People text and e-mail all day and every day.  When communicating from a personal smart phone, a privately-owned personal computer or over a personal e-mail network, concerns over privacy are minimized.  However, folks do a fair share of their personal business while at work -- often utilizing their work e-mail systems, smart phones and personal computers for same.  While convenient, such practices could present problems as an employer may be permitted to have access to information transmitted over the employers email systems and/or contained on a company issued smart phone or computer, and such access may operate to waive certain privileges otherwise afforded by law. Such issues were raised in In re: Asia Global Crossing, Ltd. , 322 B.R. 247 (Bankr. S.D.N.Y. 2005).   In Asia , the “main question raised by the current motion is whether an employee’s use of the company e-mail system to communicate with his personal attorney destroys the attorney-client, work product or joint defense privileges in the e-mails where the employee and his former employer’s trustee have become adversaries.”  Asia , 322 B.R. at 251.   In describing the attorney-client privilege (under Federal law), the Asia Court stated that “a client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client, between the client and the client's lawyer (or certain representatives of the client and the lawyer).”  Asia , 322 B.R. at 255 (citations, internal quotation marks and brackets omitted).  “The privilege must be narrowly construed. It stands in derogation of the public's right to every man's evidence, and as an obstacle to the investigation of the truth.”  Asia , 322 B.R. at 255 (citations and internal quotation marks omitted).  Citing CPLR § 4548 , the Asia Court noted that “a privileged communication does not lose its privileged character for the sole reason that it was sent by e-mail or because persons necessary for the delivery or facilitation of the e-mail may have access to its content.”  Asia , 322 B.R. at 256.   The Asia Court further noted that typically “e-mail communications between agents of a corporation regarding the corporation's business are protected from disclosure to third parties outside the corporation t is reasonable in those circumstances for the sender to assume that the recipient will hold the communication in confidence.”  Asia , 322 B.R. at 256 (citation omitted).  In Asia , however, the individuals asserting privilege “used the employer's e-mail system to communicate with their personal attorney, and the communications apparently concerned actual or potential disputes with the employer, the owner of the e-mail system.”  Asia , 322 B.R. at 256. After generally discussing the right of privacy and the expectation of privacy in the workplace, the Asia Court set forth the following factors to consider when analyzing an employee's expectation of privacy in his computer files and e-mail: (1) does the corporation maintain a policy banning personal or other objectionable use, (2) does the company monitor the use of the employee's computer or e-mail, (3) do third parties have a right of access to the computer or e-mails, and (4) did the corporation notify the employee, or was the employee aware, of the use and monitoring policies? Asia , 322 B.R. at 257 (citations and footnote omitted).  The Asia Court assumed that the e-mails in question were privileged and that the employees intended them to be confidential and, therefore, “the question of privilege comes down to whether the intent to communicate in confidence was objectively reasonable.”  Asia , 322 B.R. at 258.  The Asia Court determined that the employer had access to the e-mails because they were on its server.  Asia , 322 B.R. at 259.  However, the Court held that because of a “disputed or incomplete factual record’’ the Court was prevented from deciding “as a matter of law that a waiver of any privilege occurred.”  Asia , 322 B.R. at 251.  Among other things, the Court could not determine if employer sufficiently put employees on notice that they could not use the company e-mail systems for personal use and/or that the employer was monitoring the e-mail system.  Asia , 322 B.R. at 259 - 261. On February 11, 2020, the Supreme Court of the State of New York, New York County, decided Rad v. IAC/INTERACTIVECORP , in which the court was faced with issues like those addressed by the Asia Court.  The plaintiffs in Rad were executives of Tinder.  Some of the plaintiffs and a non-party, moved for a protective order “to prevent the disclosure of their allegedly privileged and confidential communications with their personal attorneys …, which they transmitted on Tinder email systems while they were employed by Tinder.”  “Because the allegedly privileged communications reside on Defendants’ electronic communications systems, Defendants are in possession of them, and Movants move for an order clawing them back and preventing Defendants from using them in litigation.” The Rad court stated that “ n Peerenboom v. Marvel Entertainment, LLC , the Appellate Division, First Department, endorsed application of the four factors set forth in In Re Asia Global Crossing, Ltd , < supra > supra> to determine whether a party waives attorney-client privilege by sending the communications through its employer’s email system.”  The Rad court then analyzed the relevant electronic communication policies of the defendants and found that the policies “strictly limited” employees’ personal use of the email system, advised that  employees “should have no expectation of privacy” and that the employers “had the right to monitor” its employees’ use of the systems. Such admonitions were also incorporated into the employee handbook. Applying the four factors in Asia , the Rad court concluded that the movants “could not have had a reasonable expectation that their communications with their personal attorneys, sent and received on Defendants’ electronic communications systems, would be confidential.”  Thus, the court denied the motion for a protective order. TAKEAWAY Employees should be mindful of employer electronic communication policies if they intend to use employer e-mail systems for personal use.  A better practice, however, would be to avoid using such systems for personal use for communications of any sensitivity.

In today’s Fraud Notes, we look at two fraud cases involving real estate: Lash v. Schleider , 2020 N.Y. Slip Op. 30406(U) (Sup. Ct., N.Y. County Feb. 11, 2020) ( here ); and Goff v. Parker , 2020 N.Y. Slip Op. 30396(U) (Sup. Ct., Suffolk County Feb. 10, 2020) ( here ). Lash v. Schleider Lash arose from a contract between plaintiffs, Lori Lash, Robert Lash, and Goldsholle, LLC (“Goldsholle”), and the moving defendants, Jeffrey Schleider (“Schleider”) and Miron Properties, LLC (“Miron”), to list plaintiffs’ Manhattan Avenue, Brooklyn, New York (the “Property”) for sale. In or about August 2014, Schleider and Miron listed the Property for $4,995,000. Defendant, 977 Manhattan Avenue LLC (“977”), made an offer to purchase the Property for $5 million, which plaintiffs accepted. Thereafter, due to alleged deficiencies in the Property, 977 reduced its offer by approximately $1 million. In September 2014, plaintiffs contracted to sell the Property to 977 for $4.1 million upon the advice of Schleider and Miron. On the February 9, 2015 closing date, Goldsholle, defendant Manhattan Group Properties, LLC (“MGP”) and 977 executed an assignment of contract of sale, pursuant to which 977 assigned its interest in the Property to MGP. In connection with the assignment, unbeknownst to plaintiffs, MGP paid $700,000 to 977 in addition to the $4.1 million purchase price. Plaintiffs alleged that Schleider and Miron, conspiring with MGP, had falsely advised plaintiffs that $4.1 million was the best price available. Plaintiffs further alleged that the moving defendants, in return for the alleged “flip,” retained Schleider and Miron as the exclusive broker for the sale of condominiums to be developed at the Property. In 2016, Miron was acquired by defendant Citi Habitats, a division of the Corcoran Group, Inc. (“Corcoran”), which is owned and operated by defendant NRT LLC (“NRT”). On January 4, 2019, plaintiffs commenced the action against Schleider, Miron, Citi Habitats, Corcoran, NRT, MGP and B&B Global Development Corp. (“B&B”) and filed the original complaint on February 5, 2019. On March 6, 2019, MGP and B&B moved to dismiss the original complaint as against them. On April 22, 2019, plaintiffs filed an amended complaint. Pursuant to an order and stipulation by the parties, on May 8, 2019, plaintiffs filed and served a second amended complaint (the “SAC”), adding 977 as a defendant. MGP and B&B elected to apply their previously filed motion to dismiss to the SAC. In their fraud claim, plaintiffs alleged that defendants knowingly misrepresented material aspects as to the sale of the Property by inducing plaintiffs to sell the Property to 977 for $4,100,000 when Defendants intended to and did immediately “flip” the Property and/or the contract concerning the Property to MGP and/or defendant B&B for $4,800,000. Plaintiffs argued that the contract price for the Property was a “material fact” and that defendant Schleider misrepresented that $4.1 million was “the best offer possible.” The Court held that plaintiffs failed to plead facts with the requisite particularity that MGP and B&B were responsible for Schleider’s alleged false statements regarding the quality of the offer. The Court explained that “ ssertions that Schleider – who was plaintiffs’ property broker – ‘conspired’ or acted ‘on behalf of and in concert’ with MGP and B&B conclusory and entitled to zero weight.”  Slip Op. at *4. Finally, the Court rejected plaintiffs’ attempt to demonstrate scienter by the purchase of the Property after the allegedly false statements were made, stating that “MGP and B&B’s later purchase of the Property for $4.8 million insufficient to infer their knowledge of the falsity of statements made five months earlier.” Consequently, the Court dismissed the fraud cause of action as against MGP and B&B. Goff v. Parker Goff arose in connection with a proposed joint venture to develop land in which defendant agreed to pay any and all of the outstanding tax liabilities, as well as any forthcoming tax liabilities, related to the parcels of land involved in the venture. Plaintiff alleged that after defendant represented that such outstanding tax liabilities were paid, he presented to her what he represented to be promissory notes, which plaintiff needed to sign to ensure that she would repay half the money defendant paid towards the tax liabilities. Instead, the documents given to plaintiff were deed which conveyed the land to defendant. Plaintiff maintained that because she trusted defendant, she did not read the papers that defendant presented to her.  She also alleged that defendant forged her signature. Defendant moved for summary judgment to dismiss the complaint, arguing that plaintiff had full knowledge of what she was doing and signed over title to the subject parcels. The Court agreed with defendant and dismissed the fraud claim. The Court held that defendant met his burden of showing that plaintiff transferred ownership of the subject properties without the taint of fraud. Slip Op. at *4 (citation omitted). The Court explained that plaintiff admitted that she signed the deeds that conveyed her interest in the subject parcels to defendant, and as such, there were no issues as to whether the deeds were duly executed. Id . (citations omitted). The Court further explained that since plaintiff admitted that she failed to read the deeds before signing them, she could not establish justifiable reliance on any of the alleged false statements which led her to do so. Id . at *5. The Court rejected plaintiff’s argument that she failed to read the documents because she trusted the defendant, noting that such an excuse was not a valid reason for failing to read the documents before signing them. Id . (citations omitted). Finally, the Court held that even if defendant misrepresented what the documents were, she was precluded from asserting that her signature was fraudulently procured because she did not read the documents. Id . (citation omitted). Takeaway A plaintiff alleging fraud must do so with particularity. Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). This means that 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.”). In addition, a plaintiff claiming fraud must allege facts “from which it is possible to infer defendant knowledge of the falsity of statements” when they were made. MP Cool Invs. Ltd. v. Forkosh , 142 A.D.3d 286 (1st Dept.), lv denied , 28 N.Y.3d 911(2016). In other words, the plaintiff must satisfy the scienter element of the claim. In Lash , the Court held that plaintiffs failed to satisfy the foregoing requirements. In Ambac Assur. v. Countrywide , 31 N.Y.3d 569, 579 (2018), the Court of Appeals described the justifiable reliance requirement as a “‘fundamental precept’ of a fraud cause of action.” As such, a “plaintiff must allege facts to support the claim that it justifiably relied on the alleged misrepresentations.” ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1044 (2015); see also id. at 1051 (Read, J., dissenting on other grounds) (describing the justifiable reliance requirement as “our venerable rule”). Whether a plaintiff justifiably relied on a misrepresentation or omission is “always nettlesome” because it requires a fact-intensive analysis. DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted). As the Court of Appeals observed, “ o two cases are alike ….” Id. For this reason, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.” Curran, Cooney, Penney v. Young & Koomans , 183 A.D.2d 742, 743) (2d Dept. 1992). In Goff , plaintiff failed to satisfy the justifiable reliance element of a fraud claim.

