 1218 , 2016 N.Y. Slip Op. 51903 (Sup. Ct., Monroe County 2016). Plaintiff, facing liability under the terms of his guaranty, commenced the action asserting causes of action for breach of contract, promissory estoppel and conversion. Defendants appealed from an order that, inter alia , denied their motion for summary judgment dismissing the complaint. The Fourth Department modified the order by granting defendants’ motion in part and dismissing the third cause of action (for conversion), and as modified affirmed the motion court’s order. The Court’s Ruling The Court held that defendants failed to establish their entitlement to judgment as a matter of law with respect to the breach of contract claim. The Court found that defendants’ “own submissions raise triable issues of fact whether there was an implied-in-fact contract between plaintiff and defendant requiring defendant to obtain the release for the properties.” Slip Op. at *1 (citation omitted).  The Court further held that “ efendants’ submissions also raise triable issues of fact as to “whether the damages alleged by plaintiff were proximately caused by defendant’s purported breach of the implied-in-fact contract.” Id . (citing Sirles v. Harvey , 256 A.D.2d 1227, 1228-1229 (4th Dept. 1998); Niagara Foods, Inc. v. Ferguson Elec. Serv. Co., Inc. , 111 A.D.3d 1374, 1376 (4th Dept. 2013), lv. denied , 22 N.Y.3d 864 (2014)). The Court observed that a supporting affidavit from the lienholder’s attorney explained that no release was given, in part, because the $1,500 fee was never received by the lienholder, thereby suggesting that more information was needed to decide the causation issue.   The Court rejected “defendants’ contention that the breach of contract cause of action be maintained due to the fact that plaintiff had not suffered any monetary damages at the time that he commenced this action.” Slip Op. at *1. In this regard, the Court noted that a breach of contract claim is viable “‘even if no damage occurs until later.’” Id. (quoting Bratge v. Simons , 167 A.D.3d 1458, 1459-1460 (4th Dept. 2018) (internal quotation marks omitted), and citing Ely-Cruikshank , 81 N.Y.2d at 402). The Court further noted that plaintiff “face liability under the guaranty for any damages sustained by the subsequent owners of the property as a result of the lien that remained on the property.” Id. Takeaway Although the Court’s decision and order is brief, it nonetheless highlights the tension between a contract manifested in writing and a contract manifested by the conduct of the parties. As Schum demonstrates, issues of fact often pervade the determination. For this reason, whether an implied-in-fact contract exists is determined on a case-by-case basis. Schum also highlights the contract principle that a breach of contract action can be viable even if the damages are not manifested until a later date. After all, “ ominal damages are always available in breach of contract actions” ( Kronos, Inc. v. AVX Corp. , 81 N.Y.2d 90, 95 (1993) (citations omitted)), as long as the “elements necessary to maintain a lawsuit and obtain relief in court” are present at the time the claim accrues. Ely-Cruikshank , 81 N.Y.2d at 406 (dissenting op.).

Limited liability companies afford their owners protection from personal liability and, therefore, are a common business form.  “In 1994, New York State enacted the Limited Liability Company Law (L 1994, ch 576, § 1). A limited liability company is an ‘unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business’ (Limited Liability Company Law § 102 ). Section 202 of the Limited Liability Company Law, enumerating the powers conferred on all limited liability companies, includes the right to sue and to access New York courts (Limited Liability Company Law § 202 ).”   Barklee Realty Co. v. Pataki , 309 A.D.2d 310 (1 st Dep’t 2003). Pursuant to Section 206 of the Limited Liability Company Law , within 120 days after a newly formed limited liability company’s initial articles of organization (“Articles”) become effective, the LLC must publish in two newspapers, a copy of those Articles or information similar to that contained within the Articles.  Limited Liability Company Law § 206(a); Barklee , 309 A.D.2d at 311.  “If within one hundred twenty days after its formation, proof of such publication, consisting of the certificate of publication of the limited liability company with the affidavits of publication of the newspapers annexed thereto has not been filed with the department of state, the authority of such limited liability company to carry on, conduct or transact any business in this state shall be suspended, effective as of the expiration of such one hundred twenty day period.”  Limited Liability Company Law § 206(a). As a result of the suspension, “the limited liability company will be precluded from ‘maintaining any action or special proceeding’ in any New York court ‘unless and until’ it complies with that requirement.” Barklee , 309 A.D.2d at 311.  However, such suspension “shall not limit or impair the validity of any contract or act of such limited liability company, or any right or remedy of any other party under or by virtue of any contract, act or omission of such limited liability company, or the right of any other party to maintain any action or special proceeding on any such contract, act or omission, or right of such limited liability company to defend any action or special proceeding in this state, or result in any member, manager or agent of such limited liability company becoming liable for the contractual obligations or other liabilities of the limited liability company.”  Limited Liability Company Law § 206(a). In Small Step Day Care v. Broadway Bushwick Builders, L.P. , 137 A.D.3d 1102 (2 nd Dep’t 2016), the Court affirmed the dismissal of the compliant pursuant to CPLR 3211(a)(3) (lack of capacity to sue), noting that “since the plaintiff failed to comply with the publication requirements of Limited Liability Company Law § 206, it is precluded from bringing this action.”   Small Step , 137 A.D.3d at 1103 (citations omitted). On March 6, 2020, the Supreme Court of the State of New York, New York County, decided One Stone Lending LLC v. Alta Operations, LLC .  The plaintiff in One Stone loaned defendant $499,000 secured by a mortgage.  Upon defendant’s default, plaintiff commenced a mortgage foreclosure action and moved for summary judgment.  Defendant opposed the motion for summary judgment and cross-moved to dismiss the complaint based on plaintiff’s failure to comply with the publication requirements of Limited Liability Company Law § 206(a).  Plaintiff first attempted to satisfy its publication requirement upon receipt of defendant’s cross-motion and claimed to have completed the publication process by the time that the motions were orally argued. The One Stone court rejected plaintiff’s argument that its failure to satisfy the publication requirements of Limited Liability Company Law § 206(a) prior to the commencement of its foreclosure action was “not a jurisdictional defect that warrant dismissal.”  The court answered in the negative the question of “whether it can overlook the fact that when plaintiff started this case, it had not complied with section 206.”   In so doing, the court noted that a “review of the most recent amendment to shows that the legislature increased the number of publication days from four to six and reduced the time frame for an LLC to publish from eighteen months to twelve months (New York Bill Jacket, 2006 S.B. 6831, Ch. 44).  (Emphasis in original.) The goal was to make information about LLC’s ‘available to the public in a manner which reinforces the public’s  right to know the entities with which they are dealing’ and ‘to the benefit of consumers and other persons who do business in this state’ (id.).”  In addressing the concerns with plaintiff LLC’s conduct, the court stated: Clearly, the legislature requires LLC’s to publish with the intent to provide the citizens of this state with potentially helpful information about the entities with which they might be dealing.  This Court finds that these technical and cumbersome requirements cannot be overlooked simply because plaintiff decided to comply with the law only after Defendants pointed out plaintiff’s failure to meet its obligations.  Under these circumstances, it would make a mockery of the statute to allow plaintiff to maintain its case by complying with the law after starting a lawsuit and after Defendants pointed out this glaring omission. The fact is that plaintiff started a case when it did not have the capacity to do so.  It does not matter that plaintiff later may have rectified this error. Simply put, what would be the purpose of the legislature creating strict statutory requirements for LLCs to publish only for the courts to give a plaintiff a chance to comply if and when a defendant raises it as a defense?  This court cannot condone the LLC’s practice of ignoring the statute, unless and until it is caught, and then pretending it shouldn’t make a difference. (Emphasis in original.)

