Allegations of fraudulent inducement come in many contexts. Today, this Blog looks at a fraudulent inducement claim in the context of a merger. Kainz v. Bernstein , No. 19 Civ. 2499 (LLS) (S.D. N.Y. Nov. 13, 2019) ( here ). As this Blog has noted, one of the more challenging elements of a fraudulent inducement cause of action for a plaintiff to satisfy is the justifiable reliance element. To satisfy this element, a plaintiff must demonstrate that he/she exercised the means of knowing, by the exercise of ordinary intelligence, the truth, or the real quality, of the subject of the representation being challenged. See Schlaifer Nance & Co. v. Estate of Warhol , 119 F.3d 91, 98 (2d Cir. 1997). If the plaintiff fails to “make use of those means,” he/she “will not be heard to complain that was induced to enter into the transaction by misrepresentations.” Id . (citation and internal quotation marks omitted). However, when the truth of the representations at issue are “peculiarly within defendant’s knowledge,” the plaintiff may rely on the representations “without prosecuting an investigation,” because he/she “would have ‘no independent means of ascertaining the truth.’” Ward v. TheLadders.com, Inc. , 3 F. Supp. 3d 151, 166 (S.D.N.Y. 2014) (quoting Crigger v. Fahnestock & Co. , 443 F.3d 230, 234 (2d Cir. 2006)). The foregoing principles were at issue in Kainz . As discussed below, the Court found that Kainz could not have justifiably relied on any representation alleged to be false because the information that undergirded the representation was publicly available. Kainz v. Bernstein Background Plaintiff, Roman Kainz (“Kainz”), alleged violations of the federal securities laws, breach of contract, and fraud in the inducement in connection with the merger of XpresSpa Holdings, LLC and XpresSpa Group, Inc. (the “Merger”). XpresSpa Holdings, LLC (“XpresSpa Holdings”) was an airport spa business in which Kainz held an equity interest of less than five percent. On August 8, 2016, XpresSpa Holdings executed an agreement (the “Merger Agreement”) with defendant, XpresSpa Group, Inc. (“XpresSpa Group”). Under the Merger Agreement, unitholders representing 95 percent of XpresSpa Holdings units were required to join the Merger Agreement by signing a joinder agreement (the “Joinder Agreement”). On December 23, 2016, the Merger closed. As a result, Kainz’s interest in XpresSpa Holdings was exchanged for XpresSpa Group shares. Kainz alleged that defendants made numerous misrepresentations and omissions concerning the Merger that induced him to sign the Joinder Agreement and become a party to the Merger Agreement. In particular, Kainz alleged that defendant, Bruce T. Bernstein (“Bernstein”), falsely represented in an email on December 27, 2016, that “ ithout signing the Joinder Agreement, you will not be able to receive the new securities in Form that will be given in exchange for the Xspa shares.” In reliance on defendants’ misrepresentation and omissions, including the December 27, 2016 email, Kainz executed the Joinder Agreement. Kainz claimed that he was purportedly damaged when XpresSpa Group’s stock price fell after the Merger when the truth about the company was revealed ( i.e. , that the XpresSpa Group was essentially a shell with no genuine, ongoing business or capital and subject to onerous loan covenants and a self-interested, conflicted board of directors). Defendants moved to dismiss the complaint for failure to state a claim upon which relief could be granted.  The Court granted the motion. The Court’s Decision The Court found that Kainz’s fraud claims were deficient for two reasons: he failed to plead loss causation and he failed to demonstrate justifiable reliance. The Court observed that Kainz’s failure to specify the date on which he signed the Joinder Agreement was fatal to his claim that the December 27, 2016 email induced him to sign the agreement and become a party to the Merger Agreement. If Kainz “signed the Joinder Agreement before the merger closed ,” said the Court, “he could not have relied on Mr. Bernstein’s statement, which did not occur until four days later.” On the other hand, the Court explained, if “Kainz signed the Joinder Agreement after Mr. Bernstein’s email and after the merger had already closed , his interest in XpresSpa Holdings would by then have been exchanged for XpresSpa Group shares regardless of whether or not he signed it.” Thus, concluded the Court, “Bernstein’s statement could not have been the cause of the decreased value of Mr. Kainz’s XpresSpa Group shares.” Moreover, noted the Court, Kainz could not demonstrate justifiable reliance. As noted, Kainz alleged that in the December 27, 2016 email, Bernstein misrepresented the fact that Kainz would not receive shares of XpresSpa Group in exchange for his equity interest in XpresSpa Holding unless he signed the Joinder Agreement. The Court explained that the truth of the representation was available to Kainz had he looked because it was “disclosed in both the Merger Agreement and XpresSpa Group’s Form S-4 that was publicly filed with the SEC.” “Thus,” concluded the Court,” “Kainz had the independent means to know that he did not need to sign the Joinder Agreement, and reliance on Mr. Bernstein’s statement was unreasonable.” Takeaway Kainz reinforces the principle that a party claiming to be the victim of fraud has an obligation to learn the truth about the statements and representations upon which he/she relied. Courts show little patience for parties that have the means to conduct such an investigation and fail to do so. This is especially so for sophisticated parties. And, as shown in Kainz , courts will not find justifiable reliance on alleged false statements when the truth can be learned through publicly available information.

Economic duress, like duress, generally, provides an injured party with grounds to void a contract. Proof of the existence of economic duress requires a showing that one party to a contract has threatened to breach the agreement by withholding performance unless the other party agrees to some further demand. A party cannot be guilty of economic duress, however, for refusing to do that which it is not legally required to do or for threatening to do that which it is legally authorized to do. Thus, a plaintiff is not entitled to rescind a contract on the ground of economic duress where the harm alleged by the plaintiffs is the exercise of a legal right. A party seeking to void a contract on the basis of economic duress must show that he/she was compelled to agree to it because of a wrongful threat precluding the exercise of his/her free will. Austin Instrument v. Loral Corp. , 29 N.Y.2d 124, 130 (1971). See also 16 N.Y. Jur. 2d Cancellation of Instruments § 22 (“Economic duress is also not present where one party offers the other a business arrangement that the offeree is free to accept or reject”). An aggrieved party can demonstrate the existence of economic duress by proving that the other party(ies) to the contract “has threatened to breach the agreement by withholding performance unless the party agrees to some further demand.” 805 Third Ave. Co. v. M.W. Realty Assoc. , 58 N.Y.2d 447, 451 (1983) (citation omitted). Importantly, a mere threat to breach a contract does not constitute economic duress if the party who has been threatened can obtain performance of the contract from another source and pursue normal legal remedies for a breach of contract. Austin Instrument , 29 N.Y.2d at 130-131. The party relying on economic duress has the burden of proving that the agreement could not have been performed by another party. In CRG at Arnot Mall, Inc. v. Feehan , 2019 N.Y. Slip Op. 08467 (3d Dept. Nov. 21, 2019) ( here ), the Appellate Division, Third Department, addressed the economic duress doctrine in a dispute over the purchase and sale of four McDonald’s restaurants, holding that the doctrine did not apply. CRG at Arnot Mall, Inc. v. Feehan Background In March 2014, plaintiffs, CRG at Arnot Mall, Inc., CRG at Main Street, CRG at Southport, Inc. and CRG at Horseheads, Inc. (collectively, “CRG”), and Coastal Restaurant Group, Inc., the parent of CRG, and defendant, Courtney Feehan (“Feehan”), entered into a purchase and sale agreement whereby Feehan would purchase four McDonald’s restaurants that were owned and operated by CRG. According to the agreement, the closing would take place on May 6, 2014, and $300,000 would be held in escrow as security for CRG’s obligations. The agreement also provided that the purchase price would be $4.2 million, plus the value of the inventory at the time of the sale. Feehan, however, would be entitled to a credit for required reinvestments, the amount of which would be determined following an inspection under McDonald’s Capital National Restaurant Business and Equipment Standards program (in which a McDonald’s representative would inspect and identify any capital improvements needed to meet franchise standards) and by items put on a punch list by the parties. The amount of the reinvestment credit was anticipated to be approximately $200,000. In April 2014, McDonald’s inspected the four restaurants and determined that the reinvestment amount was approximately $725,000 for