Elder financial exploitation is a significant problem. Everyone reading this article may be affected in some way. Our family, friends, neighbors, colleagues, and/or customers may fall victim to financial exploitation. All of us are at risk of being financially abused and/or exploited as we grow older. Seniors are Particularly Vulnerable to Financial Abuse and Exploitation Research indicates that as seniors grow older, they become too trusting and fail to recognize false or misleading claims, suspicious intentions and evidence of risky behavior. One study of senior adults found that many exhibited risky behaviors, such as believing deceptive and misleading advertisements and buying falsely advertised products ( here ). Other researchers have found that older persons possess a “doubt deficit,” in which false and misleading claims fail to trigger doubt in the listener ( here ). Such persons are often unable to detect the intentions of others, including those with the intent to deceive. As a result, the inability to doubt “provide a compelling rationale why highly knowledgeable and intelligent older people are often susceptible to deception and fraud.” ( Id. ) As readers might expect, cognitive impairment and diminished financial capacity play a role in senior’s vulnerability to scams. Cognitive impairment can be caused by disease, such as dementia, or by the aging process. When impairment occurs because of aging, seniors lose or experience a decline in important skills, such as comprehension, problem-solving and learning. When a senior loses these skills, it can be more difficult to manage money and make financial decisions. Financial capacity, on the other hand, concerns the ability “to manage money and financial assets in ways that meet a person’s needs and which are consistent with his/her values and self-interest.” See Naomi Karp & Ryan Wilson, AARP Public Policy Institute, Protecting Older Investors: The Challenge of Diminished Capacity (2011) (internal quotation marks and citation omitted) ( here ). A decline in financial capacity can materially impair a person’s financial judgment and render him/her unable to understand the consequences of an investment decision. see="see" Stephen Deane,="Stephen Deane," “ Elder="“Elder" Financial="Financial" Exploitation,="Exploitation," Why="Why" It="It" is="is" Concern,="Concern," What="What" Regulators are="Regulators are" Doing="Doing" About="About" It,="It," and="and" Looking="Looking" Ahead ”,="Ahead”," U.S.="U.S." Securities="Securities" Exchange Commission,="Exchange Commission," Office="Office" Investor="Investor" Advocate="Advocate" (June="(June" 2018)="2018)" ( here).=">here)."> The Financial Costs of Elder Financial Abuse and Exploitation are Staggering As the incidence of financial exploitation and abuse increases, 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. The Many Forms of Financial Abuse and Exploitation of the Elderly The financial exploitation and abuse of seniors and vulnerable persons come in many forms. The most common involves, among others: (a) investment fraud ( e.g. , churning, unauthorized trading, unsuitable investing, over-concentrating an investor’s portfolio in a single type of investment or industry segment, and misrepresenting the risk or potential returns of an investment product for the purpose of generating high commissions), (b) insurance fraud ( e.g. , selling unneeded or too costly insurance, the unauthorized trading of life insurance policies, and annuity fraud), (c) acts of dishonestly by trusted persons ( e.g. , fraud, misappropriating assets, falsification of records, forgery, and unauthorized check-writing), (d) email scams ( e.g. , “phishing” to induce the recipient into providing passwords and other personal and financial information), and (e) lottery fraud ( e.g. , inducing the person to transfer or pay money to collect unclaimed prizes from lottery or sweepstakes organizers. In today’s post, we highlight annuity and investment fraud. Annuity Fraud An annuity is a contract between a buyer (a/k/a an annuitant) and an insurance company that requires the insurance company to make guaranteed periodic payments to the buyer once he/she reaches retirement and requests the payments. Annuities can be fixed or variable. Annuitants are typically charged fees and commissions when they purchase an annuity. One such charge is the “surrender charge”. A surrender charge is a sales charge the annuitant must pay if he/she sells or withdraws money from a variable annuity during the “surrender period” – the period after the annuity is purchased ( e.g. , typically six to eight years). As one would expect, surrender charges reduce the value of, and the return on, the investment underlying the variable annuity. Annuities can be complex. For this reason, scammers target vulnerable seniors, especially those with some type of cognitive impairment or diminished financial capacity. They do so by, among other ways, employing high-pressure sales and marketing tactics to induce the buyer to purchase an annuity – e.g. , promising a large, up-front cash bonus for purchasing the annuity; making misrepresentations or omissions about the structure, terms, fees and charges, and risks involved with buying an annuity; investing the annuity in high risk and unsuitable mutual funds, leaving the purchaser exposed to stock market losses without their knowledge or consent; and engaging in annuity switching – i.e. , recommending the switch from one annuity to another one, causing the annuitant to pay significant withdrawal fees to remove their money from the existing annuity. Annuity switching can be especially egregious when the recommendation to switch occurs immediately prior to maturity. In today’s post, we examine an SEC enforcement action against a broker and financial adviser who financially exploited his elder customers and clients into buying an allegedly “safe” investment with a “guaranteed minimum” return. Securities and Exchange Commission v. Edward E. Matthes , 2:20-cv-00125-LA (E.D. Wis. filed Jan. 28, 2020) ( here ). As discussed below, the SEC charged Edward E. Matthes (“Matthes”), a former Wisconsin-based registered representative and investment adviser, with defrauding 26 of his mostly elderly retail brokerage customers and investment advisory clients out of approximately $2.4 million by, among other ways, inducing them to sell quality annuities for a fictitious investment. Securities and Exchange Commission v. Edward E. Matthes According to the SEC complaint ( here ), between April 2013 and March 2019, Matthes allegedly misappropriated approximately $2.4 million from 26 of his customers and clients, most of whom were elderly and lacked investing experience. Many of the victims, said the SEC, had been customers and clients of Matthes for several years and trusted him to manage their money and investments. Starting in 2013, Matthes allegedly began telling certain of his brokerage customers that he had a new investment opportunity that would generate a higher return than certain variable annuity contracts he previously had sold them. Matthes purportedly described the investment opportunity as a safe “fixed investment” that would earn a guaranteed minimum annual yield of 4% and could possibly provide higher returns in the future. The SEC claimed that Matthes provided his customers with few additional details regarding the investment opportunity and did not provide them with any documentation. In reality, alleged the SEC, the fixed investment did not exist and Matthes used all of the funds he raised for his own personal use and to make Ponzi-like payments to certain customers. Relying on Matthes’ representations, said the SEC, 15 customers sold or authorized Matthes to sell, in part or whole, the securities underlying their variable annuities and received the proceeds, minus surrender fees and other charges, directly from the annuity provider. According to the SEC, several of these customers held their variable annuities in tax-advantaged retirement accounts. In addition, Matthes allegedly convinced eight of his brokerage customers to withdraw money from their personal savings accounts for investment in the fictitious fixed investment. According to the SEC, the money for these transfers came from, among other things, life insurance proceeds, inheritance proceeds, house sales, and land sales. In 2018, Matthes allegedly made false statements to three of his investment advisory clients, all of whom were also brokerage customers, in order to convince them to sell securities from their managed portfolios with a third-party investment adviser and transfer the proceeds to him for investment in the fictitious fixed investment. The SEC alleged that at the time of the transfers, the clients relied upon Matthes for investment advice. Matthes allegedly made other false statements to many of his customers and clients regarding the purported fixed investment, including telling them that: the fixed investment had “no risk” and was “guaranteed never to lose money,” was “a bright spot in the investment landscape” and would be held in a “new” or “more safe and secure account” with the broker-dealer. According to the SEC, Matthes used the majority of the approximately $2.4 million that he misappropriated, including approximately $2.17 million between October 2014 and March 2019, for personal expenses, including his credit card payments, mortgage payments, car payments, child support, luxury items and gifts, and home renovation expenses. In order to keep his scheme alive, said the SEC, Matthes used approximately $170,000 to make Ponzi-like payments to certain of his customers. In March 2019, the scheme allegedly came undone. According to the SEC, one of Matthes’ customers complained to FINRA about an account statement that appeared to be fake. After FINRA contacted the broker-dealer with whom Matthes worked, the firm conducted an internal review. Based upon its review, the firm allegedly concluded that Matthes had diverted customer and client funds to his personal bank account and created fictitious account statements for multiple customers and clients. The broker-dealer terminated Matthes’ employment on March 12, 2019. The SEC filed its complaint in the United States District Court for the Eastern District of Wisconsin. The SEC charged Matthes with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the allegations in the complaint, Matthes consented to the entry of a judgment that permanently enjoins him from violating the provisions charged in the complaint and orders him to pay disgorgement, prejudgment interest, and penalties in amounts to be determined by the court at a later date. The settlement is subject to court approval.

In New York State, money judgments are valid for 20 years.  CPLR § 211(b) .  Money judgments recorded in the county in which real property is located remain liens on that real property for only 10 years.  CPLR § 5203(a) .  The CPLR, however, permits a judgment creditor to obtain a “renewal judgment,” which would operate to extend the lien of a money judgment on real property for an additional 10-year period.  CPLR § 5014 .  Thus, CPLR § 5014 presently provides, in pertinent part: Except as permitted by section 15-102 of the general obligations law, an action upon a money judgment entered in a court of the state may only be maintained between the original parties to the judgment where: 1. ten years have elapsed since the first docketing of the judgment; * * * An action may be commenced under subdivision one of this section during the year prior to the expiration of ten years since the first docketing of the judgment. The judgment in such action shall be designated a renewal judgment and shall be so docketed by the clerk. The lien of a renewal judgment shall take effect upon the expiration of ten years from the first docketing of the original judgment.   (Emphasis supplied.) Prior to 1986 (before the italicized language above was added by the Legislature), CPLR § 5014 “was understood to preclude judgment creditors from bringing an action for a new lien until after the first 10–year period had elapsed, which necessarily created a ‘lien gap’ ( see Brookhaven Mem. Hosp. v. Hoppe , 65 Misc.2d 1000, 319 N.Y.S.2d 564 <1971> ), allowing other judgment creditors to ‘slip in with priority’ ( see Siegel, Practice Commentaries, McKinney’s Cons. Laws of N.Y., Book 7B, CPLR C5014:2).”  Gletzer v. Harris , 51 A.D.3d 196, 200 (1 st Dep’t 2008) , aff’d , 12 N.Y.3d 468 (2009) .  The “lien gap” problem was “solve ” when an amendment to CPLR § 5014 was promulgated in which the above-italicized language was added to CPLR § 5014.  Gletzer , 51 A.D.3d at 200. The plaintiff in Gletzer moved for a renewal judgment pursuant to CPLR § 5014 one day before his original lien expired and requested that, inter alia , supreme court grant the motion and issue a renewal judgment, nunc pro tunc , as of the expiration date of the original lien. Gletzer , 51 A.D.3d at 198.  Supreme court granted the renewal judgment, nunc pro tunc , several years later.  However, in the “lien gap” period – the time between the expiration of the original lien and the time that the renewal judgment was entered – two mortgage companies recorded mortgages against the property of Gletzer’s judgment debtor.  Gletzer , 51 A.D.3d at 199.  Supreme court also denied mortgagees’ motion for the vacatur of the nunc pro tunc treatment of the renewal judgment.  Gletzer , 51 A.D.3d at 199.  The appeals of Glatzer’s judgment debtor and the mortgagees were consolidated.  As to the CPLR § 5014 issues, the Appellate Division noted that the intent of the amendment to CPLR § 5014 was “to eliminate the rule of Brookhaven, < supra. > supra.> by giving judgment creditors the opportunity to take action to renew their lien early enough to avoid a lien gap.”  Gletzer , 51 A.D.3d at 201.  However, the Court noted that “there is no indication, or any reason to believe, that it intended to preclude any possibility of even a brief lien gap, under all circumstances, or to protect the judgment creditor from the priority otherwise enjoyed by an intervening recorded lien.”  Gletzer , 51 A.D.3d at 199.  Indeed, the Appellate Division, held that mortgagees were entitled to rely on the results of lien searches conducted during the lien gap period in making their lending decisions.  Gletzer , 51 A.D.3d at 205.   Thus, the Gletzer Appellate Division, inter alia , modified supreme court’s judgment “so as to deem the 1991 judgment to be renewed as of March 1, 2005, the date the renewal judgment was granted….”  Gletzer , 51 A.D.3d at 206.  The Appellate Division’s Order was affirmed by the Court of Appeals, which noted that the Appellate Division “concluded that the plain language of the statute does not eliminate all lien gaps t was meant solely to provide a diligent creditor one year to reapply for an extension of the lien to avoid a gap.”  