As readers of this Blog know, we often write about the financial exploitation of America’s seniors and vulnerable adults. ( E.g. , here ,  here ,  here and here .) According to the U.S. Department of Justice, financial exploitation of senior adults is one of the most frequently reported forms of elder abuse. Indeed, a recent survey from the North American Securities Administrators Association (“NASAA”) found that three in 10 state securities regulators had reported an increase in complaints from victims of financial fraud and exploitation. ( Here .)  As the incidence of exploitation and abuse increase, so do the costs to its victims. An oft-cited study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Polytechnic Institute and State University, titled “Broken Trust: Elders, Family & Finances,” estimates that about one million seniors lose approximately $2.6 billion annually from financial exploitation and abuse. ( Here .) In 2011, MetLife updated its estimate to at least $2.9 billion. Other, more recent studies estimate the losses to exceed $36 billion a year, 12 times the MetLife estimate. Recently, Jeffrey M. Haber , one of the Firm’s co-founding partners, sat down with Larry Heller, CFP®, CPA of Heller Wealth Management ( here ), to discuss the problem of financial exploitation and abuse of the elderly and vulnerable and the types of trusted individuals who commonly engage in such behavior. The discussion can be found on Mr. Heller’s podcast here .  Readers of this Blog may also be interested in reading Mr. Heller’s article on the subject, which covers a number of points Mr. Haber discussed during the podcast. ( Here .)

On February 27, 2020, the Securities and Exchange Commission (“SEC”) announced (here) that it settled charges against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network (collectively, “Wells Fargo”) for failing to supervise investment advisers and registered representatives who recommended single-inverse ETF investments to retail investors, and for lacking adequate compliance policies and procedures with respect to the suitability of those recommendations. The SEC ordered Wells Fargo to pay a $35 million penalty, which will be distributed to harmed investors. Single-inverse exchange-traded funds (“single-inverse ETFs”) are complex financial instruments that seek investment results that are the opposite of the performance of an index for a stated trading period, typically one day. When held longer than a day, particularly in volatile markets, investors may experience large and unexpected losses – i.e., single-inverse ETFs will lose money when the level of the index is flat. Even if the index performance is zero percent, the single-inverse ETF based on that index will lose money. Single-inverse ETFs can lose money even if the level of the index falls. For this reason, single-inverse ETFs may not be suitable for all investors and should be used only by knowledgeable investors who understand the risk. In June 2009, FINRA issued Regulatory Notice 09-31 (the “Notice”), which Wells Fargo received, reminding securities firms of their sales practice obligations in connection with single-inverse and other non-traditional ETFs. Among other things, the notice provided that “recommendations to customers must be suitable and based on a full understanding of the terms and features of the product recommended” and that “firms must have adequate supervisory procedures in place to ensure that these obligations are met.” The notice also advised that most “inverse ETFs ‘reset’ daily, meaning that they are designed to achieve their stated objectives on a daily basis. Due to the effect of compounding, their performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time.” The notice cautioned, “inverse and leveraged ETFs typically are not suitable for retail clients who plan to hold them for more than one trading session, particularly in volatile markets.” The notice therefore advised firms to establish an appropriate supervisory system, and train registered persons on these products and the factors that would make such products suitable or unsuitable for certain investors. In August 2009, FINRA and the SEC issued a joint alert, which Wells Fargo also received, highlighting the risk associated with holding non-traditional ETFs, including single-inverse ETFs, for weeks, months or years. On April 13, 2012, Wells Fargo updated its compliance policies and procedures to include certain volatility and other ETFs. Wells Fargo’s 2012 policies and procedures provided that single-inverse ETFs are speculative trading vehicles and generally not suitable for investors who intend to hold them as long-term positions. Wells Fargo’s 2012 policies and procedures stated that non-traditional ETFs that reset daily typically should not be held more than one trading session or as a long-term investment. The policies and procedures subjected single-inverse ETFs to additional suitability requirements. Specifically, the policies and procedures required financial advisors to determine the suitability of the product for the client considering, among other things, the characteristics and risks of non-traditional ETFs; the client’s investment experience and familiarity with complex investment products; the client’s financial ability and willingness to absorb potentially significant losses; and the client’s ability and intent to actively monitor and manage the investment on a daily basis. The 2012 policies and procedures required financial advisors to have a reasonable belief that the client was capable of understanding the complexities of the product, including the consequences of seeking periodic inverse investment results, and that the single-inverse ETFs performance may not track the underlying index over periods longer than a day. The 2012 policies and procedures further provided that single-inverse ETFs may be appropriate as part of a sophisticated investment strategy but should be closely monitored by the financial advisor. In 2012, Wells Fargo received information indicating that its policies and procedures were not as robust as those of certain other large brokerage and investment advisory firms, which had procedures such as: reviewing products held long term; requiring financial advisors to complete training; and providing risk disclosure notices to investors. At the time, Wells Fargo did not require training for its financial advisors and supervisors about single-inverse ETFs and Wells Fargo’s related policies and procedures nor did it adopt any other process to sufficiently educate them about the products and their risks. In May 2012, Wells Fargo Advisors, LLC, Wells Fargo FiNet, and Wells Fargo Investments, LLC, were sanctioned by FINRA and paid over $2.7 million in fines and restitution for conduct that occurred before July 2009. FINRA disciplined these Wells Fargo entities for (1) failing to establish a reasonable supervisory system and written procedures to monitor the sale of non-traditional ETFs; (2) failing to provide adequate formal training and guidance to registered representatives and supervisors regarding non-traditional ETFs; and (3) certain Wells Fargo registered representatives making unsuitable recommendations of non-traditional ETFs to certain customers with conservative risk tolerances. At the time of the settlement with FINRA, Wells Fargo publicly asserted it “ha enhanced its policies and procedures and s confident that it ha appropriate supervisory processes and training to meet regulatory responsibilities and clients’ investment needs.” However, as noted by the SEC, significant shortcomings remained with the firms’ policies and procedures relating to single-inverse ETFs. From April 2012 through September 2019, the SEC found that Wells Fargo’s policies and procedures were not reasonably designed to prevent and detect unsuitable recommendations of single-inverse ETFs (here). The SEC also found that Wells Fargo failed to supervise its employees’ recommendations regarding single-inverse ETFs and did not adequately train them concerning those products. The SEC further found that some Wells Fargo brokers and advisers did not fully understand the risk of losses these complex products posed when held long term. As a result, certain Wells Fargo investment advisers and registered representatives made unsuitable recommendations to certain clients to buy and hold single-inverse ETFs for months or years. According to the SEC, a number of these clients were senior citizens and retirees who had limited incomes and net worth, and conservative or moderate risk tolerances. “Firms must maintain effective compliance and supervisory programs to ensure that the securities they recommend are suitable for their clients,” said Antonia Chion, Associate Director of the SEC Enforcement Division. “As a result of Wells Fargo's failure to meet these important obligations, some of its employees recommended complex instruments to retail investors who did not understand the risks involved.” Without admitting or denying the findings, Wells Fargo agreed to pay a $35 million penalty and distribute the funds to certain clients who were recommended to buy single-inverse ETFs and suffered losses after holding the positions for longer periods. The SEC order also censured Wells Fargo and required Wells Fargo to cease and desist from committing or causing any future violations of the federal securities laws at issue in the proceeding. Takeaway “Inverse exchange-traded funds (ETFs) seek to deliver inverse returns of underlying indexes.” (Steven Nickolas, The Risks of Investing in Inverse ETFs, Investopedia (Aug. 29, 2019) (here).) “To achieve their investment results, inverse ETFs generally use derivative securities, such as swap agreements, forwards, futures contracts and options.” (Id.) “Inverse ETFs are designed for speculative traders and investors seeking tactical day trades against their respective underlying indexes.” (Id.) As shown by the SEC’s order in Wells Fargo, inverse ETFs are not suitable for investors having modest incomes and net worth, having conservative or moderate risk tolerances and lacking prior investing experience with complex products. Without proper training and supervision, these investors are susceptible to substantial losses to their portfolios – in many instances, losses to their life’s savings.