all of them. On May 5, 2014, the day before the scheduled closing, a final walk through of the restaurants was conducted and a punch list was created. The required repairs under the punch list was estimated to cost approximately $120,000. That same day, CRG and Feehan entered into an amendment to the agreement that, as relevant to the appeal, changed the purchase price from $4.2 million to $3.85 million and eliminated the reinvestment credit available to Feehan. Feehan thereafter assigned her rights under the agreement and the amendment to defendants Cayuga Arnot Mall LLC, Cayuga Grand Central LLC, Cayuga N. Main LLC and Cayuga Southport, LLC (wholly owned subsidiaries of Cayuga Restaurant Group, a management company of which Michael Feehan, Feehan’s spouse, is the president). In August 2014, plaintiffs commenced the action seeking, among other things, the release of the $300,000 held in escrow, in addition to an inventory payment of $65,868.13 as required under the agreement. Defendants answered and sought, as its fourth counterclaim, to have the amendment to the agreement declared void. Thereafter, plaintiffs moved for summary judgment, arguing that they were entitled to the $300,000 held in escrow and the inventory payment and that defendants’ counterclaims should be dismissed. Defendants opposed and cross-moved for, among other things, summary judgment on their fourth counterclaim. In October 2018, the motion court, among other things, granted defendants’ cross motion for summary judgment on its fourth counterclaim. In finding the amendment void, the court awarded defendants $172,775 of the $300,000 placed in escrow – an amount representing what defendants overpaid as a consequence of the amendment. The court also granted other parts of defendants’ cross motion seeking summary judgment on their counterclaims and awarded them $20,455.98 from the escrow funds. As to plaintiffs’ motion, the court granted it to the extent of awarding them the remaining balance of the escrow funds. Finally, the court did not award counsel fees in favor of any party. Plaintiffs appealed. The Third Department’s Decision The Court modified the motion court’s order by reversing the portion that (1) denied plaintiffs’ motion for summary judgment (a) on its claim for the $65,868.13 inventory payment and (b) dismissing defendants’ fourth counterclaim, and (2) granted defendants’ cross motion for summary judgment on its fourth counterclaim. In reversing the dismissal of defendant’s fourth counterclaim, the Court rejected defendants’ contention that they were economically forced to close the transaction. Defendants maintained that CRG wrongfully threatened not to go forward with the closing unless Feehan agreed to amend the agreement. In this regard, Feehan testified that she was “extorted.” Plaintiffs countered, arguing that the amendment was the product of a sophisticated negotiation between the parties. The Court agreed with plaintiffs, finding that the agreements at issue were the product of extensive discussions among the parties. Slip Op. at *1. Thus, held the Court, defendants were not under economic duress at the time they agreed to the amendment, as the motion court found. Id . The Court explained that “although the documentary evidence demonstrate that defendants would have lost their financing if the closing did not take place on May 6, 2014,” that fact was not conveyed to CRG’s counsel until May 5, 2014. Slip Op. at *1. The Court observed that there was nothing in the record to show that CRG “leveraged this fact in order to secure the amendment. Nor the record indicate that put defendants in the position of losing their financing by a particular date.” Id ., citing Edison Stone Corp. v. 42nd St. Dev. Corp. , 145 A.D.2d 249, 256 (1st Dept. 1989). The Court also held that the record failed “to establish that other legal remedies were not available to defendants.” Slip Op. at *1. The Court pointed to testimony by Michael Feehan that he and Feehan had explored their options before agreeing to the amendment, i.e. , “whether to take possession of the restaurants and then sue to have the original agreement enforced or not to take possession and then sue plaintiffs for specific performance.” Id . The Court explained that “ ecause defendants could resort to legal recourse, they claim economic duress.” Id . (citations omitted). Takeaway The doctrine of economic duress requires the party asserting it to demonstrate that the duress involved a wrongful act and that he/she had no reasonable alternative. If the party asserting the defense has a reasonable alternative, the doctrine is unavailable to him/her. As noted, according to the CRG Court, the record showed that Feehan not only had alternatives but weighed them before deciding on a course of action.

Referees are frequently appointed by New York courts.  The fees to which an appointed referee is entitled are generally governed by Rule 8003 of the New York Civil Practice Law and Rules (“CPLR”). CPLR 8003(a) presently provides that: A referee is entitled, for each day spent in the business of the reference, to three hundred fifty dollars unless a different compensation is fixed by the court or by the consent in writing of all parties not in default for failure to appear or plead. Referees can be appointed for a variety of different reasons.  As one court noted in describing the types of references to which CPLR 8003(a) applies: This section is applicable to all kinds of references in which an attorney is enlisted by the court to resolve a limited issue upon evidence submitted, including proceedings involving, e.g., the assessed value of property ( O'Dwyer v. Robson , 103 AD2d 1036 (4th Dep't, 1984)), the determination of counsel fees ( Albano v. Albano , 2003 WL 21911128), an accounting upon the dissolution of a business relationship ( Pittoni v. Boland , 278 AD2d 396 (2d Dep't, 2000), as well as the sale of real property in foreclosure actions. NYCTL 1998-2 Trust v. Kahan , 9 Misc.3d 1119(A), 862 N.Y.S.2d 809, at *1 (Sup. Ct. Kings Co. 2005). In mortgage foreclosure actions (a frequent topic of this Blog (< here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> < here =">here"> ), referees are typically appointed to: (1) calculate the amounts due to a lender; and, (2) sell the foreclosed property.  In Wells Fargo Bank, N.A. v. Brown , (Sup. Ct. Suffolk Co. October 28, 2019), the court was called upon to decide the quantum of fees to which a referee was entitled.  The referee in Wells Fargo (the “Referee”) was appointed to “compute the amount due and owing under the mortgage and execute the sale of the Property.”  Wells Fargo , at *2.  While acting in his appointed capacity, the Referee was sued numerous times by the defaulted borrower.  As a result, the Referee, who was the managing partner of a law firm, was forced to defend himself, and prevailed, in the actions – all of which were determined to be frivolous.  In so doing, the Referee incurred significant legal fees and expenses. The court decided the Referee’s motion for an “Award of Referee’s Fees and Reimbursement of Legal Fees” by setting the matter down for an evidentiary hearing, at which the Referee presented “credible” evidence of the amounts claimed by him to be due. Wells Fargo , at *2.  The next question for the court was “how much compensation the Referee should be entitled to regarding such fees relating to the mortgage foreclosure and the defense of the aforementioned litigation proceedings.”  Wells Fargo , at *2.  The court stated that “the issue at bar is to determine what is considered ‘reasonable’” based on CPLR 4321(1), which provides that “ n order or a stipulation for a reference shall determine the basis and method of computing the Referee’s fees and provide for their payment.  The court may make an appropriate order for the payment of the reasonable expenses of the referee….”  Wells Fargo , at *2. The court then set forth the following seven factors to consider when determining the reasonableness of legal fees: “(1) complexity of the matter; (2) time and labor required; (3) attorney’s experience and reputation; (4) amount in controversy; (5) normally charged attorney’s fees for similar work; (6) results of the attorney’s actions; and (7) attorney’s responsibility.”   Wells Fargo , at *2 – 3.  The court also noted that the “Loadstar-the product of a reasonable hourly rate and the reasonable number of hours required-creates a presumptively reasonable fee.”  Wells Fargo , at *2 - 3 (citations and internal quotation marks omitted).  According to the “forum rule,” which the court noted it must “adhere” to, a reasonable hourly rate must take into consideration, the “prevailing in the community.”  Wells Fargo , at *3 (citation omitted). Using the Loadstar approach, the court found that the Referee’s claim for legal fees and expenses in the approximate amount of $139,000.00 was fair and reasonable because he had to, inter alia , defend three frivolous lawsuits.  After all, “ t has long been established that frivolous lawsuits typically warrant the awarding of Attorney’s fees as damages to the innocent party as compensation for having to defend themselves over such a matter.”  (Citation omitted.) Notwithstanding the court’s finding of reasonableness of the requested legal fees and the decided frivolity of the litigations brought against the Referee that he was forced to defend, the court found that there “is, however, a statutory impediment to award which overrides the general principles enunciated in the case law .”  Wells Fargo , at *7.   The court, in ultimately determining that absent an order authorizing enhanced fees in advance, compensation was limited to the statutory fee, stated: The Plaintiff argues that the Referee cannot receive an enhanced fee because it was not authorized in the Order of Reference, citing to CPLR 8003 and Matter of Charles F., 242 AD2d 297, 660 N.Y.S.2d 594 <2 nd dept.1997> nd dept.1997>. The Court therein held: "...since the record does not contain any agreement concerning the Referee's compensation which was made prior to the Referee's performance of his duties, the Referee's fee must be limited to the statutory per diem fee of $50 (see, CPLR 8003 ; Majewski v Majewski, 221 AD2d 420; Neuman v Syosset Hosp. Anesthesia Group, 112 AD2d 1029)." (Id. at 298). In the case of NYCTL 1998-2 Tr. v. Kahan, 9 Misc. 3d 1119(A), 862 N.Y.S.2d 809 (Sup. Ct. Kings Co. 2005), Justice Demarest described, with great eloquence, the public policy dangers in allowing Referees to remain under compensated. Despite these concerns, however, she ultimately held that CPLR 8003 constrained the Court to find that it was impermissible to award "...payment in excess of $50.00 per day...without written agreement or prior court authorization." (Id.). This rule cannot be circumvented by authorizing enhanced compensation nunc pro tunc. (Id.). As noted in Scher v. Apt, 100 A.D.2d 582, 583, 473 N.Y.S.2d 521 (2 nd Dept. 1984) "...the statutory per diem rate should apply under ordinary circumstances unless a different rate has been fixed at some preliminary point in the proceeding." ( Id. at 583). Wells Fargo , at *7 – 8. Thus, the court found that “a fair reading of the Order of Reference appointing confirms the lack of authorization for a fee in excess of the $50.00 per diem provided in CPLR 8003.” Wells Fargo , at *8.  The court also noted that the statutory fee set forth in CPLR 8003(a) has been increased to $350 since the Referee’s appointment in Wells Fargo , but there is no indication in the statute or legislative history that the higher fee was to be applied retroactively.  Wells Fargo , at *8 . In calculating the Referee’s compensation, the court stated: The $50.00.00 (sic) compensation can be awarded, not just for the date of sale, but "...for each day spent in the business of the reference..." (CPLR 8003 ). We agree with the Kahan Court that this applies to each day that devoted himself to perform "some aspect" of his "duties as Referee to sell" (NYCTL 1998-2 Tr. v. Kahan, supra). This Court finds that appearing in Federal and State Court to defend his actions as a Referee clearly come within the scope of duties for which he is eligible to be compensated. Wells Fargo , at *8.  Based on this analysis, the court found that the $50.00 per diem rate should be applied to the Referee’s 156 days of work, for a total of $7,800.00.  The court also awarded the Referee reimbursement of $2,449.51 in expenses that were “separate and distinct from the fees addressed in CPLR 8003 and can also be awarded.” In noting the great disparity between the fees the Referee sought and the amount he was awarded, the court stated: The Court is mindful that this sum is but a fraction of the amount requested by the Referee and what the Court found to be a reasonable reflection of his considerable legal services in this case. The operative Statute, however, is absolute and so learned Counsel must be consoled with the truth found in the words of the immortal poet Katherine Philips: "So honour is its own reward and end." Wells Fargo , at *8.  Thus, while the Referee lost out on a $139,000.00 fee, he did get $7,800 and “honour.”  So, to quote Bill Murray’s character from Caddyshack , “at least the Referee has that going for him – which is nice.”

A partnership is an association of two or more persons to carry on as co-owners of a business for profit. Partnership Law § 10(1). Typically, a partnership is memorialized in some type of writing, such as a partnership agreement. When, as in Giffuni v. Towler , 2019 N.Y. Slip Op. 51824(U) (Sup. Ct., Suffolk County Nov. 15, 2019) ( here ), there is no written partnership agreement between the parties, the court must determine whether a partnership-in-fact existed from the conduct, intention, and relationship between the parties. Brodsky v. Stadlen , 138 A.D.2d 662, 663 (2d Dept. 1988). In analyzing whether a partnership-in-fact exists, courts consider a number of factors, including, but not limited to: the sharing of profits and losses, the ownership of partnership assets, joint management and control, joint liability to creditors, the intention of the parties, compensation, the contribution of capital, and loans to the organization. Id . Significantly, no one characteristic of a business relationship is determinative in finding the existence of a partnership-in-fact. Id . Giffuni v. Towler Giffuni involved an alleged agreement to pursue the acquisition of two related companies – Avery Biomedical Devices, Inc. (“Avery”) and Pinnacle Bionics, Inc. (“Pinnacle”) – as equal partners. Plaintiff maintained that the arrangement constituted a partnership, while defendants contended that none of the factors discussed above support the formation of a partnership-in-fact. Background Plaintiff, Christopher Giffuni (“Giffuni”), is a certified public accountant. Avery, which designed and manufactured medical devices, was one of his clients. Avery was owned by Claire Dobelle until her death in 2015. After Claire Dobelle died, ownership of Avery passed to her children, the defendants Martin, Miriam, and Molly Dobelle (the “Dobelle Defendants”). Martin Dobelle also owned a controlling interest in Pinnacle. Defendant Anthony Martins (“Martins”) was a long-time employee of Avery and a minority shareholder of Pinnacle.. Defendant Dilys Marion Gore (“Gore”) was another long-time employee of Avery. In 2014, Martin Dobelle approached Plaintiff about selling Avery and Pinnacle. Plaintiff then approached defendant Linda Towler (“Towler”), Avery’s Chief Financial Officer, about buying Avery and Pinnacle together. To that end, they drafted a non-binding letter of intent, dated April 29, 2014, which they sent to Claire and Martin Dobelle. In it, Plaintiff and Towler (or an entity formed by them) proposed to acquire substantially all of the stock of Avery and Pinnacle “for $5 to $8 million dollars in total to be further determined, negotiated, and allocated<.> ” The letter of intent indicated that, except for certain specified provisions, it did not constitute a legally binding or enforceable agreement and that a binding commitment would only result if and when the parties entered into a definitive agreement. The Dobelles made a counterproposal that was unacceptable to Towler, who no longer wished to proceed. However, in a subsequent letter of intent dated May 8, 2014, Plaintiff and Towler proposed an alternative arrangement in which they would become partners with Claire Dobelle and “raise the necessary working capital for the continuation and success of Avery<.> ” Under this arrangement, Plaintiff, Towler, and Claire Dobelle would become full partners, with Claire Dobelle contributing Avery’s assets and Plaintiff and Towler contributing their expertise, know-how, and financing. Like the previous letter of intent, it was not legally binding, except for certain specified provisions, and it contemplated the preparation of a formal, definitive agreement once the due diligence was completed. On or about May 22, 2014, Towler again decided that she did not wish to proceed. The Dobelles subsequently tried to sell Avery and Pinnacle to a third party. Those negotiations continued into early 2015 and were discontinued when Claire Dobelle died in March of that year. Afterwards, Plaintiff and Towler renewed their proposal to purchase Avery and Pinnacle together. To that end, they retained an attorney to represent them. Counsel drafted a letter of intent dated April 24, 2015, that was sent to Martin Dobelle. In it, he outlined the preliminary terms and conditions under which Plaintiff and Towler, or an entity to be formed by them, proposed to acquire all of the assets of Avery and 51% of the capital stock of Pinnacle. The letter of intent, like the previous ones, was not binding, except for certain specified provisions, unless and until the execution and delivery of “a purchase agreement in form and substance mutually acceptable to each party and their counsel” and completion of the buyers’ due diligence. The purchase price was $3 million ($2.5 million for the Avery assets and $500,000 for the Pinnacle stock), $500,000 of which was to be paid in cash at the closing. The balance was to be paid pursuant to two promissory notes that would be personally guaranteed by Plaintiff and Towler, jointly and severally. The letter of intent was signed by Plaintiff and Towler individually and by Martin Dobelle in both his individual and corporate