Gletzer , 12 N.Y.3d at 472.  In so doing, the Court of Appeals specifically rejected the notion of nunc pro tunc treatment of renewal judgments that would otherwise result in a lien gap.  Gletzer , 12 N.Y.3d at 475 – 76.  The Court of Appeals stated: We thus conclude that those seeking to secure any interest in real property must be able to rely upon a public record to furnish full and complete information of any conveyances, liens or encumbrances affecting such property. They should not be penalized for failing to unearth an expired lien or not investigating the prospect that it might be subject to a pending renewal request. Additionally, nunc pro tunc treatment under these circumstances would be inimical to our State's commitment to record notice based upon the certainty of a docketing system that alerts potential purchasers and lienholders to encumbrances upon real property. Gletzer , 12 N.Y.3d at 477. The Supreme Court of the State of New York, Westchester County, in Wilmington Sav. Fund Socy., FSB v. John (February 11, 2020), addressed the issue under CPLR § 5014 of “when does the lien of the renewal judgment become effective.”  The plaintiff in Wilmington filed a motion for summary judgment in lieu of complaint in which it sought a renewal judgment, nunc pro tunc.   The Wilmington court found that the plaintiff “made a prima facie showing of its entitlement to a renewal judgment by offering evidentiary proof that it was the original judgment creditor’s assignee, and that no part of the judgment has ever been satisfied.”  (Citation omitted.) Consistent with, and relying on, Gletzer , the Wilmington court reiterated that the renewal judgment is not entitled to retroactive application.  The Wilmington court, in addressing the Gletzer Courts’ analyses of when the renewal judgment takes effect, stated: In reversing the motion court, the First Department deemed Gletzer's renewal judgment "entered as of the date the relief was granted" ( Gletzer v Harris , 51 AD3d at 206). Upon further appeal, the Court of Appeals, in answering the question as to whether a lien from a renewal judgment secured pursuant to CPLR 5014 for a second 10-year period takes effect nunc pro tunc on the expiration date of the original lien, held:  Because CPLR 5014 does not provide for a renewal judgment to have retroactive effect to the original lien's expiration date and because nunc pro tunc treatment is inappropriate where, as here, additional lenders relying on the public record acquired rights in the property, we hold that the renewal lien becomes effective when granted by Supreme Court ( Gletzer v Harris , 12 NY3d at 470).  (Emphasis in original.)   The Wilmington court recognized that at the time the decision and order on the renewal judgment motion uploaded to NYSCEF, it “has not yet been submitted by the plaintiff to the Westchester County Clerk for entry.” Further, the renewal judgment is not “accessible by the public” “until the judgment is entered and docketed (which is done simultaneously) by the Westchester County Clerk.”  Accordingly, until “the renewal judgment is entered and docketed by the County Clerk” “any potential lender searching the records in Westchester County” “would have notice only of the already expired and not renewed … judgment.” Thus, “the court that the plaintiff is entitled to a renewal judgment which lien shall be effective as of the date such renewal judgment is entered and docketed by the Westchester County Clerk

On February 6, 2020, Justice Jennifer G. Schecter of the Supreme Court, New York County issued a decision in which she ruled, among other things, that Kesha Rose Sebert (better known by her stage name as Kesha) defamed Lukasz Gottwald (“Gottwald”), the music producer known as Dr. Luke, and Kesha’s former producer, when she claimed, in a text message to Lady Gaga, that he had raped Katy Perry. Gottwald v. Sebert , 2020 N.Y. Slip Op. 30347(U) (Sup. Ct., N.Y. County Feb. 6, 2020) ( here ). The Court also ruled that Kesha had to pay nearly $374,000 in interest on royalty payments that she delayed paying to Gottwald’s company. Background In October 2014, the parties sued each other in separate jurisdictions. Kesha sued Gottwald in California (the “California Action”), alleging, among other things, sexual assault, sexual harassment, gender violence and unfair competition in violation of California law. Gottwald sued Kesha in New York County. After the California court determined that the forum selection clauses in the governing contracts mandated proceeding in New York, Kesha withdrew the California Action. Plaintiffs (Gottwald, Kasz Money, Inc. (“KMI”), and Prescription Songs, LLC (“Prescription”)) filed their first amended complaint in December 2014. In July 2015, Kesha filed counterclaims against plaintiffs and Sony Music (“Sony”), which plaintiffs and Sony moved to dismiss. In September 2015, Kesha moved for a preliminary injunction, seeking an order permitting her to make music without plaintiffs and releasing her from her agreements with them. About a month later, Kesha amended her counterclaims to include, among other causes of actions, claims that she had previously brought in the California Action. Plaintiffs and Sony moved to dismiss. In February 2016, after oral argument, the court denied Kesha’s preliminary injunction motion. By order dated April 6, 2016, the Court dismissed all but one of Kesha’s counterclaims. In January 2017, plaintiffs moved for leave to file a second amended complaint and Kesha moved for leave to file amended counterclaims. The Court granted plaintiffs’ motion without opposition. On March 20, 2017, the Court denied Kesha’s motion, holding that her proposed amended counterclaims lacked merit. The Court held that Kesha had failed to perform under the KMI Agreement – the written agreement that Kesha and KMI executed on September 26, 2005 – and that it was not legally impossible for her to perform under her contracts with plaintiffs. The Appellate Division, First Department affirmed. 161 A.D.3d 679 (1st Dept. 2018). On August 31, 2018, the Court granted plaintiffs’ motion to file a third amended complaint (“TAC”), holding that a reasonable finder of fact could conclude that “the California complaint was a sham maliciously filed solely to defame plaintiffs.” Slip Op. at *9. The First Department affirmed. 172 A.D.3d 445 (1st Dept. 2019). The TAC contained four causes of action: (1) defamation related to Kesha’s assertions that Gottwald sexually assaulted her, (2) defamation related to a statement that Kesha made to Lady Gaga that Gottwald raped Katy Perry, (3) breach of the KMI Agreement, and (4) breach of the Prescription Agreement – the agreement governing the rights of Prescription, a limited liability company controlled by Gottwald, to publish Kesha’s music. Kesha answered the TAC and asserted 39 affirmative defenses in addition to her remaining counterclaim. Following discovery, both parties moved for partial summary judgment. Today’s post examines the requirement to pay interest under CPLR § 5001 and the fraudulent inducement affirmative defense – one of the 39 affirmative defenses asserted by Kesha. The Court’s Decision Plaintiffs alleged that the KMI Agreement entitled them to unpaid royalties due within 45 days of Kesha’s receipt of certain ancillary income and unpaid tour receipts payable within 30 days of the end of the applicable tour cycle. They claimed that Kesha owed them interest on her delayed royalty payment. Kesha did not dispute that she failed to pay any royalties to plaintiffs between January 1, 2012, and December 31, 2016. On August 7, 2017 – well beyond the deadlines set forth in the parties’ contract and after the New York action had been commenced – Kesha paid plaintiffs $1,302,043.41 in royalties. Plaintiffs accepted the payment but expressly reserved “the right to seek an award of prejudgment interest on the entire amount Kesha withheld for years.” Plaintiffs sought summary judgment on the interest due for the belated payment. They claimed that Kesha owed them $373,671.88 in interest on $1,302,043.41 in royalties. Kesha did not dispute the calculation of the interest. Instead, she claimed that because there was no finding of breach, there was no predicate for an interest award. She maintained that the payments were simply a “good-faith gesture to resolve a dispute without troubling the Court.” The Court rejected Kesha’s arguments. The Court held that the tender of payment after the litigation commenced did not defeat plaintiffs’ statutory right to prejudgment interest under CPLR 5001: By making the August 2017 payments for commissions “as of 12.31.16,” Kesha conceded that she owed those amounts. In fact, even now, she does not dispute that the KMI Agreement entitles plaintiffs to those sums and that she paid late. Nor does she show that plaintiffs’ timeframes and interest calculations are incorrect or otherwise challenge them. Her arguments that the parties modified the time for payment despite the absence of any written agreement and that there was an ongoing waiver of timely payment by plaintiffs is not countenanced by the KMI Agreement, which contains no oral-modification and no-waiver  provisions. Plaintiffs have proven that they were entitled to the over $1.3 million that Kesha paid belatedly after this lawsuit was commenced and there is no legal basis for absolving her of paying statutory prejudgment interest on that amount. Slip Op. at **27-28 (citations omitted). “Because plaintiffs demonstrated that Kesha breached the KMI Agreement by not timely making payment,” concluded the Court, “prejudgment interest on the delinquency is mandatory.” In addition to the foregoing, plaintiffs moved for summary judgment on Kesha’s fraudulent inducement affirmative defense to their breach of contract claim. As explained by the Court, Kesha claimed that she was fraudulently induced to enter into the KMI Agreement based on Gottwald’s alleged promise to renegotiate the contract if her first album was successful. The Court held that the claim was “not viable because a fraud claim cannot be predicated on a promise of future performance.” Slip Op. at *30 (citing New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318 (1995); Wyle Inc. v. ITT Corp. , 130 A.D.3d 438, 439 (1st Dept. 2015). Notably, observed the Court, “Kesha not claim that Gottwald misrepresented any then-present facts.” Id. (citing TIAA Global Invs., LLC v. One Astoria Sq. LLC , 127 A.D.3d 75, 87 (1st Dept. 2015). Even if the fraud claim was based upon an insincere promise to engage in future conduct, Justice Schecter found that the affirmative defense was not viable. The reason, said the Court, was Kesha’s failure to allege scienter – i.e. , the failure “‘to plead specific facts from which it may be reasonably inferred that the defendant did not intend to keep the promise when it was made.’” Slip Op. at *30 (quoting Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 72 (1st Dept. 2017). Additionally, the Court ruled that the fraudulent inducement affirmative defense could not survive because the KMI Agreement contained a merger clause. Slip Op. at *31. A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. The Court also held that the anti-reliance language within the merger clause further precluded Kesha’s fraudulent inducement affirmative defense. In order for a party to disclaim reliance on extra-contractual representations, an agreement must contain language that makes it clear that the parties are not relying on such representations. The following is an example of a common anti-reliance provision: Each of the Parties acknowledges that no other party, nor any agent or attorney of any other party, has made any promise, representation, or warranty whatsoever, and acknowledges that the Party has not executed or authorized the execution of this Agreement in reliance upon any such promise, representation or warranty, that is not expressly contained herein. Courts will enforce anti-reliance language that identifies the specific information on which a party has relied and which forecloses reliance on other information. Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320 (1959) (finding that the plaintiff purchaser of a building could not assert that it was relying on oral representations made by the seller outside of a contract in which the plaintiff had specifically agreed in writing not to rely on such representations). See also Laxer v Edelman , 75 A.D.3d 584, 585–86 (2d Dept. 2010) (holding a fraudulent inducement claim concerning flooding and mold issues in the building was barred by merger clause that disclaimed reliance on any statements by defendants regarding the condition of premises). In holding that the anti-reliance provision in the KMI Agreement sufficed to preclude the fraudulent inducement claim, Justice Schecter found that “the KMI Agreement set[] forth that no one ‘made any promise, representation or warranty whatsoever, express or implied, oral or written, not contained’ in the contract itself and that ‘all understandings and agreements’ between the parties were merged into the contract ‘which fully and completely expresse[] their agreement.’” Slip Op. at *31. Therefore, concluded the Court, Kesha “could not reasonably rely on any promise of future performance that was made before the agreement was signed but not included in the final contract.” Id. (citing Schron v. Troutman Sanders LLP , 20 N.Y.3d 430, 436 (2013); see also Matter of Primex Intl. Corp. v Wal-Mart Stores, Inc. , 89 N.Y.2d 594, 599-600 (1997); Pate v. BNY Mellon-Alcentra Mezzanine III, LP , 163 AD3d 429, 430 (1st Dept. 2018)). Takeaway Gottwald underscores the effect of a merger clause and a no additional representations clause. While the merger clause at issue seems to be too general to be enforceable ( i.e. , it did not identify the specific representations and communications being integrated into the KMI Agreement), the no additional representations clause underscored the parties’ agreement to be bound only by the terms of the KMI Agreement. The lesson of Gottwald , therefore, is that parties to an agreement should carefully negotiate and consider the language of their merger clause, and not rely on boilerplate language. In that regard, they should specify the representations and matters being merged or integrated into the agreement. If the parties intend complete integration, then they should ensure that the merger clause clearly articulates their intention. And, if they include anti-reliance language in the merger clause, such language should be specific and identify the representations and matters to be included or excluded.