Endorsements from the rich and famous, such as movie and television stars, professional athletes, and musicians, can be found on TV, radio, and social media. Virtually any product or service can be endorsed by a celebrity. Sometimes the endorsement concerns investment opportunities. But, as the Securities and Exchange Commission (“SEC” or the “Commission”) has warned, “a celebrity endorsement does not mean that an investment is legitimate or that it is appropriate for all investors.” (Here.) For this reason, investors should not rely on celebrity endorsements when making an investment decision. Moreover, celebrity endorsements may be unlawful if they do not disclose the nature, source, and amount of compensation paid, directly or indirectly, by the company in exchange for the endorsement. A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws. Celebrities making such endorsements may also be liable for violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, for making false and misleading statements in connection with the sale of securities, and for acting as unregistered brokers. Celebrity endorsements of initial coin offerings (“ICOs”), in which companies raise money by selling digital tokens instead of shares, have become increasingly common. The hype surrounding Bitcoin has caused the SEC to publicly warn that celebrity promotions could be unlawful if the compensation paid to the celebrity was not disclosed. In 2018, the SEC charged boxer Floyd Mayweather and music producer DJ Khaled with failing to disclose that they were compensated for promoting ICOs. (Here.) Mayweather agreed to pay $300,000 in disgorgement, a $300,000 penalty, and $14,775 in prejudgment interest to settle the charges with the Commission. Khaled agreed to pay $50,000 in disgorgement, a $100,000 penalty, and $2,725 in prejudgment interest. In addition, Mayweather agreed not to promote any securities, digital or otherwise, for three years, and Khaled agreed to a similar ban for two years. These were the SEC’s first cases to charge touting violations involving ICOs. On February 27, 2020, the SEC announced (here) that it settled charges against the movie actor Steven Seagal (“Seagal”) for failing to disclose payments he received for promoting an investment in an ICO conducted by Bitcoiin2Gen (“B2G” or the “Company”), an international online company. Seagal, who served as “brand ambassador” for B2G, agreed to pay $314,000 in disgorgement and penalties in connection with the settlement. From approximately February 12, 2018 through March 6, 2018 (the “Relevant Period”), Seagal promoted, on Twitter and Facebook, an ICO by B2G in which the Company offered and sold digital tokens (“B2G tokens”) on the Ethereum blockchain. At the time, Seagal had approximately 107,000 Twitter followers and 6.7 million Facebook followers. The Company described B2G tokens as “the next generation of Bitcoin.” According to B2G, the Company was conducting an ICO to raise capital to build an “ecosystem” that would allow users to trade B2G tokens, provide wallet staking, and trade altcoins and fiat currencies, all “on a secure, comprehensive platform.” Participants in the ICO invested Bitcoin, U.S. Dollars, Euros, or made payments via credit card in exchange for B2G tokens. B2G’s marketing materials contained numerous statements that the B2G tokens would rise in value as a result of the efforts of B2G and its agents, and that, at a minimum, investors would receive a guaranteed return each month. B2G’s marketing materials also highlighted that the Company and its agents would ensure a secondary trading market for B2G tokens after the ICO, noting the ability for investors to liquidate and trade B2G tokens on digital-asset platforms following the token sale, including its own secondary trading platform. B2G’s marketing materials further emphasized the purported expertise of B2G’s management. Pursuant to a contract between Seagal and the entity controlling B2G (the “Endorsement Agreement”), Seagal was promised $250,000 in cash and $750,000 worth of B2G tokens in exchange for his promotion of B2G. Consistent with the Endorsement Agreement, on February 12, 2018, B2G announced (here) that Seagal would endorse its ICO. The press release quoted Seagal as saying: “I endorse this opportunity wholeheartedly . . . I am excited about the management, and especially about the secure blockchain, underlying mining technology, and safeguards.” The press release did not disclose that Seagal was being paid for the promotion. Section 17(b) of the Securities Act of 1933 makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of consideration paid for such promotion. Shortly thereafter, Seagal began promoting B2G’s ICO on social media by posting or authorizing his agents to post at least nine touts. The Company paid Seagal approximately $157,000 for these promotions. Seagal did not, however, disclose in his posts any information about the fact or amount of compensation he received, or was to receive, from B2G for making the promotions. Seagal’s promotion of the B2G ICO occurred more than six months after the SEC issued the DAO Report of Investigation indicating that virtual tokens or coins sold in ICOs may be securities, and thus, subject to the federal securities laws (here). Seagal’s promotion of the B2G ICO also occurred nearly four months after the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations issued a public statement reminding market participants that any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion, and that a failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws (here). In March 2018, the Company received a cease-and-desist order from the state of New Jersey for “fraudulently offering unregistered securities in violation of the Securities Law.” (Here.) The order noted that B2G’s press release about Seagal did not disclose the nature, scope or amount of compensation paid to Seagal for his promotion of the investment. “nvestors were entitled to know about payments Seagal received or was promised to endorse this investment so they could decide whether he may be biased,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “Celebrities are not allowed to use their social media influence to tout securities without appropriately disclosing their compensation.” Without admitting or denying the SEC’s findings, and to settle the charges, Seagal agreed to pay $157,000 in disgorgement, which represented his actual promotional payments, plus prejudgment interest, and a $157,000 penalty. In addition, Seagal agreed not to promote any securities, digital or otherwise, for three years. The SEC’s order can be found here. Takeaway Celebrity endorsements are a fact of life. Investors should be aware that the celebrity endorser is most likely being compensated for the endorsement, no matter how unbiased the pitch may appear. For this reason, investment decisions should not be based solely on an endorsement by a famous person or other individual. If an investor is relying, in whole or in part, on a particular endorsement or recommendation, he/she should learn more about the relationship between the celebrity and the company and consider whether the recommendation is independent or a paid promotion. Investors should be fully informed about the opportunity they are investing in. In short, investors should conduct their own research before making investments.

Many cases involving an alleged fraud typically rise and fall on the reliance element of the cause of action. Sometimes, the issue before the court is the state of mind of the alleged fraudster. While at other times, the issue concerns whether the defendant made a misrepresentation of material fact. In today’s Fraud Notes, we examine Cohen Bros. Realty Corp. v. Mapes , 2020 N.Y. Slip Op. 01440 (1st Dept. Mar. 3, 2020) ( here ), a case involving the state of mind element of a fraud claim, and Goldberg v. Torim , 2020 N.Y. Slip Op. 01561 (1st Dept. Mar. 5, 2020) ( here ), a case involving the falsity element of a fraud cause of action. A Refresher on Fraud To state a cause of action for fraud, a plaintiff must allege “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009); Braddock v. Braddock , 60 A.D.3d 86 (1st Dept.), appeal withdrawn , 12 N.Y.3d 780 (1st Dept. 2009). The allegations must be stated with particularity to satisfy CPLR 3016(b). Eurycleia , 12 N.Y.3d at 559. Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. Id . at 559-60. Conclusory allegations will not suffice. Id . Neither will allegations based on information and belief. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Although, CPLR 3016 (b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. Id . at 491-92 (internal quotation marks and citations omitted). See also CPC Intl. v. McKesson Corp. , 70 N.Y.2d 268, 285-286 (1987). Finally, though a fraud must be pleaded with particularity, where the state of mind of the defendant is concerned, a plaintiff may plead it generally, “particularly at the prediscovery stage,” because the “plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind.” Oster v. Kirschner , 77 A.D.3d 51, 55-56 (1st Dept. 2010). As the Oster court observed, “ articipants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud”; rather, “intent to commit fraud is to be divined from surrounding circumstances.” Id. at 55-56 (citing Eurycleia , supra ). Cohen Brothers Realty Corp. v. Mapes Cohen Brothers was brought by eleven limited liability companies, two limited partnerships and one corporation, Cohen Brothers Realty Corp. (“Cohen Brothers”), as their managing agent, to recover damages resulting from, inter alia , the alleged fraudulent activities by the corporation’s former Vice President/Director of Construction, Ryan John Mapes (“Mapes”), and unnamed construction contractors/sub-contractors. In particular, plaintiffs alleged that defendants falsely created and used fraudulent, forged and bogus invoices, purchase orders and/or construction contract forms to falsify liabilities and/or inflate the prices that plaintiffs were charged for work performed – or even charged for work that was never performed. Cohen Brothers provided management services to plaintiffs including, but not limited to, overseeing construction activities, using independent contractors and sub-contractors, of interior tenant spaces and common areas of the buildings under their management. On most occasions, these construction services were outsourced to certain contractors and sub-contractors (collectively, the “Contractors”), who were required to be selected using a sealed bid process. Plaintiffs retained Italco Data & Electric Inc. also known as, Italco Data & Electric Co. (“Italco”), R & A Painting, Ltd. (“R & A”), and D & K General Contractor Corp., City Maintenance Corp., and Millennium Star Electric, Inc. (collectively “D & K”) as Contractors and/or as subcontractors for renovations in plaintiffs’ buildings. At some point in 2016, Cohen Brothers’ chief operating officer, Steven M. Cherniak (“Cherniak”), noticed that Mapes had bypassed plaintiffs’ established bid practices in awarding contracts to R & A, D & K, and Italco. In July 2017, Cherniak decided to investigate. Cherniak found a copy of a purchase order issued to R & A in the amount of $5,000. The signature of Charles S. Cohen (“Cohen”), Cohen Brothers’ president and CEO, was taped over the purchase order’s signature block. Behind the doctored purchase order, Cherniak found eight photocopies of a legitimate purchase order issued to R & A in the amount of $13,500, which Cherniak determined was the original for the copied signature block. Thereafter, Cherniak located numerous purchase orders issued to D & K, Millennium, R & A, and Italco to which Cohen’s bogus signature had been affixed. Plaintiffs asserted eight causes of action. The first four were asserted against Mapes, sounding in breach of his employment contract, breach of the duty of good faith and fair dealing, breach of fiduciary duty, and breach of the duty of loyalty. The fifth to eighth causes of action were asserted against all defendants. Relevant to the appeal and this article, plaintiffs alleged in the fifth cause of action that defendants committed fraud by generating false, forged, or inflated purchase orders. Plaintiffs claimed that defendants misrepresented the work that plaintiffs actually needed, the work that defendants actually performed, and how much such work would cost. It was alleged that the Contractors shared with Mapes the monies that plaintiffs paid them. Plaintiffs alleged that they reasonably relied on the purchase orders so generated because of the trust they vested in Mapes as their director of construction. In its answer, Italco asserted four counterclaims, sounding in breach of contract, account stated, unjust enrichment, and quantum meruit, alleging, in sum, that Italco had performed valid work for plaintiffs, had issued invoices to which plaintiffs never objected, and had not been fully paid. R & A served an answer, generally denying plaintiffs’ allegations and asserting numerous affirmative defenses, including accord and satisfaction and lack of particularity. Italco moved to dismiss the complaint for lack of particularity. Italco also moved for summary judgment on its counterclaims, including account stated. R & A moved to dismiss the complaint for failure to state a claim and lack of specificity. On July 20, 2018, the motion court (Lebovits, J.) granted R & A’s motion to dismiss the complaint as against it. On September 26, 2018, the motion court granted Italco’s motion as against all plaintiffs except Cohen Brothers. The First Department unanimously reversed the decision and order dismissing the claims against R &A, and unanimously reversed the decision and order entered in favor of Italco on the causes of action for fraud and unjust enrichment. The Court held that, at the pre-discovery phase of the proceedings, plaintiffs had alleged circumstantial evidence of the alleged fraud. Slip Op. at *3. In particular, the Court found that “plaintiffs sufficiently pleaded fraud causes of action with the information available to them in a pre-discovery posture.” Id. (citing Houbigant, Inc. v Deloitte & Touche , 303 A.D.2d 92, 98-100 (1st Dept. 2003). “They alleged,” among other things, that defendants “create and present for payment to plaintiffs of false, forged or inflated purchase orders; that defendants ‘knew that the work described on the bogus purchase orders or invoices and other contract forms was either falsely stated, overcharged or not provided.…’” Id. Such allegations sufficed, concluded the Court, especially since plaintiffs could “amplify their pleadings” after discovery, at which time “defendants renew their motions.” Id. “But at this stage,” said the Court, “plaintiffs should be allowed to probe defendants’ knowledge of the alleged fraudulent scheme.” Id. Goldberg v. Torim here).=">here)."> Goldberg arose from a purported real estate transaction between plaintiff, David Goldberg (“Goldberg”), and defendant, Shloime Torim (“Torim”). In February 2017, Torim allegedly called Goldberg about a property the latter should buy for $500,000 to resell at a later date. According to Goldberg, Torim assured him that he would be able to flip the property for a ten percent return within a year. Goldberg alleged that Torim called him in early August 2017 and told him that the property sold for $700,000 and that he was going to send Goldberg a check. Goldberg complained that he only received a check for $525,000 instead of the full $700,000. Goldberg insisted that Torim send him the remaining $175,000 from the sale of the property. Goldberg sued Torim for breach of fiduciary duty, conversion and fraud. Torim moved to dismiss the complaint. Relevant to the appeal and this article, the motion court dismissed the fraud claim. The motion court dismissed the fraud cause of action because Goldberg failed to allege a material misrepresentation of fact. The motion court found that “the complaint contends that defendant did what he said he would do. Defendant took plaintiff’s money to buy the property, sold the property and sent plaintiff a portion of the proceeds.” The motion court explained that “ his is not a case where plaintiff was lured into sending defendant $500,000 and then the money disappeared.” Instead, plaintiff received $525,000 from the sale – a profit of $25,000 within 6 months. “The complaint simply does not establish a fraudulent scheme to steal plaintiff’s money,” concluded the motion court. Rather, “ t suggests a disagreement about how much of the proceeds plaintiff is owed.” In fact, the complaint alleges that defendant suggested that plaintiff might make a return of ten percent in a year; plaintiff did not say that defendant guaranteed the return. Simply put, defendant predicted the property would make plaintiff some money and that induced plaintiff to invest. That prediction (which was not a representation of a fact) turned out to be true – plaintiff made five percent in six months. This Court is unable to find that there was any misrepresentations or justifiable reliance by plaintiff based on his complaint. The First Department affirmed. Like the motion court, the First Department found that Goldberg alleged, “essentially, that defendant did precisely what he represented he would do, specifically that he would be purchasing real estate that would turn a 10% profit to plaintiff within a year.” Slip Op. at *1. The Court noted that the “complaint devoid of any allegation that defendant represented how much, in addition to the 10%, if any, defendant agreed to remit to plaintiff after the sale.” Id.  “As such,” concluded the Court, “plaintiff has alleged no material misrepresentation, justifiable reliance or damages.” Id. (citing Connaughton v. Chipotle Mexican Grill, Inc. , 29 N.Y.3d 137, 142-143 (2017); Eurycleia Partners , 12 N.Y.3d at 559). Takeaway Cohen Bros. serves as an important reminder that demonstrating actual knowledge is not necessary to satisfy the scienter element of a fraud claim. It can be done circumstantially. As the Oster court observed, no one admits that they knowingly perpetrated a fraud. For this reason, the courts look at the surrounding circumstances to divine a defendant’s intent to deceive. Goldberg also serves as a reminder that to withstand dismissal, a plaintiff pleading fraud must allege falsity. Though such a lesson should not require reinforcement, cases like Goldberg show otherwise. After all, without falsity, there can be no cause of action for fraud.