capacities. By the end of May 2015, Towler had changed her mind about working with Plaintiff. She no longer wished to move forward with the deal because she did not think they could work together anymore. She so advised Plaintiff on May 26, 2015. Thereafter, Plaintiff and Towler agreed that Plaintiff would pursue the transaction alone (assuming he could obtain financing), Towler would serve as CFO of the company, and Plaintiff would give Towler a 5% interest in the company. On June 1, 2015, Plaintiff and Towler sent an email to Martin Dobelle in which they advised him of the arrangement. On June 11, 2015, counsel prepared and emailed a draft employment agreement to Plaintiff and Towler. Towler refused to sign it because it contained too many onerous restrictions. In addition to not allowing her to write checks or enter into contracts over $10,000, the agreement did not provide for raises; it limited her authority; it did not provide for standard perqs, such as a cell phone; it took away her benefits after a year, and it contained a 5-year restrictive covenant, among other things. In an email to Towler the next day, Plaintiff claimed that counsel had accidentally removed the 5% ownership interest from the draft, and he sent Towler the language that purportedly had been left out. Towler responded that Plaintiff had failed to address the agreement’s other deficiencies. She concluded, “There is absolutely no upside to me signing this contract.” The closing, which was scheduled for June 15, 2015, did not take place. In an email dated June 17, 2015, Martin Dobelle advised Plaintiff that Gore had approached Towler about an employee takeover “some time ago.” He also advised Plaintiff that, when he and Towler came to the conclusion that they could not work together, Towler spoke to Gore and Defendant Anthony Martins about an employee takeover. Dobelle went on to say that he worked out a deal with Gore, Towler and Martins, which he was going to pursue instead of the one he had with Plaintiff. Towler, Gore, and Martins ultimately formed GMT Holdings, Inc., to purchase Avery and Pinnacle as 100% shareholders. The sale closed on July 1, 2015. The action ensued. Plaintiff sued Towler for breach of fiduciary duty and fraud, and the other defendants for aiding and abetting Towler’s breach of fiduciary duty and fraud, and all defendants for an accounting, unjust enrichment, a declaratory judgment and a constructive trust. Following discovery, Towler, Gore, and Martins moved for summary judgment. The Court granted the motion. The Court’s Decision Since most of the causes of action were predicated on the existence of a partnership ( i.e. , a fiduciary relationship), the Court addressed that issue first. Looking at the factors identified above, the Court held that there was no partnership between Giffuni and Towler. Profits and Losses The Court found that contrary to Plaintiff’s contention, Giffuni and Towler were not 50/50 partners in any acquisition of Avery and Pinnacle and did not agree to share the profits and losses of the businesses equally. In this regard, the Court noted that the proposed employment agreement given to Towler provided that she would “receive only 5% of the profits”; it did not contain any “provision for the sharing of losses.” Slip Op. at *3.  This was significant because “ n employer-employee relationship providing for the division of profits not give rise to a fiduciary relationship (in this case, a partnership) absent an agreement to also share losses.” Id ., citing Vitale v. Steinberg , 307 A.D.2d 107, 108 (1st Dept. 2003). The Court noted that “ n agreement that an employee shall share in the profits of the business as entire or partial compensation for her services is a contract of mere hiring, providing for compensation in a particular manner in order to induce greater energy and faithfulness on the part of the employee.” Id ., citing Vitale at 109-110. “When an employee is not required to make good on negative amounts,” explained the Court, “losses are shared in only the broadest sense. Such an expansive interpretation of losses renders meaningless the distinction between ‘sharing profits’ and ‘sharing losses,’ and no trust or fiduciary relation is created.” Id ., citing Vitale at 109-110. “Accordingly,” held the Court, “this factor weigh in favor of the defendants.” Id . Ownership of Partnership Assets The Court noted that the record “reflect that the purported partnership never acquired any assets. While the plaintiff and Towler sought to acquire Avery’s assets and Pinnacle’s stock, … the acquisition was never completed.” Slip Op. at *3. In fact, said the Court, relying on the nonbinding letters of intent, Plaintiff and Towler “never even had a contractual right to acquire Avery’s assets and Pinnacle’s stock.” Id . “Accordingly,” concluded the Court, “this factor weigh in favor of the defendants.” Joint Management and Control The Court found that the record supported joint efforts by Plaintiff and Towler with respect to the acquisition, noting that Plaintiff and Towler “worked on various aspects of the proposed acquisition together and that the plaintiff even participated in the management of Avery and Pinnacle, including hiring personnel and taking charge of research and development, among other things.” Id . “Accordingly,” held the Court, “this factor weigh in favor of the plaintiff.” Id . Joint Liability to Creditors and Loans to the Organization The Court found that, under the circumstances, there were no loans made to the alleged partnership, nor was there any joint liability to creditors. Slip Op. at *4. Only Plaintiff secured a loan to finance the acquisition of Avery. The loan was not made to any partnership with Towler. In any event, no loan agreement or promissory note was ever executed, and there was no evidence in the record that Towler agreed to be jointly liable with Plaintiff on the loan. Slip Op. at **3-4. “Accordingly,” held the Court, “these factors weigh in favor of the defendants.” Slip Op. at *4. Contribution of Capital Since the record did not reflect any contributions of capital to the alleged partnership by either Giffuni or Towler, the Court found the factor to weigh “in favor of the defendants.” Compensation While the parties disputed the reasons why Avery compensated Giffuni, they did not dispute that it was paid by Avery and not by the purported partnership. The Court noted that “ he purpose of the purported partnership between the plaintiff and Towler was not to carry on a business for profit, but to acquire a profit-making business. It, therefore, did not generate any profits from which to pay either the plaintiff or Towler. Both were paid by Avery, the business that the plaintiff and Towler sought to acquire.” Slip Op. at *4. Thus, “ n the absence of any compensation from the alleged partnership itself, the court that this factor weigh in favor of the defendants.” Id . Intention of the Parties The Court observed that “ hile the plaintiff and Towler expressed an intent to form an entity to acquire Avery and Pinnacle at some time in the future, they never came to a meeting of the minds on the issue.” Id . All three letters of intent, said the Court, clearly indicated that, except for certain specified provisions, they were not legally binding and contemplated the preparation and execution of a more definitive agreement. Nothing in the letters “indicated that the plaintiff and Towler were already partners.” Id . In fact, noted the Court, “ wo of the three letters referred to an entity to be formed by them, indicating that no such entity had yet been formed” and “no certificate of doing business as partners was filed in connection with the purported partnership, as required” by General Business Law § 130(1)(a). Id . The Court rejected Giffuni’s argument that he and Towler held themselves out as partners – in effect, making a partnership-by-estoppel argument. Id . Accordingly, the Court found “this factor weigh in favor of the defendant.” “In sum,” concluded the Court, “the record reflects that, although the plaintiff and Towler jointly sought to acquire Avery and Pinnacle, their efforts did not rise to the level of a partnership. That the parties worked together on the proposed acquisition and participated in the management of Avery and Pinnacle, without more, is insufficient to create a partnership.” Id . Takeaway As noted by the Court, “ he ultimate inquiry is whether the parties have so joined their property, interests, skills, and risks that, for the purpose of the particular adventure, their respective contributions have become as one and the commingled property and interests of the parties have thereby been made subject to each of the associates on the trust and inducement that each would act for their joint benefit.” Id . (citation omitted). In Giffuni , the Court found that the case did “not reveal such an amalgam of property interests.” Id . Instead, the record showed that Giffuni and Towler merely had a community of interest and a common economic objective, both of which created nothing more than a contractual obligation. Slip Op. at **4-5. The Court held that such attributes alone were insufficient to create the existence of a partnership-in-fact.