Readers of this Blog know that we like to write about fraud cases. After all, a fraud can be perpetrated in so many contexts. Indeed, the circumstances upon which one can deceive another are limited only by the imagination of the wrongdoer. Sometimes, there are too many reported decisions for us to examine in the depth to which our readers have become accustomed. For this reason, we have created the “Fraud Notes” post in which we will examine multiple decisions addressing fraud claims that we think our readers will find interesting or instructive. In today’s “Fraud Notes” post, we examine two cases involving allegations of fraud and/or fraudulent inducement: Yuen v. Branigan , 2020 N.Y. Slip Op. 30280(U) (Sup. Ct., N.Y. County Jan. 28, 2020) ( here ), and Maddali v. Annamaneni , 2019 N.Y. Slip Op. 33860(U) (Sup. Ct., Bronx County Dec. 23, 2019) ( here ). Yuen v. Branigan Yuen arose out of a dispute between plaintiff William Yuen (“Yuen”) and defendants Pangea Capital Management LP (“Pangea”) and Mark Branigan (“Branigan”) over their business relationship and the compensation/remuneration allegedly due and owing from that relationship. In February 2008, Branigan founded Pangea, a hedge fund that conducted trades for outside investors. In or before July 2009, Branigan allegedly induced Yuen to join Pangea as its “Head of Trading” and falsely represented that Pangea had over $40 million in assets under management, and that it possessed a proprietary algorithm that would generate advantageous trade recommendations for its customers. Relying on these misrepresentations and in consideration of the offer to become a partner and Head of Trading, Yuen agreed to join the company, pursuant to which he would receive a compensation package that included a monthly payment of $15,000 for a minimum of three years, plus an additional sum based upon the amount of assets under management, as well as a 10% equity stake in Pangea. The parties did not sign any paperwork to memorialize their understanding. After Yuen joined Pangea, he allegedly discovered that Branigan had inflated the amount of assets under management at Pangea, and instead of $40 million, Pangea only had $4 million. Also, Yuen purportedly learned that Branigan had mischaracterized the quality and capability of the trading algorithm. In June 2010, Branigan purportedly terminated Yuen’s employment, and instructed Yuen to return all of Pangea’s equipment and files. Yuen claimed that he was “deprived of reimbursement of work-related expenses, agreed-to compensation of a minimum of $450,000 in monthly payments and an equitable stake of no less than $1,000,000.” In January 2013, Yuen commenced the action by serving a summons with notice. Following discovery, defendants moved for summary judgment to dismiss, among other claims, the fraudulent inducement cause of action. Defendants argued that summary judgment was appropriate because Yuen was not damaged by the alleged misrepresentation about the assets Pangea had under management. Defendants contended that Yuen received $15,000 per month as required under the agreements even though the assets under management were significantly less than represented. Therefore, defendants argued, pursuant to Connaughton v. Chipotle Mexican Grill Inc. , 29 N.Y.3d 137, 143 (2017), Yuen could not show any actual damages resulting from the alleged fraud.   In Connaughton , the Court of Appeals explained that damages incurred by fraud should compensate the plaintiff “for what lost because of the fraud,” not “what might have gained.” 29 N.Y.3d at 142. Under the out-of-pocket rule, “‘ he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong.’” Lama Holding Co. v. Smith Barney , 88 N.Y.2d 413, 421 (1996) (quoting Reno v. Bull , 226 N.Y. 546, 553 (1919)). Thus, held the Court, a plaintiff alleging fraud cannot recover damages “based on the loss of a contractual bargain,” which the Court explained are “completely undeterminable and speculative.” Connaughton , 29 N.Y.3d at 142-43 (quoting Dress Shirt Sales v. Hotel Martinique Assoc. , 12 N.Y.2d 339, 344 (1963)). Yuen did not address Connaughton in his opposition to defendants’ motion. Slip Op. at *10. The Court found “Plaintiff’s contention unpersuasive in light of Connaughton .…” Id. (noting that Connaughton involved a plaintiff, who, like Yuen, claimed that he would not have taken the employment offer by the defendant had he known of certain concealed facts prior to his employment (citing Connaughton , 29 N.Y.3d at 141-142)). Accordingly, the Court granted the motion to dismiss the fraudulent inducement cause of action. Maddali v. Annamaneni Maddali involved an alleged fraudulent scheme whereby defendants falsely promised to transfer the interests in six pharmacies to plaintiffs while concealing the fact they never intended to transfer the ownership interests in those pharmacies. Beginning in 2002, plaintiffs, Venkateshwara Maddali (“VenkatM”) and Srinivas Maddali (“SrinivasM”), entered into a partnership with defendant, Ravinder Annamaneni (“RavA”), to open a number of pharmacies. SrinivasM and RavA are members of a close-knit community of Indian Americans from the same area in India. In time, plaintiff, Ravi Maddali (“RaviM”), VenkatM’s son and a New York licensed dentist and investor, invested in pharmacies established by VenkatM and RavA. In late 2013, RavA and SrinivasM for himself, and as representative of VenkatM and RaviM, discussed revising the ownership structure of the initial six pharmacies in which VenkatM and RaviM held an interest. The agreement called for RavA to assume nominal ownership of the six pharmacies and to continue to share profits with VenkatM and RaviM, and at some point RavA would transfer those interests to SrinivasM. RavA was to purchase the interests of VenkatM and RaviM in each of the six pharmacies with loans ranging from $150,000 to $400,000 per pharmacy. VenkatM and RaviM would not receive a salary or share in profits in 2013, instead they would receive the “purchase price.” Notwithstanding their agreement, starting in 2014, VenkatM, RaviM, RavA, Padmaja Annamaneni (“PadA”), his wife, and their agents, continued to split profits in the same proportion as prior to the transfer, despite the change in record ownership; the six pharmacies continued to operate as in the past with respect to salaries and bonuses paid to the owners, including to VenkatM and RaviM. In addition to obtaining control of the six pharmacies, RavA took control of the additional pharmacies in which SrinivasM held an economic interest. Plaintiffs alleged that, with intent to defraud them, RavA had sales contracts and supporting documents prepared which provided for the transfer of each of the pharmacies but did not contain the material terms of the agreement to which the parties had previously agreed. Plaintiffs claimed that neither VenkatM, nor RaviM, received copies of the sales contracts they signed or of the closing statements. Plaintiffs further alleged that in December 2013, RavA transferred VenkatM and RaviM’s ownership interests in the pharmacies to himself, as well as to PadA, and his associates, and refused to fulfill his commitment to transfer the appropriate interest in those pharmacies to SrinivasM. Defendants moved to dismiss, among other claims, the fraud and fraudulent inducement causes of action. The Court denied the motion as to those claims. To state a claim for fraud and fraudulent inducement, a plaintiff must allege “a material representation , known to be false, made with the intention of inducing reliance, upon which the victim actually relies, consequentially sustaining a detriment.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC , 19 A.D.3d 273, 275, (1st Dept. 2005); Tsinias Enterprises Ltd. v. Taza Grocery, Inc. , 172 A.D.3d 1271, 1273 (2d Dept. 2019). Notably, “ n expression or prediction as to some future event, known by the author to be false or made despite the anticipation that the event will not occur, is deemed a statement of a material existing fact, sufficient to support a fraud action.” Channel Master Corp. v Aluminium Ltd. Sales , 4 N.Y.2d 403, 407 (1958). A plaintiff alleging fraud or fraudulent inducement must satisfy each element in order to prevail, whether it be on a motion or at trial. Menaco v. New York Univ. Med. Ctr. , 213 A.D.2d 167 (1st Dept. 1995). The failure to satisfy any one element will result in the dismissal of the action. Gregor v. Rossi , 120 A.D.3d 447 (1st Dept. 2014). In addition, the plaintiff’s allegations must be stated with particularity. Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 558 (2009). 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). In denying the motion to dismiss the fraud causes of action, the Court noted that “Plaintiffs have stated both of the fraud claims by alleging, with sufficient detail, that Rav A created a fraudulent scheme to deprive VenkatM and RaviM of their ownership interests in the pharmacies by refusing to fulfill his material representation that he would transfer the shares to SrinivasM; that plaintiffs reasonably relied upon RavA’s misrepresentations; and, that they suffered damages as a result.” Slip Op. at **8-9. The issue on which the Court focused its decision involved the duplication of claims doctrine – that is, whether plaintiffs’ fraud claims duplicated their contract claim. Under the duplication of claims doctrine, New York courts will not permit fraud-based claims to survive a motion to dismiss when the claims arise from a breach of contract. Indeed, courts routinely dismiss fraud-based claims where “ he existence of a valid and enforceable written contract govern a particular subject matter” and the recovery sought arises out of the same facts and circumstances. Clark-Fitzpatrick v. Long Is. , 70 N.Y.2d 382 (1987). However, where “a legal duty independent of the contract itself has been violated<,> ” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraud-based claim can stand side-by-side with “a simple breach of contract” claim.  Dormitory Auth. v. Samson Constr. Co. , 30 N.Y.3d 704 (2018) (citation omitted). See also McKernin v. Fanny Farmer Candy Shops, Inc. , 176 A.D.2d 233, 234 (2d Dept. 1991). What constitutes “a legal duty independent of a contract” is not a question easily answered.  Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 56 (1st Dept. 2017) (referring to the question as a “recurring” one). In trying to answer the question, the courts make the distinction between a misrepresentation of intention and a misrepresentation of present fact. Id . at 63. See also Demetre v. HMS Holdings Corp. , 127 A.D.3d 493, 494 (1st Dept. 2015) (common law fraud is duplicative of breach of contract where the only misrepresentation alleged concerns an “intent to perform the contractual obligations at the time they were made.”). The former will result in dismissal, while the latter will not. Gosmile, Inc. v. Levine , 81 A.D.3d 77 (1st Dept. 2010). Applying the foregoing principles, the Court found that the alleged promises to transfer the interests in the pharmacies were collateral to the sale agreements and, therefore, did not duplicate plaintiffs’ contract claim: In the First Amended Complaint plaintiffs allege that RavA induced plaintiffs to transfer their ownership interests to him by promising that he would transfer VenkatM and RaviM’s ownership interests to SrinivasM, and that he would continue to pay to plaintiffs their share of the profits in six pharmacies. In the Complaint of the consolidated action, it is alleged that, in furtherance of the fraud, defendants have refused to acknowledge SrinivasM’s interest in all of the pharmacies, and to pay the sums to which he is entitled. The court finds that the promises were collateral to the sale agreements, and the alleged misrepresentations constitute fraudulent inducement, which is a breach of duty distinct from the breach of contract claim and is not duplicative. Slip Op. at *9 (citing Deerfield Communications Corp. v. Chesebrough-Ponds, Inc. , 68 N.Y.2d 954 (1986)). Takeaway As noted above, a plaintiff alleging fraud can recover only the actual pecuniary loss sustained as a result of the misrepresentation or omission, i.e. , the plaintiff’s out-of-pocket damages. The damages recoverable under the rule are intended to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained. See Lama Holding , 88 N.Y.2d at 421. Yuen reinforces the out-of-pocket damages rule, making it clear that a plaintiff cannot recover what he/she might have gained had he/she not been defrauded. As the Court of Appeals explained, such damages are “completely undeterminable and speculative.” Connaughton , 29 N.Y.3d at 142-43. The duplication of claims doctrine preserves the distinction between claims sounding in contract and those sounding in tort and protects defendants from disproportionate damages awards that a judgment in tort may impose. Maddali shows that promises related to matters outside the four corners of the contract at issue will suffice to establish an independent duty or a misrepresentation “collateral or extraneous to the terms of the parties’ agreement.” Dormitory Auth. , supra .