In a prior post ( here ), this Blog discussed Barrett v. Grenda , 2017 NY Slip Op. 07031 (4th Dept. Oct. 6, 2017), a case in which the court dismissed a breach of contract claim because the plaintiff failed to identify the provision of an agreement alleged to have been breached. In NFA Group v. Lotus Research, Inc. , 2020 N.Y. Slip Op. 01356 (2d Dept. Feb. 26, 2020) ( here ), the Appellate Division, Second Department affirmed the dismissal of a breach of contract action for the same reason: “the complaint failed to specify the provisions of the parties’ agreement that were allegedly breached.” Slip Op. at *1. It is axiomatic that a plaintiff alleging a breach of contract must identify “the provisions of the contract upon which the claim is based.” Copeland v. Weyerhaeuser Co. , 124 A.D.2d 998 (4th Dept. 1986), lv. dismissed , 69 N.Y.2d 944 (1987); see also Marino v. Vunk , 39 A.D.3d 339, 340 (1st Dept. 2007); Valley Cadillac Corp. v. Dick , 238 A.D.2d 894 (4th Dept. 1997); Matter of Sud v. Sud , 211 A.D.2d 423, 424 (1st Dept. 1995). He/she must “set forth the terms of the agreement upon which liability is predicated, either by express reference or by attaching a copy of the contract.” Chrysler Capital Corp. v. Hilltop Egg Farms , 129 A.D.2d 927, 928 (3d Dept. 1987). The failure to comply with the foregoing principles will result in dismissal. NFA Group involved a license agreement pursuant to which the plaintiff, NFA Group, a/k/a Buyrrm (“NFA”), agreed to grant licenses to the defendant, Lotus Research, Inc. (“Lotus”), subject to a fee, for the use of plaintiff’s technology. Plaintiff alleged that defendant did not fulfill the agreement and breached the contract. In particular, NFA alleged that “ laintiff and defendant(s) entered into an agreement for work, labor, services, goods, and lease”; “Plaintiff duly performed all conditions on its part to be performed”; and “Defendant(s) has not performed leaving a balance due in the agreement in the specific sum $164,997.00”. Defendant moved to dismiss the complaint. The motion court granted the motion. The motion court held that the allegations in the complaint were vague and speculative and insufficient to support a claim for breach of contract. The reason, said the motion court, the complaint failed to allege “a specific provision of the contract was breached.” Slip Op. at **2-3, quoting Gianelli v. RE/MAX of New York , 144 A.D.3d 861 (2d Dept. 2016). The court explained that “although the contract between the parties consists of over twenty pages,” NFA failed to “point[ ] to any specific provision of the contract that was allegedly breached.” Id . at *3 (citing Four Cees Jewely Inc. v. 1537 Realty LLC , 11 Misc. 3d 1056(A) (Sup. Ct., N.Y. County 2005). Such a failure was fatal to plaintiff’s claim.  As noted, the Second Department affirmed, holding that “the complaint failed to specify the provisions of the parties’ agreement that were allegedly breached.” Slip Op at *1. Takeaway As a general matter, to allege a breach of contract, a plaintiff must plead (and prove) the following: (1) the existence of an enforceable agreement; (2) performance by plaintiff; (3) the defendant breached the agreement; and, (4) the plaintiff sustained damages as a direct result of the defendant’s breach. JP Morgan Chase v. J.H. Elec. of N.Y., Inc. , 69 A.D.3d 802, 803 (2d Dept. 2010). Material to any breach of contract claim is the provision(s) upon which the claim is based. After all, if the plaintiff cannot identify the terms of the agreement alleged to have been breached, s/he cannot prove that the defendant breached the agreement. Plaintiff in NFA Group learned this lesson the hard way.

In general, statutes of limitation govern the time in which a cause of action must be interposed after accrual.  [This BLOG has previously addressed Statute of Limitations issues < HERE =">HERE"> and < HERE =">HERE"> .]  Article 2 of the CPLR addresses statute of limitations issues in New York.  Section 201 of the CPLR provides that “ n action … must be commenced within the time specified in this article unless a different time is prescribed by law or a shorter time is prescribed by written agreement.  No court shall extend the time limited by law for the commencement of an action.” Prior to the enactment of the statutes of limitation “there was no fixed time for the bringing of an action ersonal actions were merely confined to the joint lifetimes of the parties.”  Flanagan v. Mount Eden General Hospital , 24 N.Y.2d 427, 429) (1969).  “The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.”  Flanagan , 24 N.Y.2d at 429 (citation omitted).   It has been stated that “the primary purpose of Statutes of Limitation is to relieve defendants of the necessity of investigating and preparing a defense where the action is commenced against them after the expiration of the statutory period because the law presumes that by that time evidence has been lost, memories have faded and witnesses have disappeared.”  Connell v. Hayden , 83 A.D.2d 30 (2 nd Dep’t 1981).  The Connell Court further stated that: These policies are briefly reviewed in Note: Federal Rule of Civil Procedure 15(c): Relation Back of Amendments (57 Minnesota L.Rev. 83, 84–85), as follows: “First, the primary purpose of the statute is to compel the exercise of a right of action within a reasonable time so that a defendant will have a fair opportunity to prepare an adequate defense. Otherwise, the belated institution of an action might prejudice defendant’s preparation of evidence. Such prejudice would commonly result, for example, where critical evidence is lost or where the facts have been obscured by the passage of time or faulty memories. The death or removal from the jurisdiction of witnesses is a further problem. Second, the statute relieves the defendant from the otherwise endless psychological fear of litigation based upon events in the distant past. Third, it frees the judicial system from stale claims which make resolution of fact issues both difficult and arbitrary. Fourth, the courts are relieved of the additional caseload which would result if old causes of action were permitted, thus promoting efficient judicial administration. Finally, a limitations period avoids the disruptive effect of unsettled claims upon commercial intercourse. For example, creditors may more accurately determine a person’s financial status if his former outstanding debts have been extinguished by the running of the statute of limitations.” Connell , 83 A.D.2d at 40 – 41. Some of the problems that Statutes of Limitation are designed to address, however, may be ameliorated by § 17-101 of New York’s General Obligations Law , which provides that “ n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules other than an action for the recovery of real property. This section does not alter the effect of a payment of principal or interest.” In New York the Statute of Limitations for actions on, inter alia , a contract, a note secured by a mortgage or a mortgage, is six years.  CPLR 213 .  If, however, a debtor, inter alia , acknowledges a debt under certain circumstances, a “stale” claim relating to such debt may be revived.  “There are two ways in which the statute of limitations may be tolled. One involves part payment of the debt and the other a signed acknowledgment.  Erdheim v. Gelfman , 303 A.D.2d 714, 714 - 15 (2 nd Dep’t 2003).  As to the former, the Erdheim Court, quoting Lew Morris Demolition Co. v. Board of Educ. , 40 N.Y.2d 516, 521 (1976), stated that tolling may occur if “payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.”  Erdheim , 303 A.D.2d at 715.  As to the latter, the Erdheim Court, again quoting Lew Morris , stated that “ s to a written acknowledgment, pursuant to General Obligations Law § 17-101, the statute of limitations will be tolled by a signed written acknowledgment of an existing debt which contains nothing inconsistent with an intention on the part of the debtor to pay it.”  Erdheim , 303 A.D.2d at 715.   In order for a writing to satisfy the requirements of GOL § 17-101, it “must be signed and recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it.”  Yadegar v. Deutsche Bank Nat. Trust Co. , 164 A.D.3d 945 (2 nd Dep’t 2018). In Erdheim , plaintiff, a lawyer, sued defendant client for legal fees.  Plaintiff missed the six-year statute of limitations to interpose a cause of action for account stated and quantum meruit (both six years).  However, plaintiff and defendant had a conversation prior to the running of the statute of limitations in which defendant acknowledged the debt.  Plaintiff urged, inter alia , that a written transcription of that conversation was a sufficient writing under GOL § 17-101 to toll the statute of limitations.  The Erdheim Court disagreed and stated: Assuming that the subject discussion included an admission of a debt by the defendant and that the transcription was signed by him within the required period, the only thing he has thereby acknowledged is that the 1991 discussion took place and that the transcript is a true representation of the tape of that discussion. The fact that in 1991 the defendant believed he might owe the plaintiff some unagreed-upon amount of money after their debts were adjusted, does not show that at the time he signed the transcript he still believed a debt existed. Erdheim , 303 A.D.2d at 715 - 16. In Yadegar , the Court found that a letter accompanying a “short sale” request was not sufficient under GOL § 17-101 because same was not an “unqualified acknowledgement of the debt sufficient to reset the statute of limitations” because “plaintiff’s letter, while arguably acknowledging the existence of the mortgage, disclaimed any intent to pay it with the plaintiff’s own funds.”  Yadegar , 164 A.D.3d at 948. In Banco Do Brasil, S.A. v. State of Antigua and Barbuda , 268 A.D.2d 75 (1 st Dep’t 2000), the plaintiff sued defendant for breach of a loan agreement more than 6 years after default.  “The IAS court denied defendants' motion to dismiss and concluded that the six-year Statute of Limitations was revived under General Obligations Law § 17–101, because the 1997 letter constituted a plain admission of indebtedness and nothing in the letter was inconsistent with a clear intent to repay the loan.  Banco Do Brasil , 268 A.D.2d at 77.  In so doing, the First Department stated: In its entirety, such letter refers to the parties' 1981 loan agreement and then "confirms" four "balances", namely, the original loan amount, accrued interest, past due interest, and, adding up the first three balances, the "total amount". Even if this recital of a repayment obligation that is current and increasing with time is something less than a new promise to pay a past due debt, it clearly conveys and is consistent with an intention to pay, which is all that need be shown in order to satisfy section 17-101 GEN. OBLIG. Banco Do Brasil , 268 A.D.2d at 77 (citations omitted). Nationstar Mortgage, LLC v. Dorsin In Nationstar Mortgage, LLC v. Dorsin , decided by the Appellate Division, Second Department, on February 26, 2020, the Court addressed General Obligations Law § 17–101.  In Dorsin , defendant borrowed money from lender and secured the obligation with a mortgage on real property.  In October of 2009, as a result of borrower’s default, lender commenced action to foreclose the mortgage (the “First Action”) at which the debt was deemed accelerated.  The acceleration commenced the running of the statute of limitations.   The First Foreclosure Action was dismissed, without prejudice, on February 25, 2015.  Lender commenced another foreclosure action on October 29, 2015 (the “Second Foreclosure Action”).   In her answer, borrower interposed a counterclaim to cancel and discharge the mortgage, of record, pursuant to RPAPL 1501(4).  [A topic previously treated by this BLOG < HERE =">HERE"> ].  Lender moved for summary judgment (which was granted) and borrower cross-moved for summary judgment dismissing the complaint as time barred and under RPAPL 1501(4) (which was denied).  The Second Department reversed. The Dorsin Court noted that the Second Action was commenced more than 6 years after the underlying debt was accelerated.  Lender, however, contended that “defendant’s execution of a Home Affordable Modification Trial Period Plan (hereinafter the Plan) after commencement of the , as well as payments made pursuant to that Plan, served to renew the running of the statute of limitations, thus making this action timely, as it was commenced less than six years after the Plan was executed and the payments made.”  The Dorsin Court reiterated that “ n order to demonstrate that the statute of limitations has been renewed by a partial payment, it must be shown that the payment was accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.”  (Citations and internal quotation marks omitted.) In determining that lender failed to satisfy the requirements of GOL § 17–101, the Dorsin Court found: While the writing arguably acknowledged the existence of indebtedness, the defendant merely agreed to make three trial payments so as to receive a permanent modification offer. Any intention to repay the debt was conditioned on the parties reaching a permanent modification agreement, which condition did not occur. Under these circumstances, it cannot be said that the writing contained nothing inconsistent with an intention on the part of the debtor to pay the debt.  Indeed, the defendant represented in the Plan that he was unable to afford the mortgage payments. (Citations and internal quotation marks omitted.)