On November 15, 2019, the Appellate Division, Fourth Department, issued a decision involving the impact, if any, of a bankruptcy discharge on a subsequent foreclosure proceeding – an issue, the Court observed, it had not previously addressed. In Wilmington Sav. Fund Socy., FSB v. Fernandez , 2019 N.Y. Slip Op. 08290 (4th Dept. Nov. 15, 2019) ( here ), the Court held that, absent terms in the mortgage to the contrary, a discharge in bankruptcy does not automatically accelerate the debt owed by the mortgagor and that the terms of the mortgage survive the bankruptcy. Background On August 17, 2007, defendant, Julian M. Fernandez (“Fernandez”), executed a note in favor of a lender in the amount of $94,400, plus interest, payable in successive monthly installments with the final payment to be made on January 4, 2031. Defendant secured payment of the note with a mortgage encumbering certain real property. On December 8, 2009, Fernandez filed a petition for Chapter 7 bankruptcy protection. Approximately three months later, on March 15, 2010, Fernandez received a discharge in bankruptcy. On April 1, 2010, Fernandez obtained a final bankruptcy decree. On May 26, 2017, plaintiff, the successor to the lender, sent Fernandez notice that he was in default and that Fernandez had 90 days to cure the default. After receiving no payment during the following 90 days, plaintiff accelerated the remaining balance due under the note and, on November 1, 2017, plaintiff commenced an action seeking to foreclose on the mortgage. In his answer, Fernandez raised, inter alia , the statute of limitations as an affirmative defense. Thereafter, defendant moved to dismiss the complaint pursuant to CPLR § 213(4) and CPLR § 3211(a)(5). The motion court granted defendant’s motion, reasoning that defendant’s March 15, 2010 discharge in bankruptcy triggered the six-year statute of limitations ( see CPLR § 213(4)), and that plaintiff failed to commence its foreclosure action within that period. Plaintiff then moved for leave to reargue, and defendant cross-moved to quiet title. The motion court granted plaintiff’s motion for leave to reargue, and ultimately held that defendant’s discharge in bankruptcy did not extinguish plaintiff’s right to commence an in rem foreclosure proceeding against defendant, that the statute of limitations began to run from the date each unpaid installment became due unless plaintiff accelerated the debt, and that plaintiff’s action was therefore timely because the debt had not been accelerated prior to 2017. Thus, on reargument, the motion court reversed its prior determination, denied defendant’s motion to dismiss the complaint, reinstated the complaint, and denied defendant’s cross motion to quiet title. The Fourth Department affirmed. The Court’s Decision As an initial matter, the Court discussed the rules governing the statute of limitations involving a mortgage payable in installments: “With respect to a mortgage payable in installments, separate causes of action accrue[] for each installment that is not paid, and the statute of limitations begins to run, on the date each installment becomes due” ( Wells Fargo Bank, N.A. v Burke , 94 AD3d 980, 982 <2d dept 2012> ; see Ditech Fin., LLC v Corbett , 166 AD3d 1568, 1568 <4th dept 2018> ). Nevertheless, “even if a mortgage is payable in installments, once a mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire debt” ( EMC Mtge. Corp. v Patella , 279 AD2d 604, 605 <2d dept 2001> ; see Ditech Fin., LLC , 166 AD3d at 1568). “Where the acceleration . . . is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation” ( Wells Fargo Bank, N.A. , 94 AD3d at 982-983). Slip Op. at **1-2. Applying these principles, the Court held that the statute of limitations had not run because “the mortgage provided plaintiff the option to accelerate the debt under certain circumstances, did not state that the debt would be automatically accelerated if defendant obtained a discharge in bankruptcy.” Id . at *2. The Court “reject defendant’s contention that the discharge in bankruptcy automatically accelerated the debt and thus triggered the statute of limitations with respect to the entire debt.” Id . The Court did so based on the distinction between an in personam action against the debtor’s assets and an in rem action seeking foreclosure of the real property that secured the creditor’s right to repayment. Id . This distinction is significant in the bankruptcy context, said the Court. In the event of a default, a creditor in an action for a mortgage foreclosure is entitled to pursue both an action against a debtor for in personam liability against the debtor’s assets, or for in rem liability seeking foreclosure of the specific real property that secured the creditor's right to repayment. Thus, a “defaulting debtor can protect himself from personal liability by obtaining a discharge in a Chapter 7 liquidation”, but “a creditor’s right to foreclose on the mortgage survives or passes through the bankruptcy.” Id . (citations omitted). “In other words,” said the Court, a bankruptcy discharge under Chapter 7 of the Bankruptcy Code removes the “mode of enforc ” against the debtor in personam , but the obligation otherwise remains intact and does not impact an action in rem . Id ., quoting Johnson v. Home State Bank , 501 U.S. 78, 84 (1991). Thus, “‘even after the debtor’s personal obligations have been extinguished , the mortgage holder still retains a right to payment in the form of its right to the proceeds from the sale of the debtor’s property,’ and a bankruptcy proceeding does not ‘impair right to commence an action against in rem to seek payment from the proceeds of a foreclosure sale.’” Id ., quoting Deutsche Bank Trust Co. Ams. v. Vitellas , 131 A.D.3d 52, 63 (2d Dept. 2015) (internal quotation marks omitted). Noting that the issue had not been “previously addressed” by the Department, the Court concluded that “absent terms in the mortgage to the contrary, a discharge in bankruptcy does not automatically accelerate the debt and that the terms of the mortgage survive bankruptcy.” Slip Op. at *2. “Because the terms of the mortgage survive , causes of action would thus continue to accrue with respect to each installment payment as the payments become due, although a note holder would only be able to commence an action in rem .” Id . Thus, held the Court, defendant’s “discharge in bankruptcy did not automatically accelerate the debt” and “plaintiff’s complaint not time-barred because separate causes of action accrued for each installment payment that was not made.…” Id . Takeaway As this Blog has noted in many of the articles we post, the terms of the document at issue are often dispositive of the outcome of the issue before the court. Wilmington Sav. Fund is no different. Wilmington Sav. Fund is notable because of the potential impact of a bankruptcy filing and subsequent discharge on a lender’s ability to initiate foreclosure proceedings. In that scenario, as the Court concluded, the lender may pursue such relief in an in rem action because the terms of the mortgage survive. And, because the mortgage at issue in Wilmington Sav. Fund provided for separate causes of action for each missed installment payment, the statute of limitations did not bar the foreclosure action.

Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. Rent-A-Ctr., W, Inc. v. Jackson , 561 U.S. 63, 67 (2010) (noting that “arbitration is a matter of contract”). In business and commercial transactions, arbitration is the preferred means of resolving disputes. It is encouraged and recognized as the public policy of the State of New York. Matter of Smith Barney Shearson v. Sacharow , 91 N.Y.2d 39, 49 (1997) (citations and quotation marks omitted). Id . Consequently, courts will interfere as little as possible with the agreement of consenting parties to submit their disputes to arbitration. Id . at 49-50. (citations omitted). Since arbitration is a “creature of contract” ( Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc. , 252 F.3d 218, 224 (2d Cir. 2001)), only signatories to a contract containing an arbitration agreement can be compelled to arbitrate. TBA Global, LLC v. Fidus Partners, LLC , 132 A.D.3d 195, 202 (1st Dept. 2015). Consequently, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Communications Workers of Am. , 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582 (1960)). Not surprisingly, whether the parties are bound by an arbitration agreement and whether they agreed to submit their dispute to arbitration are hotly contested questions. The person(s) who will resolve these questions is dependent upon the agreement at issue. As a general matter, questions of arbitrability are decided by a court. However, the parties to an arbitration agreement can agree to delegate questions of arbitrability to an arbitrator. MetLife v. Buscek , 919 F.3d 184, 189 (2d Cir. 2019) (“In general, what is determinative for deciding whether the arbitrability of a dispute is to be resolved by the court or by the arbitrator is the arbitration agreement”).  When the parties agree to delegate the question of arbitrability to an arbitrator, the parties must clearly and unmistakably express their intent to do so. Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 83 (2002). In the absence of such a clear and unmistakable expression of intent, the presumption favors the courts deciding arbitrability. First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938 (1995). Recently, the United States Supreme Court held that, when the parties have agreed to submit the question of the arbitrability to an arbitrator, the courts must respect and enforce that contractual agreement. Henry Schein Inc. v. Archer & White Sales, Inc. , 139 S.Ct. 524 (2019). Consistent with this holding, the Second Circuit observed that “parties are free to enter into a binding contract by which either party can compel the other to have every aspect of a future dispute between them, including its arbitrability, determined by arbitrators.”  