On numerous occasions, this Blog has addressed issues surrounding certain notice obligations imposed on mortgage lenders foreclosing on residential property.  For example, section 1303 of the Real Property Actions and Proceedings Law (“RPAPL”) requires that, under certain circumstances relating to residential property, a foreclosing mortgagee must send statutory notice to the mortgagor and tenants advising them, among other things, that they are in danger of losing their home and how to avoid foreclosure rescue scams. Similarly, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes (a “Home Loan”)), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that provide free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter. In “ Appellate Division Second Department Tells Foreclosing Residential Lender to “SHOW ME THE EVIDENCE ,” this Blog discussed M&T Bank v. Joseph , 152 A.D.3d 579, 58 N.Y.S.3d 150 (2017) , in which the Second Department reversed the grant of summary judgment because lender failed to strictly comply with the requirements of RPAPL 1304.  In “The Second Department Reverses Another Grant of Summary Judgment to a Foreclosing Lender on a Home Loan Due to the Insufficiency of Proof of Mailing Statutorily Required Notices to the Borrower,” this Blog discussed Bank of New York v. Zavolunov , 157 A.D.3d 754 (2 nd Dep’t 2018), where the Court again reversed summary judgment due to inadequate proof of mailing RPAPL 1304 notices. There have been countless cases dealing with various issues surrounding compliance with RPAPL 1303 and 1304 issues.  See, e.g., U.S. Bank National Association v. Sims , 162 A.D.3d 825 (2 nd Dep’t 2018) (addressing RPAPL 1303 and 1304); M&T Bank v. Biordi , 176 A.D.3d 1194 (2 nd Dep’t 2019) (finding that lender failed to prove compliance with RPAPL 1304). On January 29, 2020, the Supreme Court of the State of New York, Appellate Division, Second Department, in Charles Schwab Bank v. Winitch , decided an interesting, and slightly different, RPAPL 1304  case .  The lender in Winitch commenced a foreclosure action against husband and wife borrowers.  In response to lender’s motion for summary judgment, the borrowers cross-moved for summary judgment based on lender’s alleged non-compliance with RPAPL 1304.  Supreme court denied borrower’s cross-motion and granted lender’s motion, which resulted in the entry of a judgment of foreclosure and sale.  Borrowers appealed. The Second Department determined that lender established “prima facie, its strict compliance with RPAPL 1304” as to husband.  A bank employee with personal knowledge swore out an affidavit averring that she mailed the 90-day notice by first-class and certified mail to husband as required by statute.   However, the lender failed to meet its burden with respect to wife.  Nonetheless, the Court agreed with lender that wife was “not entitled to receive notice pursuant to RPAPL 1304 since she is not a named borrower under the Home Equity Credit Line Agreement…, which was executed by only.”  Both husband and wife were mortgagors under the related credit line mortgage because they both owned the subject property.  In making a critical distinction in the application of RPAPL 1303 and 1304, the Winitch Court stated: Unlike RPAPL 1303, RPAPL 1304 refers specifically to the "borrower"—not the "mortgagor." Here, the subject credit line mortgage, which was signed by both and , as mortgagors, contained the following provision: "If Mortgagor signs this Security Instrument but does not sign an evidence of debt, Mortgagor does so only to mortgage Mortgagor's interest in the Property to secure payment of the Secured Debt and Mortgagor does not agree to be personally liable on the Secured Debt." The Court found that wife “could not be deemed a ‘borrower’ for the purpose of RPAPL 1304” and, therefore, was not required to be served with a an RPAPL 1304 notice.  The language of the mortgage at issue in Winitch was important in the Court reaching its decision as it made clear that wife was not a borrower. The Winitch Court did state that wife was entitled to a RPAPL 1303 notice as a mortgagor, but no challenge was made by defendants to the sufficiency of that notice.  The failure to establish proper service of an RPAPL 1304 notice on wife was not being an impediment to the issuance of a judgment of foreclosure and sale and, the Court affirmed same. Bank of New York Mellon v. Forman , 176 A.D.3d 663 (2 nd Dep’t 2019), is a similar case recently decided by the Second Department in which a slightly different result was reached.  In Forman , like in Winitch , husband and wife executed a mortgage, but only husband executed the note.  Like in Winitch , Forman was defended the lender’s foreclosure action by arguing that wife was not served with the requisite RPAPL 1304 notice.  As one would expect, lender argued that since wife did not execute the promissory note, such notice was not required.  Unlike Winitch , however, the Second Department in Foreman agreed with Wife “under the circumstances of this case.”  While the Forman husband  “was the only ‘borrower’ in the note which is secured by the mortgage,” wife was referred to as a “borrower” throughout the mortgage and she was “designated as ‘Borrower’ under her signature on the signature page of the mortgage instrument.”  Forman , 176 A.D.3d at 665. Because wife was deemed a borrower, lender was obligated to serve her with proper notice under RPAPL 1304, and, in the absence thereof, the mortgage foreclosure complaint was dismissed. In response to the lenders argument that wife was not a maker on the note, the Forman Court stated: While contends that this standard mortgage form mischaracterizes the defendant as a borrower, any ambiguities in the language of the document must be construed against the plaintiff, as the plaintiff is the party who supplied the document (see generally Computer Assoc. Intl., Inc. v U.S. Balloon Mfg. Co., Inc., 10 AD3d 699, 700). Forman , 176 A.D.3d at 665.

In New York, arbitration, like other alternative dispute resolution mechanisms, is valid and enforceable. Westinghouse v. New York City Tr. Auth. , 82 N.Y.2d 47, 54 (1993) (“Considerable authority thus supports the validity and enforceability of alternative dispute resolution mechanisms.”). Like many jurisdictions, New York has a strong public policy that favors arbitration. In fact, arbitration is not only favored but encouraged “as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process.” Id . Because of the strong public policy favoring arbitration, courts give considerable deference to arbitrators and their awards. Tullett Prebon v. BGC Fin. , 111 A.D.3d 480, 482 (1st Dept. 2013) (“awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation”). In fact, judicial review of arbitration awards is severely limited in New York. Id .  As this Blog previously noted ( here ), setting aside arbitral awards are difficult. Grounds for The Review of Arbitral Awards Upon receiving a motion to confirm an arbitration award, New York courts must confirm the award unless the movant satisfies one of the statutory reasons for modification or vacatur provided by New York Civil Practice Law and Rules Section 7511. See CPLR § 7510; see also Bernstein Family Ltd. P’ship v. Sovereign Partners , 66 A.D.3d 1, 7-8 (1st Dept. 2009) (confirmation is mandatory in the absence of grounds for vacatur). The grounds for modification or vacatur under CPLR § 7511 are limited.  These include: (1) “corruption, fraud, or misconduct in procuring the award”; (2) partiality of the arbitrator; (3) the arbitrator exceeded his power or imperfectly executed it; (4) failure to follow the procedures of Article 75 of the CPLR. CPLR § 7511(b)(1)(i)-(iv).  Only when the record demonstrates one of the foregoing will a New York court vacate or modify an award under the CPLR. (This Blog previously wrote about the importance of a record in the context of vacating an award, here and here .) In today’s post, this Blog examines Matter of Arbitration Between Buffalo Teachers Fedn., Inc. (Board of Educ. of the Buffalo Pub. Schs.) , 2020 N.Y. Slip Op. 00794 (4th Dept. Jan. 31, 2020) ( here ), a case involving vacatur because the arbitrator exceeded his/her authority. Under CPLR § 7511(b)(1)(iii), a movant can vacate or modify an arbitral award when the arbitrator exceeded his or her authority under the arbitration agreement. To succeed under CPLR 7511(b)(1)(iii), the movant must demonstrate that the arbitration agreement limited the arbitrator’s authority to act, and the arbitrator subsequently violated that limitation. New York City Tr. Auth. v. Transport Workers’ Union of Am. Local 100, AFL-CIO , 6 N.Y.3d 332 (2005). The same is true with regard to arbitration mandated by statute.  Vacatur will be warranted where the arbitrator fails to follow the standards and requirements of the subject statute. Forest River, Inc. v. Stewart , 34 A.D.3d 474, 474 (2d Dept. 2006). Absent an agreement or statute, however, as long as an arbitrator addresses the issue(s) submitted for resolution, vacatur will not be granted, unless the award is completely irrational – that is, the resulting award goes beyond the issues before the arbitrator. Rochester City Sch. Dist. v. Rochester Teachers Ass’n , 41 N.Y.2d 578, 583 (1977). Matter of Arbitration Between Buffalo Teachers Fedn., Inc. (Board of Educ. of the Buffalo Pub. Schs.) After hiring 16 teachers’ aides in compliance with a prior arbitration award, the Board of Education announced its intention to eliminate 5½ teaching positions for the 2017-2018 school year in order to offset the cost of hiring the teachers’ aides. The Buffalo Teachers Federation filed a grievance seeking, inter alia , to prevent the elimination of the teaching positions on the ground that the Board’s intended conduct was retaliatory. A temporary restraining order was issued preventing the elimination of the positions while the dispute was pending. After the 2017-2018 school year ended, an arbitrator issued an opinion and award that set forth the arbitration award in the last five paragraphs thereof, only two of which were at issue on the appeal. The Teachers Federation moved to confirm the award, and the Board filed a cross-motion to vacate the award. The motion court granted the petition to confirm, denied the cross-petition to vacate, and confirmed the award. The appeal ensued. The Board maintained that the arbitrator exceeded his authority under the governing collective bargaining agreement (“CBA”) by requiring it to make the elimination of teaching positions in accordance with the “School Based Development Guide” (“Guide”) rather than the CBA. The Fourth Department agreed, holding that “‘in effect, made a new contract for the parties in contravention of explicit provision of arbitration agreement which denied arbitrator power to alter, add to or detract from’ the collective bargaining agreement.” Slip Op at *2 (quoting Schiferle v. Capital Fence Co., Inc. , 155 A.D.3d 122, 126 (4th Dept. 2017) (internal quotation marks omitted). The Court concluded, therefore, “ ecause the CBA does not require respondent to make its staffing or budgetary decisions in accordance with the Guide, the arbitrator contravened an express provision in the CBA that denied him the ‘authority to modify or amend it.’” Id . Takeaway Under CPLR § 7511(b)(1)(iii), the party seeking vacatur of arbitral award must demonstrate that the agreement to arbitrate limited the arbitrator’s authority to act and the arbitrator subsequently violated that limitation. In Matter of Buffalo Teachers Federation, the Board was able to meet this standard.