Forum non conveniens is a common law doctrine in which a court may dismiss an action because adjudication of the matter is more appropriate in another forum. In New York, the doctrine can be found in CPLR § 327(a). Under this section, a court may stay or dismiss an action if it finds “that in the interest of substantial justice the action should be heard in another forum.” CPLR § 327(a). The party seeking dismissal bears the burden of establishing that New York is not the proper forum for the action. In considering a forum non conveniens motion, New York courts consider a number of factors, including the burden on New York courts, the potential hardship to the defendant, the unavailability of an alternative forum, whether both parties are nonresidents, whether the transaction out of which the cause of action arose occurred primarily in a foreign jurisdiction, the location of potential witnesses and documents, and the potential applicability of foreign law. No one factor is controlling. In New York, the seminal case discussing the doctrine is Islamic Republic of Iran v. Pahlavi , 62 N.Y.2d 474 (1984), cert. denied , 469 U.S. 1108 (1985). In Pahlavi , the plaintiffs alleged that the Shah of Iran and his wife misappropriated, embezzled or converted $35 billion dollars in Iranian funds. Id. at 477. The plaintiff alleged that New York was the proper forum for the action because the funds were deposited into New York banks and there was no alternate forum to litigate the claims. The defendants moved to dismiss the complaint alleging that it raised nonjusticiable political questions, that the court lacked personal jurisdiction due to defective service of process on them and that the complaint should be dismissed on forum non conveniens grounds. Special Term granted defendants’ motion based on forum non conveniens , concluding that the parties had no connection with New York other than a claim that the Shah had deposited funds in New York banks, a claim which it found insufficient under the circumstances to justify the court in retaining jurisdiction. A divided Appellate Division, First Department, affirmed. In dissent, Justice Fein argued that jurisdiction should be assumed because no other forum was available to plaintiff. The Court of Appeals affirmed the dismissal, holding that the plaintiff failed to establish “a substantial nexus between this State and plaintiff’s cause of the action.” Id. at 483. In so holding, the Court set forth a non-exhaustive list of factors (discussed above) that the lower courts could consider when confronted with a motion to dismiss on forum non conveniens grounds. Id. at 479. In applying the factors, the Court said that the ruling should rest on justice, fairness, and convenience. Id. Notably, however, the availability of an alternative forum, though a pertinent factor, is not a precondition to dismissal. Id. at 481. The foregoing principles were at issue in Al Rushaid Parker Drilling Ltd. v. Byrne Modular Buildings L.L.C ., 2020 N.Y. Slip Op. 01277 (1st Dept. Feb. 25, 2020) ( here ), decided by the Appellate Division, First Department on February 25, 2020.  Rushaid involved an alleged bribe in connection with a construction project. Al Rushaid Parker Drilling Ltd. (“ARPD”) entered into a contract with the Saudi national oil company to carry out a construction project in Saudi Arabia. One of ARPD’s vendors for the project was the predecessor in interest of defendant Byrne Modular Buildings L.L.C. (“Byrne”), a United Arab Emirates (“UAE”) company. Plaintiffs alleged that Byrne bribed certain of ARPD’s employees to act against ARPD’s interests in connection with the project. Plaintiffs further alleged that Byrne’s bribery of the faithless employees was facilitated by defendant Pictet & Cie (“Pictet”), a Swiss private bank. Pictet allegedly opened an account for a British Virgin Islands (“BVI”) entity created by the faithless employees, and Byrne wired funds from its UAE bank account to the BVI entity’s account with Pictet in Switzerland. These funds were transmitted through a correspondent bank in New York. The appeal concerned two actions commenced by ARPD against Byrne (the “Byrne Action”) and against Pictet and nine individuals affiliated with it (the “Pictet Action”). In an earlier appeal in the Pictet Action, the New York Court of Appeals determined that the transfer of the funds constituting the bribes at issue through a New York correspondent bank subjected Pictet and its affiliated individual co-defendants to personal jurisdiction in New York for purposes of that action See Rushaid v. Pictet & Cie , 28 N.Y.3d 316 (2016). In doing so, the Court of Appeals declined to address Pictet’s alternative argument that the action should be dismissed pursuant to the forum non conveniens doctrine even if personal jurisdiction existed. The Court observed that, upon remittitur, “Supreme Court should address the matter forum non conveniens> forum non conveniens> in the first instance.” Id. at 332. In each of the subject actions, the motion court granted the motions to dismiss on forum non conveniens grounds (CPLR § 327(a)) on the condition that the defendant or defendants stipulate to accept service of process and waive any statute of limitations defense if sued in the alternative forum ( i.e. , Switzerland in the Pictet Action, and the UAE in the Byrne Action).  The First Department held that the motion court properly found: (1) none of the parties to either action is a New York citizen or resident or (if an entity) is formed under New York law or has its principal place of business in New York; (2) the alleged conduct at issue primarily occurred in the UAE, Saudi Arabia, and Switzerland, with the only New York connection being the presence of the bribery funds at a nonparty New York correspondent bank while en route from the UAE to Switzerland; (3) the bulk of the relevant documentary evidence is located in the UAE, Saudi Arabia, Switzerland and BVI, and most witnesses are located outside New York and beyond New York’s subpoena power; (4) there is a likelihood that foreign substantive law will govern; (5) there are alternative fora available (Switzerland and the UAE) with greater connection to the subject matter; and (6) in the Pictet Action, Switzerland has an interest in regulating the conduct of a bank operating within its borders. Slip Op. at *2. “In view of these considerations,” concluded the Court, “it cannot be said that Supreme Court improvidently exercised its broad discretion in granting the motions for forum non conveniens dismissal, still less that its discretion was abused.” Id. According, the Court refused “to disturb the motion court’s discretionary determination that New York is not a convenient forum in cases where the sole connection to New York was the passage of wired funds through a correspondent bank in the state.” Id. (citations omitted). Takeaway The forum non conveniens doctrine permits a court to dismiss an action when “in the interest of substantial justice the action should be heard in another forum.” CPLR § 327(a). It is based upon “justice, fairness and convenience” ( Pahlavi , 62 N.Y.2d at 479), in which the party challenging the forum bears the burden of demonstrating that the action would be better adjudicated elsewhere. It is a flexible doctrine that is based upon the facts and circumstances of each case. Only “when it plainly appears that New York is an inconvenient forum and that another is available which will best serve the ends of justice and the convenience of the parties” should a case be dismissed on forum non conveniens grounds. Silver v. Great Am. Ins. Co. , 29 N.Y.2d 356, 361 (1972). As shown in Rushaid , the defendants were able to satisfy the burden reflected in the principles discussed above.