MetLife , 919 F.3d at 190, citing Rent-A-Ctr. , , 561 U.S. at 66, 69 (finding that an arbitration agreement giving the arbitrators “exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this contract” empowered the arbitrators to resolve arbitrability of an unconscionability claim). The foregoing rules were intended to guard against “the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.” Howsam , 537 U.S. at 83-84. “Were the courts to cede to arbitrators resolution of the arbitrability of the dispute (absent the clear and unmistakable agreement of the parties to that effect), this would incur an unacceptable risk that parties might be compelled to surrender their right to court adjudication, without their having consented.” MetLife , 919 F.3d at 190, citing First Options , 514 U.S. at 945. Accordingly, in the absence of an arbitration agreement that clearly and unmistakably provides for the issue of arbitrability to be decided by the arbitrator, the question of whether the dispute is subject to an arbitration agreement “is typically an issue for judicial determination.” Id. , quoting Granite Rock Co. v. Int’l Bhd. of Teamsters , 561 U.S. 287, 296 (2010) (internal citation and quotation marks omitted). Last week, the Appellate Division, First Department, addressed the foregoing principles, reversing an order granting a permanent stay of arbitration, without prejudice, so that the issue of arbitrability could be decided by the arbitrator in arbitration. Matter of 215-219 W. 28th St. Mazal Owner LLC v. Citiscape Bldrs. Group Inc. , 2019 N.Y. Slip Op. 08281 (1st Dept. Nov. 14, 2019) ( here ). Background In the fall of 2013, an affiliate of HAP Investments LLC and HAP Development LLC (collectively “HAP”) acquired properties located at 215-219 West 28th Street in New York City as part of a project to construct a twenty-story condominium tower (the “Project”). To assist with the Project, 215-219 West 28th Street Mazal Manager LLC (“Mazal”), a subsidiary of HAP, engaged various third-party professionals, including Respondent Citiscape Builders Group, Inc. (“Citiscape”). In August 2015, Mazal retained Citiscape to serve as its representative for the Project, providing various pre-construction, planning, and construction services. Citiscape’s compensation depended, in part, on its reaching certain milestone events and cost-savings for the Project. Mazal and Citiscape memorialized the terms of their arrangement in an agreement, titled the Owner’s Representative Agreement (“Owner’s Representative Agreement” or “Agreement”). Relevant to the appeal, the Agreement contained an arbitration clause that provided: “Any dispute hereunder shall be exclusively governed and resolved by expedited binding arbitration in accordance with the American Arbitration Association located in the City of New .” After Mazal and Citiscape executed the Agreement, HAP continued acquiring properties at West 28th Street through Mazal and other entities that it owned and/or managed. Between December 2015 and February 2017, HAP acquired five additional properties on West 28th Street. As HAP’s portfolio grew, so did the scope of the Project. HAP planned to develop and build a second twenty-story tower, which required an expanded role for Citiscape. As a result, Mazal and Citiscape amended the Agreement on two occasions. The First Amendment was executed in July 2016 by Citiscape and by four entities owned and/or managed by HAP – Petitioners Mazal, 213 West 28 LLC, 223 West 28 LLC, and 225-227 West 28 LLC (together, the “Signatory Petitioners”). The First Amendment ratified and confirmed the Owner’s Representative Agreement. The Second Amendment was executed in January 2017 and altered Citiscape’s compensation to keep up with the changes to the Project. After the Owner’s Representative Agreement and First Amendment were executed, non-parties West 28th CCMF Investment LLC, 8 Partners LLC, and 8 Manager LLC established 213-227 West 28th Street LLC (a petitioner in the proceeding) as a joint venture for the purpose of commercializing the Project. Subsequently, several of the properties on West 28th Street were conveyed to 215-219 West 28th Street Mazal Owner LLC, 213-227 West 28th Street LLC, 215 West 28th Street Property Owner LLC, and 225 West 28th Street Property Owner LLC (“Nonsignatory Petitioners”) – entities that HAP directly or indirectly owned and/or managed. The Nonsignatory Petitioners did not sign the Owner’s Representative Agreement or its amendments. At some point, Mazal became dissatisfied with Citiscape’s services and, consequently, terminated the Owner’s Representative Agreement for cause in February 2019. Citiscape responded by filing a demand for arbitration. Citiscape named both the Signatory Petitioners and the Nonsignatory Petitioners as respondents in the arbitration. Petitioners initiated a special proceeding pursuant to CPLR § 7503(b) to, among other things, secure a permanent stay of arbitration. The Nonsignatory Petitioners argued that they could not be compelled to arbitrate with Citiscape because they had no contractual privity with Citiscape and no other basis existed for enforcing the arbitration agreement against them. Citiscape asserted, however, that the Nonsignatory Petitioners were required to arbitrate because they were the “successors” or “assigns” of the Signatory Petitioners, and thus required to arbitrate by virtue of the First Amendment. Alternatively, Citiscape maintained that the Nonsignatory Petitioners could be compelled to arbitrate because they were the “alter-egos” of the Signatory Petitioners, and, thus, effectively signatories to the arbitration agreement. Finally, Citiscape argued that the Nonsignatory Petitioners should be estopped from resisting arbitration because they “benefitted” from the Owner’s Representative Agreement. The motion court denied the application to permanently stay the arbitration, though it permitted a temporary stay provided an appeal of the decision was perfected by July 12, 2019. Petitioners promptly appealed the decision and order. The First Department’s Decision In a pithy decision, the First Department unanimously reversed the motion court’s order. The Court held that the motion court should have determined whether the matter was arbitrable as to the Nonsignatory Petitioners, stating that “the issue of whether a party is bound by an arbitration provision in an agreement it did not execute is a threshold issue for the court, not the arbitrator, to decide.” Slip Op. at *1 (internal quotation marks and citation omitted). The Court declined, however, to address the issue of whether the Nonsignatory Petitioners should be bound by the agreement to arbitrate because the motion “court did not come to a definitive ruling” on the issue. Id . “Instead,” said the Court, the motion court “denied the petition without prejudice so that it could be decided by the arbitrator.” Id . at *2.  Since there was no ruling on the threshold question, “the only question to be addressed … is whether the IAS court properly declined to do so,” a question the Court resolved on the appeal. Id . at *2. Accordingly, the Court reversed the motion court’s order denying the petition for a permanent stay of arbitration and remanded the proceeding to the motion court for a hearing to determine the threshold issue of whether the Nonsignatory Petitioners were bound by the arbitration agreement. Takeaway On motions to stay or to compel arbitration there are three threshold questions to be resolved by the courts: (1) whether the parties made a valid and enforceable agreement to arbitrate, (2) whether, if such an agreement was made, it had been complied with, and (3) whether the claim sought to be arbitrated would be barred by some type of limitation, such as the statute of limitations. As to the first question, the Court of Appeals long ago stated, “The parties are entitled first to a judicial determination whether there was a valid agreement to arbitrate.” Matter of County of Rockland , 51 N.Y.2d 1, 7 (1980). “If the court determines that the parties had not made an agreement to arbitrate, that concludes the matter and a stay of arbitration will be granted or the application to compel arbitration will be denied.” Id . (citations omitted). “Similarly, if the court concludes that, while the parties may have made a valid agreement to arbitrate, the particular agreement that they made was of limited or restricted scope and the particular claim sought to be arbitrated is outside that scope, there will likewise be a stay of arbitration or a denial of the motion to compel arbitration.” Id . (citations omitted). If, however, the agreement to arbitrate brings the dispute within the scope of the arbitration agreement, then the court must determine whether the parties complied with their agreement – that is, the court must determine whether there is any preliminary requirement or condition precedent to arbitration to be complied with and, if so, whether the parties complied with that requirement or condition precedent.  “If the court concludes that the parties made a valid agreement to arbitrate, that the dispute sought to be arbitrated falls within its scope, and that there has been compliance with any agreed on conditions precedent to arbitration, judicial inquiry is at an end (absent any issue as to bar by limitation of time) and the parties … to proceed to arbitration.” Id . at 8. Matter of 215-219 W. 28th St. Mazal Owner LLC illustrates the foregoing principles. As the First Department noted, since the parties disputed whether there was an agreement to arbitrate in the first place, that threshold issue should have been decided by the motion court. By failing to address the issue, the Could found that the motion court erred.