Investment scams come in many forms. Affinity fraud is one type of investment scam. In this form of fraud, the person committing the fraud preys upon members of an identifiable group, such as a religious or ethnic community, the elderly, or a professional group. The promoter of an affinity fraud frequently is – or pretends to be – a member or a good friend of the group. The fraudster often enlists respected members of the community or religious leaders from within the group to disseminate information about the scheme by convincing them that a fraudulent investment is legitimate and in their best interests. Many times, those leaders become unwitting victims of the fraudster’s con. Affinity scams exploit the trust and friendship that exist in group of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment. Many affinity scams involve Ponzi schemes or pyramid schemes, where new investor money is used to make payments to earlier investors to give the illusion that the investment is successful. New investors are induced to invest in the scheme and existing investors are lulled into believing their investments are profitable. Unfortunately, as is often the case, the promoter of the scheme steals the investor’s money for personal use. Both types of schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of new money stops, the scheme collapses, and investors lose most or all of their money. On Wednesday, January 29, 2020, the Securities and Exchange Commission (“SEC”) announced (here) that it charged a Pennsylvania accountant with perpetrating an affinity fraud on the Amish and Mennonite community by making materially false and misleading statements about investments he was selling, including, but not limited to, the use of their funds and the guaranteed return on their investments. According to the SEC’s complaint (here), Philip E. Riehl (“Riehl”), provided tax and accounting services to Amish and Mennonite communities. Riehl developed his own investment program, in which he pooled money that he raised by selling promissory notes to community members. Riehl was a co-religionist in the Mennonite religious community. Riehl allegedly raised approximately $60 million over nearly a decade and promised to invest the funds in business and real estate loans to others in the religious community. Riehl typically made loans to farmers and other types of commercial businesses, such as barn builders, trucking companies, and construction companies, who were unable to, or chose not to, obtain loans from traditional banks. These loans were documented by simple promissory notes to Riehl, signed by the borrowers. According to the complaint, Riehl knew that members of his religious community had a high level of trust and respect for one another, and he allegedly relied on this trust to secure investments. The SEC alleged that Riehl provided each investor with a promissory note, signed by him, and personally promised to repay the investors with interest. In or about 2015, the SEC began an investigation of Riehl and his investment program. Riehl purportedly told the SEC staff he was not accepting new investments, was in the process of winding down his investment program, and always required two co-signers for loans made from his investment program. The SEC claimed that those statements were false. The SEC further alleged that Riehl also sold investors promissory notes issued by Trickling Springs Creamery (“TSC”), a dairy business that he owned, without informing the investors about the company’s financial difficulties and mounting debt (“TSC Notes”). The complaint alleged that in late 2018 when TSC was in dire straits, Riehl diverted money to it from at least one investor, against the investor’s wishes. For many of the TSC Notes that Riehl sold, alleged the SEC, Riehl merely issued new TSC Notes to his existing investors, replacing himself with TSC as the note’s payor. The SEC claimed that this action effectively eliminated his personal guarantee to repay the investors. In so doing, said the SEC, Riehl burdened TSC with millions of dollars of additional debt without any corresponding infusion of capital. Significantly, observed the SEC, TSC was insolvent for all or most of the time that Riehl sold TSC Notes. According to the SEC, Riehl did not disclose to the TSC Note investors that he was imposing this debt burden on TSC while eliminating his personal guarantee to previous Riehl Note investors. The SEC also said that Riehl did not disclose to TSC Note investors that TSC had existing bank debt to which the TSC Notes were subordinate, and failed to tell investors that if TSC defaulted they would not be repaid until TSC’s bank lenders were repaid first. Notably, alleged the SEC, Riehl did not require that TSC have two co-signers to repay its debts, contrary to his promise that he would require two co-signers for any loan issued using investor money. From at least 2015 to December 2018, Riehl offered and sold to approximately 110 investors at least 175 TSC Notes worth approximately $7.8 million. According to the SEC complaint, Riehl received his last investment of $150,000 in later 2018. Riehl allegedly told this investor that he would repay him in a few days. The SEC claimed that Riehl knew that this investor did not want to invest in TSC – TSC continued to struggle financially and needed an immediate infusion of cash for operations. Against the investor’s instruction, said the SEC, Riehl transferred the $150,000 to TSC. The SEC claimed that Riehl never repaid the investor. In a 2019 letter to investors, Riehl allegedly apologized for his dishonesty, including repeatedly stating that he required two co-signers on each loan, which gave a “false sense of security, in that such a considerable percentage of the funds were channeled into my personal projects.” TSC ultimately failed, filing for bankruptcy in December 2019, and Riehl was unable to pay back investors. Commenting on the SEC’s complaint, Kelly L. Gibson, Associate Regional Director of the SEC’s Philadelphia Regional Office, said “Promises of guaranteed returns or investments without risk are classic warning signs of fraud. It is important to learn as much as possible about your investments, even if it means questioning someone you know and trust, including someone within your own faith-based community.” The SEC charged Riehl with violating the antifraud provisions of the federal securities laws. Riehl agreed to settle the charges against him. The settlement, which is subject to court approval, provides for injunctive relief and return of allegedly ill-gotten gains plus prejudgment interest. In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced criminal charges against Riehl (here). Commenting on the charges, U.S. Attorney McSwain said: “These investors were looking for honesty and integrity when deciding where and with whom to invest their money. According to the Information, Riehl presented himself as a trusted member of their religious community, only to betray that trust and swindle them out of tens of millions of dollars. It is only natural for members of a tightly knit community to want to take care of one another, but Riehl did not care about anyone but himself. Fraudsters must be held accountable under the law – no matter what community they belong to – for justice to prevail.” Michael T. Harpster, Special Agent in Charge of the FBI’s Philadelphia Division, added: “So long as there are people with money to invest, there will be swindlers ready to take their money under false pretenses. But it is particularly loathsome when these criminals exploit trusting members of their own church or community. According to the Information, Philip Riehl repeatedly misrepresented what he was doing with his investors’ money – people who took him at his word. The FBI will continue to investigate and hold accountable those who engage in such financial fraud.”

In this Blog’s post entitled: “ Real Property Owners and Contractors should be Aware of the Trust Fund Provisions of New York’s Lien Law ,” the trust fund provisions of New York’s lien law were discussed.  A brief recap of this Blog’s prior post as it relates to this post may be informative.  Lien Law §71 recognizes two types of trusts – (1) the owner trust and (2) the contractor/subcontractor trust.  The assets of the owner trust “shall be held and applied to the cost of improvement.”  (Lien Law §71(1).)   Claimants under an Owner’s Trust include contractors, subcontractors, architects, engineers, surveyors, laborers and materialmen.  (Lien Law §71(3)(a).)  The types of assets that form an owner trust are set forth in Lien Law § 70(5) , and include, inter alia, proceeds of building loans and insurance proceeds resulting from the destruction of the improvement. The assets of the contractor/subcontractor trust must be used for the payment of certain obligations resulting from the improvement of real property such as: the claims of subcontractors, architects, engineers, surveyors, laborers and materialmen; payroll taxes; sales taxes; unemployment insurance; benefits and wage supplements; surety bond premiums and insurance premiums related to the project. (Lien Law § 71(2).)  Most frequently, trust assets in this category consist of the payments received by the contractor from the owner (in the case of a contractor trust) or received by a subcontractor from a contractor (in the case of a subcontractor trust) pursuant to the subject construction contract. ( Lien Law § 70(6) .)  Trust fund assets can only be disbursed to appropriate trust fund beneficiaries.  A typical scenario illustrating the need for the protections afforded by the trust fund provisions of the Lien Law occurs when a contractor is paid by an owner on a present project but uses the payment to pay a subcontractor on a prior project.  Such diversionary payments could result in the inability to pay trust fund beneficiaries on the present project.  Despite happening routinely, such payments are prohibited under the Lien Law and could result in the inability of the contractor to pay all trust fund beneficiaries working on the current project.  On January 28, 2020, the New York Supreme Court, Richmond County, decided Gilbane Building Co. v. New York Wheel Mezz, LLC , in which the court was tasked with determining whether an owner could also be deemed a contractor for Lien Law trust fund purposes. The facts of Gilbane are straight forward.  The City of New York owned property on Staten Island that was being redeveloped for a variety of purposes.  One aspect of the development was the construction of a 630-foot tall Ferris wheel (the “Project”).  Defendant New York City Wheel (“Wheel”), as tenant, entered into a lease with the City, as landlord, for a piece of land on which Wheel was going to develop the Project.  The lease required Wheel to “perform (or cause to be performed)” certain construction on the Project.  Plaintiff, Gilbane Building Company, “undertook a Construction Management Agreement ("CMA") in the initial sum of $197,345,036.00, under which Gilbane, as assignee, would provide construction services in connection with the Project.”  Gilbane, who performed construction services and claimed to be owed $7,000,000.00, commenced action for Lien Law trust fund diversions after Wheel failed to pay it for some of its work.  According to Gilbane, it should have been paid from numerous sources of Owner and contractor trust fund monies that came into Wheel’s possession but were used for non-trust fund purposes.  The Defendants, including Wheel, moved to dismiss the complaint arguing that some of the allegedly diverted trust funds were from the contractor trust and that Wheel was an owner – not a contractor.  Wheel argued that it could not be both an owner and a contractor.  If Wheel was not a contractor, it could not have diverted funds from a contractor trust.  Since, inter alia , the trustee of the trust would also be liable for the diversions, a finding that Wheel was not a contractor would also be beneficial to any other individual that would be responsible for diversions The Gilbane court then reviewed the purpose and history of the trust fund provisions of the Lien Law.  Quoting Mount Vernon City School Dist. V. Nova Cas. Co. , 19 N.Y.3d 28 (2012), the Gilbane court stated that “once a trust comes into existence its funds may not be diverted for non-trust purposes and use of trust assets for any purpose other than the expenditures authorized by statute constitutes an improper diversion of trust assets, regardless of the propriety of the trustee's intentions."  Gilbane (internal quotation marks and brackets omitted).  Focusing on the critical point at issue, the Gilbane court analyzed several cases that addressed the question of who is a “contractor” under the Lien Law.  Quoting McNulty Bros. v Offerman , 221 N.Y. 98, 105 (1917), the Gilbane court stated whether an individual or entity is a contractor under the Lien Law, would be viewed no differently than “one who would be so characterized in the common speech of men.”  “He is one who, in the usual course of trade, has undertaken to improve the property of another. If he happens to have some interest in the land himself his interest is an accident, and not the source and origin and occasion of his tenancy, either at his own expense or with contributions from the landlord, has covenanted for betterments.”  Gilbane (quoting McNulty , 221 NY at 105).  See also , Canron v. City of New York , 214 A.D.2d 115, 123 (1 st Dep’t 1995), aff’d , 89 N.Y.2d 147 (1996); Burns v. Electric Co. Inc. v. Walton St. Assoc. , 136 A.D.2d 291, 295, aff’d, 73 N.Y.2d 738 (1988).  In OTG JFK T5 Venture v. IBEX Const. , LLC, 24 Misc. 3d 1244(A) , another case relied upon by the Gilbane court, “the trial court found that the petitioner, OTG, was both an ‘owner’ and a ‘contractor’ under its sublease and that all of the facts demonstrated it had ‘the same type of oversight responsibilities as had been undertaken by the contractors in Burns and Canron .’”  OTG JFK . After reviewing the relevant cases, the Gilbane court found that Wheel was both an owner and a contractor under the Lien Law.  The court found, inter alia , that Wheel: had many oversight responsibilities “that rendered it a ‘contractor’”; frequently had maintenance and supervisory personnel on sight; attended regular meetings; was responsible for approving requisition proposals; was responsible for approving subcontractors hired by Gilbane; reviewed trade contractors’ work and directed corrective measures. Based on its findings, the Gilbane court denied the defendants’ motion to dismiss.  In addition, the court found the “remainder of Defendants’ motion is premature and Defendants have not eliminated all issues of material fact under CPLR §3211 regarding whether the identified funds are trust assets under Lien Law 3-A and whether, and to what extent, if any, trust funds may have been diverted.”  Gilbane (citation omitted). TAKEAWAY Under the trust fund provisions of the Lien Law, owners and contractors have specific duties and responsibilities, which, if not performed could result in liability.  Gilbane highlights the importance of knowing your specific role(s) on a construction project.  In Gilbane , Wheels may have violated its duties as a contractor with respect to contractor trusts without realizing that it held that role and had the related responsibilities.