In very general terms, fraudulent conveyance statutes are designed to protect creditors from situations where a debtor transfers its assets or property to a creditor’s detriment.  Sometimes such transfers are made with actual intent to defraud.  Other times, transfers may be deemed to be constructively fraudulent regardless of the actual intent of the debtor/transferor. In Sarfati v. Palazzolo , 2020 N.Y. Slip Op. 30432(U) (Sup. Ct., N.Y. County Feb. 7, 2020) ( here ), Justice Nancy M. Bannon of the Supreme Court, New York County, granted in part and denied in part a motion for summary judgment to set aside the transfer of real property and interests in various companies by defendant, Frank Palazzolo (“Frank”), to his wife, defendant Mary Palazzolo (“Mary”), to the detriment of plaintiff, Mark Sarfati (“Sarfati”), and future creditors. To put Sarfati in context, we examine the current law in New York – i.e. , the Debtor and Creditor Law (the “DCL”) – and New York’s recently enacted version of the Uniform Voidable Transactions Act (“NYUVTA”), which will replace the DCL on April 4, 2020. A Primer on Fraudulent Conveyance Claims Under Existing Law and the NYUVTA At present, the DCL governs fraudulent conveyances.  For example, DCL § 273 (conveyances by insolvent) provides that conveyances that render a debtor insolvent that are made without fair consideration, are fraudulent as to creditors regardless of intent;  DCL § 273-a (conveyances by defendants) provides that a conveyance made without fair consideration by a defendant in an action for money damages is fraudulent as to the plaintiff in that action, regardless of intent, if the defendant fails to satisfy a resulting judgment in the action; DCL § 274 (conveyance to defendants in a business or transaction) provides that conveyances made without fair consideration in a business or transaction for which the capital remaining after the conveyance is unreasonably small, are fraudulent as to creditors regardless of intent; DCL § 275 (conveyance by defendants to the detriment of current and future creditors) provides that conveyances and obligations incurred without fair consideration when the debtor intends or believes that he/she will incur debts beyond his/her ability to pay as they mature, are fraudulent as to both present and future creditors; and, DCL § 276 (conveyance made with intent) provides that conveyances made with actual intent to “hinder, delay, or defraud either present or future creditors, fraudulent as to both present and future creditors.” To set aside a conveyance or obligation incurred under DCL §§ 273, 273-a, 274 and 275, the plaintiff must establish that the conveyance or obligation incurred was made without “fair consideration”. Under DCL § 272, “ air consideration … is not only a matter of whether the amount given for the transferred property was a ‘fair equivalent’ or not ‘disproportionately small’ ... but whether the transaction made in good faith.” Sardis v. Frankel , 113 A.D.3d 135, 141-142 (1st Dept. 2014).  “Good faith is required of both the transferor and the transferee, and it is lacking when there is a failure to deal honestly, fairly, and openly.” Matter of CIT Group/Commercial Servs., Inc. v. 160-09 Jamaica Ave. Ltd. Partnership , 25 A.D.3d 301, 303 (1st Dept. 2006) (quoting Berner Trucking v. Brown , 281 A.D.2d 924, 925 (4th Dept. 2001)). A claim under DCL § 275 requires, in addition to the conveyance and unfair consideration elements discussed, an element of intent or belief that insolvency will result. Wall Street Assocs. v. Brodsky , 257 AD 2d 526, 529 (1st Dept. 1999) (citation omitted). DCL § 276, unlike Sections 273 and 275, concerns actual fraud, as opposed to constructive fraud, and does not require proof of unfair consideration or insolvency. Id. Because it is difficult to prove actual intent, the plaintiff may rely on “badges of fraud” to raise and inference of fraud, i.e. , circumstances so commonly associated with fraudulent transfers “that their presence gives rise to an inference of intent.” Id. (internal quotation marks and citations omitted). Among such circumstances are: a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor’s knowledge of the creditor’s claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance. Id. “Depending on the context, badges of fraud will vary in significance, though the presence of multiple indicia will increase the strength of the inference.” MFS/Sun Life Trust v. Van Dusen Airport Servs ., 910 F. Supp. 913, 935 (S.D.N.Y. 1995); see also Gafco, Inc. v. H.D.S. Mercantile Corp. , 47 Misc.2d 661, 664 (Sup. Ct., N.Y. County 1965) (noting, “ lthough ‘badges of fraud’ are not conclusive and are more or less strong or weak according to their nature and the number occurring in the same case, a concurrence of several badges will always make out a strong case”) (internal quotation marks and citations omitted). A conveyance made with actual intent to defraud is fraudulent regardless of whether the debtor receives fair consideration. MFS/Sun Life Trust , 910 F. Supp. at 934 (citation omitted). Effective April 4, 2020, the foregoing rules will change. here).=">here)."> Under New York’s version of the UVTA, which Governor Cuomo signed into law on December 6, 2019, the State has joined the vast majority of jurisdictions to have adopted the UVTA in whole or in part. Thus, as to transfers made and obligations incurred after the effective date ( i.e. , April 4, 2020), New York law will be more aligned with the fraudulent transfer laws of most states in the country, as well as with the federal Bankruptcy Code. The changes to the current law are many. Because the changes are too numerous to address in this post, we examine only some of the more substantive changes below. Section 278: Extinguishment of Claim for Relief The NYUVTA materially changes the statute of limitations for a creditor to bring an action. Under current law, a creditor has six years to commence a constructive fraudulent conveyance action. Under the NYUVTA, a creditor has only four years to bring a claim to avoid a constructive transfer. Similarly, the period within which to bring a claim following the discovery of actual fraud is reduced to one year from two years. These changes bring New York more in line with the majority of other states and closer to the look-back periods in the Bankruptcy Code. In addition, the statute of limitations under the NYUVTA appears to be one of repose. Under existing law, the statute of limitations for claims under the DCL is governed by the CPLR and subject to waiver (for example, with regard to affirmative defenses) and tolling. By contrast, under Section 278 of the NYUVTA, the claim for relief “is extinguished” unless the creditor brings the action within the applicable time period. Section 274(b): Insider Avoidance Claim Another material change to the law is the creation of an insider avoidance claim similar to an insider preference on an antecedent debt voidable under the Bankruptcy Code. Under Section 274(b) of the NYUVTA, “ transfer made by a debtor is voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.” A claim under this section must be brought within one year of the transfer. Notably, the NYUVTA does not shift the burden of proving insolvency – the creditor must prove insolvency, as well as each element required for an insider avoidance claim, by a preponderance of the evidence. By contrast, in the bankruptcy context, the debtor’s insolvency is presumed. Section 272(b): Reasonably Equivalent Value Instead of Fair Consideration The NYUVTA replaces “fair consideration” and the “good faith” element of a constructive fraudulent conveyance claim under the DCL with “reasonably equivalent value.” See also NYUVTA § 273(a)(2) and § 274. The term “reasonably equivalent value” is found in the Bankruptcy Code. Under the Bankruptcy Code, reasonably equivalent value means “the debtor has received value that is substantially comparable to the worth of the transferred property.” United States v. Loftis , 607 F.3d 173, 177 (5th Cir. 2010) (quoting BFP v. Resolution Tr. Corp. , 511 U.S. 531, 548 (1994) (interpreting the same term in the Bankruptcy Code)); see also 28 U.S.C. § 3303(b) and § 3304(b). “Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.” 