Retaliation is the primary concern among those who decide to blow the whistle on wrongdoing. It represents a significant impediment to obtaining the primary goals of whistleblowing: accountability and transparency of government and corporate activities. According to a 2010 government survey of federal employees, “approximately one-third of the individuals who felt they had been identified as a source of a report of wrongdoing also perceived either threats or acts of reprisal, or both.” (See Merit Systems Protection Board, “Blowing the Whistle: Barriers to Federal Employees Making Disclosures,” November 2011 (here)). In 2017, the survey was updated, finding that approximately 30 percent of government employees feared reprisal from reporting illegal or improper conduct. See Merit Systems Protection Board, “U.S. Merit Systems Protection Board 2017 Annual Employee Survey Results” (here). In the private sector, a survey showed that retaliation for blowing the whistle rose to 44% in 2017 from 22% in 2013, with 72% of employees who were retaliated against reporting that such reprisals occurred within one month of their reporting. See Global Business Ethics Survey, “The State of Ethics & Compliance in the Workplace, Ethics & Compliance Initiative,” March 2018 (here). In enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or the “Act”), Congress adopted strong anti-retaliation provisions to protect SEC whistleblowers who blow the whistle on violations of the federal securities laws. In that regard, Congress created a private right of action for whistleblowers to combat retaliation associated with “any lawful act done by – ‘(i) in providing information to the Commission …; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002,’” the Securities Exchange Act of 1934, and “‘any other law, rule, or regulation subject to the jurisdiction of the .’” Notably, the Dodd-Frank Act does not limit the private right of action to employees. Congress extended the anti-retaliation protections to any individual claiming to have been retaliated against (e.g., threatened, harassed or subjected to discrimination) because of conduct protected under Act. The SEC Whistleblower Program rules allow the SEC to prosecute violations of the anti-retaliation provisions of the Dodd-Frank Act through enforcement action. This means that persons who retaliate against individuals who blow the whistle on fraud or other illegal conduct risk having to defend themselves against SEC investigations and enforcement actions that may result in penalties, disgorgement, and other monetary relief. On November 4, 2019, the SEC announced (here) that it filed claims against an online auction portal and its chief executive officer (“CEO”) in connection with their efforts to prohibit their investors from reporting misconduct to the SEC and other governmental agencies. As explained in the November 4 press release, the SEC filed an amended complaint (here) against Collectors Café and its CEO, Mykalai Kontilai (“Kontilai”), to add allegations that they unlawfully sought to prohibit their investors from reporting misconduct to the SEC. The Commission previously charged Collectors Café and Kontilai with conducting a $23 million fraudulent securities offering based on false statements to investors and alleged that Kontilai misappropriated over $6 million of investor proceeds. In its amended complaint, the SEC alleged that Collectors Café and Kontilai took actions to prevent investors from communicating directly with the SEC about their securities laws violations. In at least two instances, Collectors Café and Kontilai attempted to resolve investor allegations of wrongdoing against them by conditioning the return of investor money on the agreement of the investors to confidentiality clauses prohibiting the investors from communicating with law enforcement or regulators, including the SEC, about the alleged securities law violations. In one of those instances, Collectors Café and Kontilai filed a lawsuit claiming that the victims of their alleged fraud breached the confidentiality provision of the agreements by communicating with SEC staff about possible securities law violations. Collectors Café and Kontilai sought punitive and compensatory damages in that action, including repayment of the money paid to settle the claims of securities fraud. Thereafter, Collectors Café and Kontilai held the lawsuit out as a deterrent to other investors about communicating with the SEC. The SEC claimed that these actions and agreements violated the SEC’s whistleblower protection rules. Commenting on the new allegations, Kurt L. Gottschall, Director of the SEC’s Denver Regional Office, stated: “We allege that the defendants attempted to cover up their fraud by holding investors’ money hostage until the investors signed agreements preventing them from seeking law enforcement intervention. Through the amended complaint, the Commission seeks to hold the defendants accountable for their fraudulent stock offerings as well as the separate claims for violations of the Commission’s whistleblower protection laws.” Jane Norberg, Chief of the SEC’s Office of the Whistleblower, underscored the reach of the Act’s anti-retaliation protections, stating that “he SEC’s whistleblower protections broadly protect not just employees, but anyone who seeks to report potential securities law violations to the Commission.” The SEC charged Collectors Café and Kontilai with violations of the antifraud and whistleblower provisions of the federal securities laws. The Commission is seeking preliminary and permanent injunctions, disgorgement, plus prejudgment interest, and penalties. The SEC also added Veronica Kontilai, Kontilai’s wife, as a relief defendant, seeking disgorgement, plus prejudgment interest, from her.

Last week, two Appellate Division courts affirmed the dismissal of fraud claims because the parties asserting the claims failed to demonstrate justifiable reliance, and assert their claim within the statute of limitations. Atlas MF Mezzanine Borrower, LLC v. Macquarie Tex. Loan Holder LLC , 2019 N.Y. Slip Op. 08009 (1st Dept. Nov. 7, 2019) ( here ), and Beacon Estates, LLC v. Ingrassia , 2019 N.Y. Slip Op. 08042 (4 th Dept. Nov. 8, 2019) ( here ). In today’s post, this Blog looks at each case. A Primer on the Statute of Limitations and Justifiable Reliance Statute of Limitations In New York, an action for fraud must be commenced within “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff … discovered the fraud, or could with reasonable diligence have discovered it.” CPLR § 213(8); Boardman v. Kennedy , 105 A.D.3d 1375, 1376 (4th Dept. 2013). The defendant ( i.e. , the party most frequently making the motion) has the initial burden of establishing “that the time in which to commence the action has expired.” Zaborowski v. Local 74, Serv. Empls. Intl. Union, AFL-CIO , 91 A.D.3d 768, 768 (2d Dept. 2012). If the defendant meets that burden, the burden then shifts to the plaintiff to “aver evidentiary facts establishing that the action was timely or to raise a question of fact as to whether the action was timely.” Lessoff v. 26 Ct. St. Assoc., LLC , 58 A.D.3d 610, 611 (2d Dept. 2009). Where a plaintiff relies on the two-year discovery rule of the statute of limitations, “ he burden of establishing that the fraud could not have been discovered prior to the two-year period before the commencement of the action rests on the plaintiff who seeks the benefit of the exception.” Von Blomberg v. Garis , 44 A.D.3d 1033, 1034 (2d Dept. 2007); Lefkowitz v. Appelbaum , 258 A.D.2d 563 (2d Dept. 1999) (“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.”). Accord Berman v. Holland & Knight, LLP , 156 AD3d 429, 430 (1st Dept. 2017); Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc. , 137 A.D.3d 685, 689 (1st Dept. 2016); Brooks v. AXA Advisors, LLC (appeal No. 2) , 104 A.D.3d 1178, 1180 (4th Dept. 2013). “A cause of action based upon fraud accrues, for statute of limitations purposes, at the time the plaintiff ‘possesses knowledge of facts from which the fraud could have been discovered with reasonable diligence.’” Oggioni v. Oggioni , 46 A.D.3d 646, 648 (2d Dept. 2007) (quoting Town of Poughkeepsie v. Espie , 41 A.D.3d 701, 705 (2d Dept. 2007)). “ here the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him.” Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011) (citation and internal quotation marks omitted). Courts look at whether the plaintiff should have discovered the alleged fraud objectively. Prestandrea v. Stein , 262 A.D.2d 621, 622 (2d Dept. 1999); Gorelick v. Vorhand , 83 A.D.3d 893, 894 (2d Dept. 2011). Mere suspicion will not suffice as a substitute for knowledge of the fraudulent act. Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). This inquiry “involves a mixed question of law and fact, and, where it does not conclusively appear that a plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred, the cause of action should not be disposed of summarily on statute of limitations grounds.”  Berman , 156 A.D.3d at 430. “Instead, the question is one for the trier of-fact.” Id . See also Sargiss v Magarelli , 12 N.Y.3d 527, 532 (2009). Justifiable Reliance 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). Sophisticated parties have a heightened responsibility. They must use due diligence and take affirmative steps to protect themselves from misrepresentations by employing whatever means of verification are available at the time. If they fail to do so, their complaint will be dismissed. See , e.g. , HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 194-95 (1st Dept. 2012). Accord , Ashland Inc. v. Morgan Stanley & Co. , 652 F.3d 333, 337-38 (2d Cir. 2011) (“An investor may not justifiably rely on a misrepresentation if, through minimal diligence, the investor should have discovered the truth.”) (internal quotation marks and citation omitted). Atlas MF Mezzanine Borrower, LLC v. Macquarie Tex. Loan Holder LLC Background Atlas arose in connection with a foreclosure sale of a membership interest in a holding company (“HoldCo.”), which owned, through separate subsidiaries, eleven (11) apartment complexes (the “Properties”) in Texas (the “Auction”). Atlas MF Mezzanine Borrower, LLC (“Atlas”), through its holding company and subsidiaries, owned the Properties. Macquarie Texas Loan Holder LLC (“Macquarie”) loaned Atlas $71 million through a mezzanine loan that was secured by a pledge of Atlas’s membership interest in the holding company. Atlas defaulted on the loan in January 2017. Atlas claimed the default was the result of its reliance on the representations of forbearance by Macquarie – according to Atlas, Macquarie lulled it to believe that Macquarie would grant the forbearance when it reality Macquarie wanted Atlas to default so that it could foreclose on the loan. At the Auction (conducted on February 27, 2017), a dispute arose over whether Atlas had met