Commercial transactions by their nature involve contracts. Sometimes, the parties involved in such transactions will dispute the meaning of their agreement. It may be that the language used is ambiguous; or the language is reasonably clear but is susceptible to different meanings; or although the language is clear, taken literally, it might not reflect the parties’ intent; or, as is often the case, an event has occurred that was not contemplated by the parties at the time of drafting, so the contract does not specifically provide for it. Needless to say, disputes over the terms and meaning of a contract can be frustrating and costly. When parties enter into a contract, each assumes that their agreement accurately memorializes their intentions and understandings. For this reason, when a contract dispute arises, the courts look to the intent of the parties as expressed by the language they chose to put into their writing. Ashwood Capital, Inc. v. OTG Mgt., Inc. , 99 A.D.3d 1 (1st Dept. 2012). A clear, complete document will be enforced according to its terms. Id . at 7. See also Am. Express Bank v. Uniroyal, Inc. , 164 A.D.2d 275, 277 (1st Dept. 1990). When the parties have a dispute over the meaning of their contract, the court first asks if the contract contains any ambiguity. Ashwood Capital , 99 A.D.3d at 7-8.  Since New York is a textual jurisdiction (where the courts look to the agreement itself to determine the meaning of the agreement), whether there is ambiguity “is determined by looking within the four corners of the document, not to outside sources.” Kass v. Kass , 91 N.Y.2d 554, 566 (1998). Thus, courts will examine the parties’ intentions as set forth in the agreement and give the language an interpretation that is sensible, practical, fair, and reasonable. Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 404 (2009); Abiele Contr. v. New York City School Constr. Auth. , 91 N.Y.2d 1, 9-10 (1997); Brown Bros. Elec. Contr. v. Beam Constr. Corp. , 41 N.Y.2d 397, 400 (1977). A contract is not ambiguous if, on its face, it is definite and precise and reasonably susceptible to only one meaning. White v. Continental Cas. Co. , 9 N.Y.3d 264, 267 (2007). The “parties cannot create ambiguity from whole cloth where none exists, because provisions are not ambiguous merely because the parties interpret them differently.” Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. , 25 N.Y.3d 675, 680 (2015) (citation and internal quotation marks omitted). “Whether or not a writing is ambiguous is a question of law to be resolved by the courts.” WWW Assocs., Inc. v Giancontieri , 77 N.Y.2d 157, 162 (1990). “ xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face.” Id . at 163. This rule is especially applicable where the parties are commercially sophisticated, and their contract contains a merger clause. Schron v. Troutman Sanders LLP , 20 N.Y.3d 430, 436 (2013) (“where a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”) (citation and quotation marks omitted). Finally, since a “contractual provision that is clear on its face must be enforced according to the plain meaning of its terms,” Bank of N.Y. Mellon v. WMC Mortg., LLC , 136 A.D.3d 1, 6 (1st Dept. 2015) (citation omitted), courts may not “add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.” Id . (citations omitted). This is especially so “in commercial contracts negotiated at arm’s length by sophisticated, counseled business people.” Id . In Castaldi v. Castle Restoration LLC , 2020 N.Y. Slip Op. 50086(U) (Sup. Ct., Suffolk County Jan. 22, 2020) ( here ), Justice Elizabeth H. Emerson of the Suffolk County Supreme Court, Commercial Division, addressed the foregoing principles in breach of contract case involving the purchase and sale of a company’s assets. Castaldi v. Castle Restoration LLC Background The plaintiff, Robert Castaldi (“Castaldi”), was the president of Castle Restoration & Construction, Inc. (“Castle Inc.”). On March 15, 2012, Castle Inc. entered into an asset-sale agreement with defendant, Castle Restoration LLC (“Castle LLC,” the “LLC,” or the “Company”), which was owned by defendant Anthony Colao (“Colao”). Castle LLC agreed to purchase the majority of Castle Inc.’s assets, including its customer list and equipment, for $1.2 million. Simultaneously therewith, Castle LLC entered into a consulting agreement with Castaldi. Under the consulting agreement, Castaldi agreed to perform consulting services on a part-time basis. Among other things, Castaldi agreed to solicit business opportunities for the Company and assist in the preparation of formal bids, quotations, and proposals. The term of the agreement was one year from March 16, 2012, through March 15, 2013, and it could be extended for an additional six months at the LLC’s option. If neither party terminated the agreement at the end of the term or extended term, it would automatically be extended on a month-to-month basis until either party elected to terminate it upon 30 days’ written notice to the other party. The agreement provided for Castaldi’s compensation as follows: (a) under Section 5.1, Castaldi would receive commissions of 7½% of the gross amount of all contracts and purchase orders entered into by the Company as a result of Castaldi’s efforts (“Commission”); (b) under Section 5.2, Castaldi would receive Commissions with respect to contracts or purchase orders with clients as a result of Calstaldi’s efforts prior to the transaction (“Prior Dealings”); and (c) under Section 5.3, Castaldi would receive Commissions for any additional, repeat, or new work for which contracts or purchase orders were entered into with the same client(s) during the term of the agreement, regardless of whether Castaldi had any involvement in the procurement or negotiation of such repeat, additional or new business. Pursuant to Section 5.5(c) of the agreement, Castle LLC agreed to furnish Castaldi with a monthly report of all payments and other items credited to his account. Castaldi never received any monthly reports, nor was he ever paid a commission. Consequently, he commenced the action, alleging breach of the consulting agreement. The complaint contained two causes of action against Castle LLC for breach of contract and an accounting, respectively. The third cause of action sounded in fraudulent conveyance and alleged that defendants, Sato Construction Co., Inc. (“Sato”), Flag Waterproofing and Restoration, LLC, and Colao rendered Castle LLC insolvent and unable to satisfy Castaldi’s claims. Following discovery, both sides moved for summary judgment. Defendants contended that they were entitled to dismissal of the complaint because Castaldi did not earn any Commissions under the consulting agreement. Castaldi contended that he was entitled to partial summary judgment on the first cause of action for breach of contract for Commissions earned in the amount of $1,139,098.30. Alternatively, he sought summary judgment on the issue of liability on the first cause of action. The Court’s Decision The Court granted Castaldi’s motion with regard to Section 5.2 of the consulting agreement but denied the motion as to Section 5.1. The Court rejected Defendants’ contention that Castaldi terminated the consulting agreement in a text message that he sent to Calao in May of 2013 in which he stated, “ am finished.” Slip Op. at *2. The Court held that the text message was not authenticated and without evidentiary value: The excerpt of the text message submitted by the defendants is undated and fails to identify either the sender or the recipient. The full text-message exchange submitted by the plaintiff is also undated and fails to identify the parties to the conversation, which is about setting up a meeting. Nothing therein refers to the parties' consulting agreement or even identifies who said, “ am finished.” Accordingly, the unauthenticated text message is without evidentiary value. It is, therefore, insufficient to establish that the consulting agreement was terminated by Castaldi. Id . (citing, among other cases, In the Matter of R.D. , 58 Misc. 3d 780, 786-787 (Family Ct., N.Y. County Dec. 12, 2017) (discussing authentication of text messages)). With regard to Castaldi’s claim for Commissions under Section 5.1 of the consulting agreement, the Court agreed with Defendants that Castaldi failed to perform any consulting services for the Company. Slip Op. at *2. The Court found that Defendants’ argument was supported by Castaldi’s deposition testimony. Id . With regard to Commissions under Section 5.2 of the agreement, the Court held that Castaldi was entitled to receive $50,260.87. In reaching this conclusion, the Court noted that the meaning of Section 5.2 was disputed by the parties. Id . Castaldi claimed that he was entitled to a Commission under Section 5.2 as long as Castle LLC or a related entity entered into a contract or purchase order with someone on the Prior Dealings list. Defendants countered that Castaldi was entitled to a Commission under Section 5.2 only if someone on the Prior Dealings list entered into a contract or purchase order with Castle LLC (not any related entities) and Castaldi was personally involved in the negotiation or procurement thereof before he left the Company. Id . Applying the rules of contract interpretation, the Court found that Section 5.2 applied only “to contracts or purchase orders on the Prior Dealing list entered into by Castle LLC.” Section 5.2 provides that Castaldi shall be paid a commission if the Company enters into a contract or purchase order with a prospective client as a result of Castaldi’s Prior Dealings. The consulting agreement defines the “Company” as “Castle Restoration LLC,” and the words “or any of its affiliates, subsidiaries or related entities,” which are found in § 5.1, are not found in § 5.2. Under accepted canons of contract construction, when certain language is omitted from a provision, but placed in other provisions, it must be assumed that the omission was intentional. Accordingly, the court finds that § 5.2 only applies to contracts or purchase orders on the Prior Dealing list entered into by Castle LLC. Id . at **2-3 (citations omitted). The Court rejected Defendants’ contention that Castaldi had to demonstrate that he was personally involved in the negotiation or procurement of contracts or purchase orders on the Prior Dealings list in order to receive a commission. Id . at *3. “Section 5.2,” said the Court, “explicitly provides that ‘Prior Dealings’ are ‘proposals issued, bids submitted and discussions with prospective clients for which no contracts or purchase orders had been issued by such prospective clients while he was associated with Castle Restoration and Construction Inc.’” Id . “Thus, any contracts or purchase orders that Castle LLC entered into that are on the Prior Dealings list are presumptively the result of Castaldi’s Prior Dealings for which he is entitled to a commission.” Id . Accordingly, concluded the Court, Castaldi “need only show that a contract or purchase order that Castle LLC entered into was on the Prior Dealings list in order to receive a commission therefor.” The Court held that Castaldi was entitled to a commission in the amount of $50,260.87 for two contracts under § 5.2 of the consulting agreement. Castaldi contended that, after execution of the consulting agreement, Castle LLC and Sato entered into numerous contracts or purchase order with entities on the Prior Dealings list for which he was not paid any Commissions. Castaldi submitted a list of 15 contracts and purchase orders for which he claimed Commissions in the amount of $1,139,098.30. The Court found that the record supported the payment of Commissions in connection with two of the 15 projects – only those projects involved contracts entered into by Castle LLC. Id . Defendants did not dispute that Castle LLC entered into the two contracts or that they were on the Prior Dealings list. Id . Accordingly, the Court held that Castaldi was entitled to $50,260.87 in Commissions for both contracts under § 5.2 of the consulting agreement. Id . Takeaway This Blog has often discussed the probative value of emails, in particular in connection with a motion to dismiss under CPLR § 3211(a)(1) – dismissal due to documentary evidence. ( E.g. , here and here .) Castaldi highlights the authenticity concerns courts have with text messages – the electronic cousin of emails. Castaldi also highlights the process courts use to apply the rules of contract interpretation where, as in that case, the parties dispute the meaning of their agreement.The Court rejected Defendants’