28 U.S.C. § 3303(a). Intent is not a consideration under this provision. Section 273(b): Actual Fraud Like DCL § 276, NYUVTA § 273(a) provides for setting aside transfers or obligations incurred where the defendant or debtor intends to “hinder, delay, or defraud”. NYUVTA § 273(a)(1). Where “badges of fraud” were often identified by the courts under the DCL, Section 273(b) of the NYUVTA enumerates 11 non-exclusive “badges of fraud” that courts may consider in determining intent. These factors include whether the transfer was made to an insider, whether the transfer was concealed, whether the debtor was subject to suit, and whether the debtor absconded. Section 276(b): Presumption of Insolvency Unlike the DCL, the NYUVTA presumes insolvency where the debtor is generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute. NYUVTA § 271(b). The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence. Id. However, like the DCL, the NYUVTA considers a debtor or defendant to be insolvent where a transfer leaves the debtor or defendant with unreasonably small capital, or where the debtor or defendant intended or had reason to believe he/she was about to incur debts beyond his/her ability to pay as they become due. NYUVTA § 273(a)(2)(i) and (ii). Section 276-A: Attorney’s Fees Under existing law, a creditor can obtain attorney’s fees upon a finding of intent to defraud under Section 276-a. By contrast, under the NYUVTA, a creditor may recover reasonable attorney’s fees, without regard to intent to defraud, as an “additional amount required to satisfy the creditors’ claim.” The fees are to be fixed at trial and “without regard … to any agreement … between the creditor …, and his or her attorney with respect to the compensation of such attorney.” NYUVTA § 276-A. Section 276: Available Remedies Section 276 of the NYUVTA enumerates a non-exhaustive list of remedies available to a creditor under the statute. Among the remedies available are: avoidance of the transfer, attachment, and subject to the “applicable principles of equity and in accordance with applicable rules of civil procedure,” “injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property”, the “appointment of a receiver to take charge of the asset transferred or of other property of the transferee”, and “any other relief the circumstances may require.” Section 279: Choice of Law Whose law governs is often a hotly contested issue. Section 279(b) of the NYUVTA brings clarity to the issue. Under this section, a claim for relief is “governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.” When the debtor is a corporation, Section 279(a) provides that the governing law will be its place of business, if it only has one, or its chief executive office, if there is more than one place of business. Today’s Post: Sarfati v. Palazzolo When the NYUVTA becomes effective in April 2020, this Blog will examine the cases decided thereunder. However, we believe our readers will remain interested in our examination of cases decided under the DCL until such time as there are no longer any reported cases issued thereunder. As a result, we will continue to write about cases involving conveyances, transfers and/or obligations incurred under the DCL and examine the new cases arising under the NYUVTA. This brings us to Sarfati v. Palazzo . As noted, Sarfati involved an action under the DCL to enforce a $1,786,100.17 judgment against Frank. Sarfati obtained the judgment on February 11, 2015. On July 8, 2016, Sarfati commenced the action against both defendants under DCL §§ 273, 273-a, 274, 275, and 276. He did so following Frank’s deposition on April 7, 2016, in which he testified that in 2009 he signed an “Assignment of Notes, Loans, Collateral, and/or Ownership Interests” (the “Assignment”) to his wife. Pursuant to the Assignment, for “$10 consideration,” Frank conveyed all of his interest in two New York real properties, one in East Quogue, New York and the other in Bedford, New York (together, the “Properties”) and his ownership interest in six companies listed in the Assignment: (i) F&M Funding LLC, (ii) Ridgeview Holdings LLC, (iii) Palazzolo Plaza Corp.; (iv) Millie Holdings LLC; (v) BAB Group I, LLC and (vi) BAB Group II, LLC (together, the “Companies”).  Frank testified that, in executing the Assignment, he “made a conscious effort” to “put everything in wife’s name” so that he would not have to “worry about assets” if a judgment were entered against him. Frank also testified that he annually updates the “schedule of assets” attached to the Assignment. The schedule of assets attached to the Assignment set forth the names of the Properties and the Companies in which Frank had some interest that he subsequently conveyed to Mary; however, the Assignment did not specify the exact percentage of interests Frank conveyed to Mary when any conveyance was made, or the value of the assets conveyed. In the complaint, Sarfati asserted eight causes of action. In the first cause of action, Sarfati sought a money judgment directly against Mary in the amount of $1,786,100.17, plus statutory interest from February 11, 2015. The second cause of action sought a declaration that Frank is “the owner” of the Properties, the Companies, and a condominium located in White Plains, New York (the “Condominium”) “and that those assets subject to execution” to satisfy the judgment. The third, fourth, fifth, sixth, and seventh causes of action all sought to set aside “any transfer to Mary of Frank’s interest” in the Properties, the Companies, and the Condominium under DCL § 273 (third), DCL § 273-a (fourth), DCL § 274 (fifth), DCL § 275 (sixth), and DCL § 276 (seventh). The eighth cause of action sought an award of attorney’s fees under DCL § 276-a in an amount to be determined at a hearing. Sarfati moved for summary judgment on the complaint. The Court granted in part and denied in part the motion. We examine the Court’s decision as to the third through eighth causes of action. The Court’s Decision The held that issues of fact prevented summary judgment on the third, fourth, fifth and sixth causes of action. The Court noted that although Sarfati showed that the conveyances at issue were made without fair consideration and with bad faith – Frank testified that he transferred the assets to his wife for $10.00 in order to evade future creditors – he did not prove the other elements of DCL §§ 273, 273-a, 274 and 275. Slip Op. at **7-9. In that regard, the Court found that Sarfati did not prove that “Frank made any specific conveyance to Mary (i) while insolvent or that the conveyance complained of rendered him insolvent, (ii) while Frank was a party to a litigation with the plaintiff or after the judgment was docketed against him, (iii) while Frank engaged in or was about to engage in a business transaction for which his remaining property would constitute unreasonably small capital or (iv) at a time Frank ‘intended or believed’ he would incur debts beyond his ability to pay as they matured.” Slip Op at *9. The Court granted Sarfati’s motion for summary judgment on the seventh cause of action to set aside “any conveyance” by Frank to Mary under DCL § 276 but limited the holding to those assets conveyed in the Assignment. Id. at **9, 11. The Court found that Sarfati adduced sufficient evidence to show that Frank conveyed to Mary with actual intent to defraud future creditors ownership interests in the Properties and the Companies listed in the Assignment. The Court noted that Frank admitted under oath “that he conveyed these assets to Mary specifically so that future creditors could not enforce any judgments.” Slip Op. at **9-10. Notably, observed the Court, Mary did “not submit any affidavit in opposition to th motion, and thus fail to dispute that this was the intent of the assignment.” Id. at *10.  “Frank’s admissions under oath,” concluded the Court, were “sufficient to establish the defendants’ ‘actual intent to defraud’ creditors as to the assets conveyed in the assignment.” Id. (citation omitted). In granting summary judgment on the seventh cause of action, the Court did so only as to liability. The Court explained that the Assignment and Frank’s deposition testimony only established that Frank owned at least some percentage interest in the Properties and the Companies prior to conveying them to Mary. The assignment did not, however, “specify the value or precise percentage ownership interests Frank conveyed to Mary via the assignment that to be set aside in accordance with DCL § 276.” Id.  “As such,” held the Court, “summary judgment on the seventh cause of action is granted as to liability only, and the plaintiff may establish at trial what specific percentage interests in the assets contained in the assignment were by Frank to Mary and the value thereof.” Id. at **10-11. As to the eighth cause of action, the Court granted the motion because Sarfati “established actual intent to defraud”. Id. at *11. Under DCL § 276-a, therefore, Sarfati was “entitled to attorneys’ fees” the amount of which was to be “fixed at trial.” Matter of Setters v. AI Props. Devs. (USA) Corp. , 139 A.D.3d 492, 494 (1st Dept. 2016). Takeaway The facts in Sarfati are notable because they illustrate how a creditor can obtain relief whether under existing law or under the NYUVTA. Given the absence of particularity with regard to the assets and property subject to the Assignment, it appears likely that a court would also deny summary judgment under the NYUVTA. Similarly, given the evidence showing that Frank intended to defraud future creditors by conveying to Mary ownership interest in the Properties and the Companies listed in the Assignment, it appears likely that a court would grant summary judgment under the NYUVTA.