Statutes of limitations limit the duration of a defendant’s liability for all types of alleged wrongdoing. Plaintiffs who do not pursue their rights within the limitation period will find the courthouse doors closed to their claims. For this reason, whether the statute of limitations has run can be an important topic of discussion between a lawyer and her client. The statute of limitations for a fraudulent inducement claim is the greater of (a) six years from the date when the cause of action accrued or (b) two years from the time plaintiff discovered the fraud or could with reasonable diligence have discovered the fraud. CPLR § 213(8). The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged” ( Carbon Capital Mgmt., LLC v. Am. Express Co. , 88 A.D.3d 933, 939 (2d Dept. 2011) (citation and alterations omitted)), “even though the injured party may be ignorant of the existence of the wrong or injury.” Schmidt v. Merchants Despatch Transp. Co. , 270 N.Y. 287, 300 (1936). The two-year discovery rule requires an inquiry into “whether a person of ordinary intelligence possessed knowledge of facts from which the fraud could be reasonably inferred.” Kaufman v. Cohen , 307 A.D.2d 113, 123 (1st Dept. 2003) (internal quotation marks and citation omitted); see also Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). “ ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. Eberle , 3 N.Y.2d at 326. “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.” Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978). Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that she has been defrauded, a duty of inquiry arises, and if she fails to undertake that inquiry when she would have developed the truth, and shut her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to her. Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011).  The test as to when fraud should with reasonable diligence have been discovered is an objective one. Id . (citation and internal quotation marks omitted). Thus, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued. See Shalik v. Hewlett Assocs., L.P. , 93 A.D.3d 777, 778 (2d Dept. 2012). “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.” Celestin v. Simpson , 153 A.D. 3d 656, 657 (2d Dept. 2017). The same rules apply to a claim for negligent misrepresentation. 14 Bruckner LLC v. 14 Bruckner Blvd. Realty Corp. , 78 A.D.3d 431 (1st Dept. 2010). The statute of limitations for a breach of contract clam is six years. CPLR 213(2). The “statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury.” ACE Sec. Corp. v. DB Structured Prods., Inc. , 25 N.Y.3d 581, 594 (2015). There are exceptions to the foregoing rules. One exception is the continuing wrong doctrine. Under the doctrine, “where there is a series of continuing wrongs,” the statute of limitations will be tolled to the last date on which a wrongful act is committed. Henry v. Bank of Am. , 147 A.D.3d 599, 601 (1st Dept. 2017).  If the continuing wrong doctrine applies, it “will save all claims for recovery of damages but only to the extent of wrongs committed within the applicable statute of limitations.” Id . (internal quotation marks and citation omitted). The application of the continuing wrong doctrine must “be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct.” Id . It therefore distinguishes “between a single wrong that has continuing effects and a series of independent, distinct wrongs.” Id . (internal quotation marks and citation omitted). Thus, the doctrine is inapplicable where there is one tortious act and “continuing consequential damages” that arise therefrom. Town of Oyster Bay v. Lizza Indus., Inc. , 22 N.Y.3d 1024, 1032 (2013). In contract actions, the doctrine is applied to extend the statute of limitations when the contract imposes a continuing duty on the breaching party. Bulova Watch Co. v. Celotex Corp. , 46 N.Y.2d 606, 611 (1979); King v. 870 Riverside Dr. Hous. Dev. Fund Corp. , 74 A.D.3d 494, 496 (1st Dept. 2010). Thus, where a plaintiff asserts a single breach – with damages increasing as the breach continues – the continuing wrong theory does not apply. Henry , 147 A.D.3d at 601-02. In National Health Care Assoc., Inc. v Liberty Mut. Ins. Co. , 2020 N.Y. Slip Op. 30149(U) (Sup. Ct., N.Y. County Jan. 6, 2020) ( here ), a case involving an alleged widespread and “elaborate” fraudulent insurance scheme (Slip Op. at *1), Justice Andrea Masley of the New York County Supreme Court, Commercial Division, dismissed plaintiffs’ fraud, negligent misrepresentation and breach of contract claims on statute of limitations grounds, holding that the claims were time barred and could not be saved by the discovery rule or any theory of tolling, such as the continuing wrong doctrine. National Health Care Associates, Inc. v. Liberty Mutual Insurance Co. Background Plaintiffs, National Health Care Associates, Inc. (“NHA”), a health care management company, and its 26 corporate nursing home affiliates, brought suit against Liberty Mutual Insurance Company (“Liberty”), Arch Insurance Company (“Arch”), Prism Consultants, LLC (“Prism”), Asher Schoor and Ettie Schoor (“Schoors”; principals of “Prism”), Arlington Insurance Company, Ltd. (“Arlington”), Woodbury CC, LLC (“Woodbury”), Comp Control Insurance Company SPC (“CCIC”) and Comp Control, LLC (“Comp Control”), alleging that the defendants “orchestrated an elaborate, unlawful and fraudulent insurance scheme against” them. Slip Op. at *1. Plaintiffs alleged that defendants engaged in a willful scheme to subvert the insurance laws of New York, Connecticut, Vermont and New Jersey by requiring them to enter into unapproved agreements and letters of credit that substantially altered the rates in plaintiffs’ regulator- approved insurance policies. Plaintiffs alleged that “defendants sold to plaintiffs unapproved workers’ compensation insurance policies masquerading as approved guaranteed cost policies” (“GC Policies”). Id . The Particulars of the Alleged Wrongdoing In 2003, plaintiffs engaged Prism to assist them with their search for workers’ compensation insurance. According to plaintiffs, the Schoors informed them about programs that “utilized a potentially beneficial captive reinsurance structure” (“Programs”), saving plaintiffs money as plaintiffs “would acquire profit-sharing interests in the captive and its underlying segregated cells.” Plaintiffs informed the Schoors that they “would only be interested in the Programs if Plaintiffs were the only insured policyholders, so that Plaintiffs would not be paying for losses at facilities they did not own or manage.” Id . [Ed. Note: As explained by the Court in a footnote (Slip Op. at *3 n.3), “a captive reinsurance structure ‘allows a business to participate in the reinsurance of its liability insurance, thereby sharing in underwriting profits or losses. This structure may involve the creation of a reinsurance company or of a cell in an existing reinsurer ... in which the insured business has an ownership interest.’” “A captive cell, often referred to as a ‘segregated cell’ or ‘segregated account,’ agrees to ‘reinsure a portion of the liability assumed by the business’ insurance. If the insurance is profitable, the business shares in those profits. If not, the business shares in the losses.’” “‘ he assets and liabilities of the captive cell are legally separated from those in the reinsurer’s general account and other cells.’”] In November 2004, the Schoors presented NHA with Liberty’s Programs, which included Liberty’s GC Policies and the captive reinsurance program. The proposal described Liberty’s Programs which included the establishment of Comp Control, purportedly to be owned solely by NHA’s affiliates, to serve as the participant in a segregated cell in Arlington, a captive offshore reinsurer. Relying on the Schoors representations, plaintiffs alleged that they agreed to enter into the Liberty Programs. That same month, Liberty issued GC Policies to plaintiffs under which they paid at least $18 million in premiums to Liberty (2004 to 2008) and at least $59 million in premiums to Arch (2008 to 2015). Liberty conditioned the sale of the GC Policies upon plaintiffs’ entry into the Programs whereby a portion of the risks and premiums were ceded to offshore reinsurers, defendants Arlington (Bermuda) and CCIC (Cayman Island), to write insurance policies without being subject to regulatory review and approval. In turn, Woodbury and Comp Control, the participants of segregated cells in Arlington and CCIC, would become responsible to pay workers’ compensation claims up to the final aggregate premium. To ensure that Woodbury and Comp Control would have enough funds to pay such claims, Liberty required plaintiffs to (1) sign extrinsic documents (“Liberty Extrinsic Agreements”) by which they agreed to Arlington and CCIC reinsuring Liberty’s liabilities, and (2) provide letters of credit (“Liberty LOC”) as collateral for the liabilities of Arlington and CCIC. Plaintiffs posted at least $2.5 million in the Liberty LOC. Starting in 2016, at least $1.09 million had been drawn from the Liberty LOC. On November 24, 2004, the Schoors sent plaintiffs a draft operating and collateral agreement for Comp Control (“Comp Control Operating Agreement”) and represented that plaintiffs would be the sole members in the final agreement. The Schoors also created Woodbury and Comp Control to serve as participants of the segregated cells in Arlington and CCIC, respectively, and executed reinsurance agreements with Liberty on behalf of Comp Control, CCIC, Arlington or Woodbury. However, plaintiffs claimed, the Schoors never implemented plaintiffs’ membership in these entities, and never provided plaintiffs with a fully executed copy of the Comp Control Operating Agreement. In late 2008, the Schoors presented the Arch’s Programs to plaintiffs and stated that the Arch Programs would mirror the Liberty Programs, including the “reinsurance structure, ownership interests and profitability”. Like Liberty, Arch conditioned the sale of the GC Policies upon plaintiffs’ entry into the Programs, whereby a portion of the risks and premiums were ceded to Arlington and CCIC to write insurance policies without being subject to regulatory review and approval. Woodbury and Comp Control would become responsible to pay workers’ compensation claims up to the final aggregate premium. Again, to ensure that Woodbury and Comp Control would have enough funds to pay such claims, Arch required plaintiffs to enter into (1) terms and conditions documents (“Arch TC Agreements”), (2) provide letters of credit (“Arch LOC”), and (3) corporate guarantees (“Arch Guarantees”). Plaintiffs posted at least $7.4 million in the Arch LOC. Starting in 2017, Arch had drawn at least $3.09 million from the Arch LOC. On behalf of Arch, the Schoors presented the Arch TC Agreements to plaintiffs, which set forth the details and requirements of the Arch Programs, including the Arch LOC and Arch Guarantees. Plaintiffs claimed that based on the Schoors’ representations, they entered into the Arch Programs, and the Schoors executed reinsurance agreements with Arch on behalf of Comp Control and CCIC. The Liberty LOC and the Arch LOC were automatically renewed and extended each year, by increasing the face value, though no draws on the LOCs were made at that point. However, plaintiffs said, in October 2015, on behalf of Liberty and Comp Control, Prism demanded additional monies from plaintiffs to pay for losses under the Liberty Programs and threatened to draw on the Liberty LOC, which led plaintiffs to make additional payments to prevent drawing on the Liberty LOC. In November 2015, plaintiffs obtained “loss runs,” which suggested that the Liberty LOC might be used to pay claims at unaffiliated facilities, and when the Schoors were inquired about such loss runs, Asher Schoor denied that Prism billed plaintiffs to pay claims by unaffiliated facilities and told plaintiffs that “National is paying for their own claims.” On March 15, 2016, plaintiffs alleged that they were informed “for the first time” that they neither held any equity/right to receive any net profits in Woodbury and Comp Control, nor in Arlington and CCIC. The Liberty LOC and Arch LOC had been drawn down, and Arch had threatened that it would demand payment under the Arch Guarantees, despite that plaintiffs were “never made participants of the relevant segregated cells of the reinsurance captives.” On April 27, 2018, plaintiffs filed a complaint seeking recovery from defendants based upon their alleged breach of contract, fraudulent representations and violations of state insurance and consumer fraud statutes. Defendants moved to dismiss the claims against them on various grounds, including that the claims were time-barred under applicable statute of limitations. The Court agreed with defendants. The Court’s Decision With regard to the Liberty/ Arlington transactions and related issues, the Court held that plaintiffs were on notice of their claims at least as early as November 2015. The Court explained that such notice was evident from the complaint itself and an affidavit that NHA’s president in a related federal action. First, the Complaint specifically states that, in November 2015, the loss runs showed that, “as of August 2015, Comp Control had paid at least $766,000 related to more than $1,278,000 of incurred losses related to inquires in 2007 and 2008 of 18 employees at three facilities not affiliated with Plaintiffs ....”  Thus, by November 2015, plaintiffs possessed definitive and sufficient knowledge of the fraud or misrepresentation, which constituted more than a “mere suspicion.” Further, in the Federal Action, … NHA’s president, submitted an affidavit which states, in relevant part, “ fter NHA confronted Prism and the Schoors with the LMIC loss runs on November 23, 2015, Asher Schoor continued to incorrectly insist - in spite of this glaring evidence to the contrary- that ‘National is paying for their own claims.’ This statement contradicts plaintiffs' current assertions. Slip Op. at **9-10. The Court rejected plaintiffs’ attempt “to bring their claims within in the applicable limitations period” by arguing that “the fraud and misrepresentation claims did not accrue until the last extension prior to when plaintiffs learned of the fraud because the irrevocable Liberty LOCs deemed to be automatically extended each year unless the issuing bank not to renew.” Id . at *10. Stated differently, the Court rejected plaintiffs’ argument that their fraud and negligence claims were timely under the continuing wrong doctrine (the claims accrued “each time” the Schoors repeated the misrepresentations in each of their annual meetings with plaintiffs, and when additional premiums were paid in the form of Liberty LOC drawdowns as recently as August 2018). Id . The Court held that the automatic renewals and the drawdowns were not a continuing unlawful act; rather the consequence of the alleged fraud or misrepresentation committed in 2004-2008. Id . at **10-11. For the same reasons as the Liberty/Arlington transactions, the Court dismissed the fraud and negligent misrepresentation claims with regard to the Arch transactions and related issues and the Prism group transactions and related issues. Id . at **12-13. With regard to the breach of contract claims, the Court applied the same analysis and found the claims to be time-barred. Id . at **14-16. Plaintiffs maintained that their breach of contract claims were not time barred because (1) a new breach accrued when the Liberty LOCs were automatically extended; and (2) Liberty’s continuing wrong delayed the accrual of the claim until their final wrong in August 2018 (the recent drawdown on the Liberty LOCs). The Court noted that the automatic renewal/extension of the Liberty LOCs and their drawdowns in 2015-2018 did not renew the running of the statute of limitations because neither the extension/renewal nor the subsequent drawdowns constituted new or independent wrongs that would restart the running of the statute. Id . at *15. The Court explained that this finding was consistent with the holding of the Court of Appeals in which the Court held that the discovery rule does not apply to the statutes of limitations in contract actions. Id . (quoting ACE Sec. Corp. v. DB Structured Prods., Inc. , 25 N.Y.3d 581, 594 (2015)). Takeaway The continuing wrong doctrine is based on the continuation of unlawful acts; it is not based on the continuing effects of earlier unlawful conduct. The distinction, therefore, is between a single wrong that has continuing effects and a series of independent, distinct wrongs. Henry v. Bank of Am. , 147 A.D.3d 599, 601 (1st Dept. 2017) (citation and internal quotation marks omitted). National Health Care makes clear that plaintiffs will not be able to toll the statute of limitations when application of the doctrine is dependent upon the continuing harm incurred by the alleged wrongdoing.