the publicly disclosed requirements of the proceeding. As a result, Macquarie did not initially allow Atlas to bid. However, after Macquarie placed a credit bid for $73.5 million (reflecting the loan principal plus interest and fees), Macquarie “ma e an exception” to the requirements and permitted Atlas to bid. Atlas and defendants KKR REPA AIV-2 L.P. and KKR Osprey Venture LLC (together, the “KKR Defendants”), thereafter competed in the Auction, until the KKR Defendants bid $76.75 million and Atlas responded with a bid of $77 million. At that point, Macquarie suspended the Auction because Atlas was bidding millions of dollars in excess of the amount owed under the loan. The KKR Defendants alleged that Atlas did not intend to close on the purchase of HoldCo. and likely lacked the financial capacity to do so. Defendants contended that Atlas was trying to drive the KKR Defendants’ purchase price up as much as possible so that Atlas could receive any surplus above the amount owed under the loan. The KKR Defendants claimed that, at that point, they believed they would be declared the winning bidder at $76.75 million. Consequently, once the Auction resumed, the KKR Defendants did not attempt to surpass Atlas’s $77 million bid. Macquarie declared the KKR Defendants the winner based on their financial ability to close, which the KKR Defendants had disclosed pursuant to the publicly available terms of the Auction. Thereafter, the KKR Defendants and Macquarie executed a Contract of Sale for the holding company. On October 30, 2017, Atlas filed its verified first amended complaint. On May 1, 2018, the KKR Defendants filed an answer in which they denied Atlas’s allegations. On May 21, 2018, the KKR Defendants filed an amended answer in which they asserted eight counterclaims: (1) declaratory judgment, (2) tortious interference with a prospective economic advantage, (3) tortious interference with contracts, (4) abuse of process, (5) trespass, (6) conversion, (7) unjust enrichment, and (8) fraud. On June 25, 2018, Atlas moved to dismiss the counterclaims for tortious interference with contracts, abuse of process, trespass, conversion and fraud. On October 17, 2018, the motion court granted Atlas’s motion to dismiss the counterclaims from the bench. The KKR Defendants appealed the decision solely with respect to the dismissal of their fraud counterclaim. The First Department’s Decision The First Department unanimously affirmed. In their counterclaim, the KKR Defendants alleged that Atlas knew before the Auction that “it could not close on a sale of the properties and had no intention of doing so.” The KKR Defendants further alleged that Atlas placed bids “it knew it could not pay” in order to “drive up the sale price of the properties” so that it could “receive any surplus above what it owed to Macquarie.” Thus, according to the KKR Defendants, “Atlas’ bidding strategy was a fraud: it was designed to mislead KKR and the other auction participants into bidding against Atlas’ sham bids in order to increase Atlas’ profits.” Atlas claimed that these statements were not actionable as they were based on future events. The First Department agreed with the KKR Defendants. In particular, the Court held that “Plaintiff’s statement that its required deposit check was ‘on its way’ was an actionable statement of present fact, not of future expectation.” Slip Op. at *1. Notwithstanding, the First Department agreed with the motion court that the KKR Defendants failed to satisfy the justifiable reliance element of their fraud counterclaim. The KKR Defendants maintained that they relied on Atlas’s representation that the deposit check was “on its way”.  According to the KKR Defendants, because of the representation, they assumed the Atlas bids were legitimate and therefore made competing bids against Atlas. Had they known at the outset that Atlas was not a serious bidder, said the KKR Defendants, they would have stopped bidding at $73.75 million, which was the amount needed to beat Macquarie’s bid of $73.5 million. The First Department held that the KKR Defendants’ reliance was not justifiable. However, defendants’ allegations are insufficient to show reasonable reliance as a basis to continue bidding against plaintiff, where the fact that the check was not there was disclosed, the auctioneer disqualified plaintiff from bidding, and when the auctioneer later allowed bidding he stated that he was making “an exception” from the bidding procedures to allow plaintiff to bid ( ACA Fin. Guar. Corp. v Goldman, Sachs & Co. , 25 NY3d 1043, 1044 <2015> ). Id . The Court also rejected the KKR Defendants’ argument “that they reasonably relied on some implied representation about plaintiff’s financial condition.” Id . Nor do defendants’ allegations that they reasonably relied on some implied representation about plaintiff’s financial condition fare any better. By their own admission, defendants knew that plaintiff had defaulted on the underlying debt, that it had failed to tender the required deposit check for the auction, and that it was bidding more than the amount of the underlying debt. Based on this information, defendants ceased bidding some 15 minutes into the auction. Defendants do not allege they obtained any further information before making the decision to stop bidding. They had all the information necessary to determine that plaintiff likely did not have the ability to close. Id . Beacon Estates, LLC v. Ingrassia Background Plaintiffs commenced the action in 2017, seeking damages and declaratory relief associated with a 2007 agreement between Daniel P. Cappa, Sr. (“Cappa”), the sole member of plaintiff Beacon Estates, LLC (“Beacon”), and defendant Angelo Ingrassia (“Ingrassia”), the sole member of defendant 1612 Ridge Road, LLC (“1612 Ridge Road”). In their amended complaint, Plaintiffs asserted causes of action sounding in, inter alia , breach of contract and fraud. The fraud causes of action were based on, inter alia , the 2007 agreement between Cappa and Ingrassia whereby a permanent easement that allowed access to Beacon’s property by ingress and egress over property owned by 1612 Ridge Road was extinguished and replaced by a temporary easement. Plaintiffs alleged that Ingrassia misrepresented the terms of the 2007 agreement and exploited a personal relationship with Cappa to induce him into signing the 2007 document. Plaintiffs further alleged that, in October 2012, one of Cappa’s sons accompanied Cappa to a meeting with Ingrassia, during which Ingrassia indicated that Cappa’s easement was abandoned. Cappa questioned why the easement was abandoned, and Ingrassia told Cappa not to do anything until Ingrassia completed the sale of the property owned by 1612 Ridge Road. In 2013, 1612 Ridge Road sold its property to defendant Agree Rochester NY, LLC (“Agree”). Defendant L.A. Fitness International, LLC (“L.A. Fitness”) leases that property and operates a business thereon. In separate motions, Ingrassia, 1612 Ridge Road, L.A. Fitness, and Agree (collectively, “Defendants”) moved to dismiss the amended complaint against them contending, inter alia , that the claims asserted therein were time-barred. The motion court granted Defendants’ motions with respect to the second, fourth, and fifth causes of action in the amended complaint, sounding in breach of contract and fraud. The Appellate Division, Fourth Department, affirmed. The Court’s Decision The Court held that “defendants established that the action was commenced more than six years from the dates of the alleged acts of fraud.” Slip Op. at *1. As noted, the alleged fraud occurred in 2007 and the action was commenced in 2017. The Court also held that plaintiffs could not avail themselves of the two-year discovery rule, stating “that plaintiffs ‘possessed knowledge of facts from which they reasonably could have discovered the alleged fraud soon after it occurred, and in any event more than two years prior to the commencement of the action.’” Id ., quoting Brooks , 104 A.D.3d at 1180. Takeaway Readers of this Blog know that courts will not sustain a fraud claim in which the plaintiff fails to avail himself/herself/itself of the means to discover the truth or falsity of representations and omissions made by the alleged wrongdoer. Although the determination of whether reliance is justified is a fact sensitive one, ignoring facts that are in plain sight ( i.e. , facts that are publicly available), as in Atlas , is a sufficient reason to dismiss a fraud claim. Atlas underscores this principle. Beacon Estates highlights the need for litigants to act on facts and circumstances from which it could be reasonably inferred that they were the victims of a fraud. As Beacon Estates shows, the failure to bring suit when the facts indicate a fraud has occurred will result in dismissal. Thus, even though the discovery rule allows the victim of fraud to bring suit when the very nature of the fraud prevents him/her from knowing that he/she was defrauded, the courthouse doors will, nevertheless, close on the litigant who sits on his/her rights when the facts indicate that a wrong has be done.

This Blog, in “ Contract Must be Enforced According to Its Clear and Concise Terms Says Second Department ,” analyzed Gristede’s Operating Corp. v. Scarsdale Shopping Ctr. Assoc., LLC, 2019 N.Y. Slip Op. 07771 (2 nd Dep’t October 30, 2019), in which the Second Department found that, inter alia , clear and unambiguous contracts will be interpreted according their terms. The same analysis applies with respect to notice/termination provisions of construction contracts.  Thus, “ here a contract provides that a party must fulfill specific conditions precedent before it can terminate the agreement, those conditions are enforced as written and the party must comply with them.”  Summit Development Corp. v. Fownes , 74 A.D.3d 563 (1 st Dep’t 2010) (citations and quotation marks omitted).  The Summit Court, in reaching its decision, indirectly relied upon the Court of Appeals’ decision in A. S. Rampell, Inc. v. Hyster Co. , 3 N.Y.2d 369 (1957).  The Court in A. S. Rampell , adhering to the same principle, stated that “… where as here the parties have agreed to a termination clause, the clause has been enforced as written.  The parties assented to the terms of the contract when they entered into it, and no reason is now presented which justifies altering the clear provisions of the agreement.”  A. S. Rampell , 3 N.Y.2d at 382 (citations omitted). “Furthermore, this general rule fully applies to construction agreements, whose parties cannot terminate contractors unless they follow the contractual procedures to the letter .”  Mike Building & Contracting, Inc. v. Just Homes, LLC , 27 Misc.3d 833, 843 (Sup. Ct. Kings Co. 2010) (citations and internal quotation marks omitted).  Similarly, the Court in MCK Building Assoc., Inc. v. St. Lawrence University , 301 A.D.2d 726 (3 rd Dep’t 2003), in affirming the motion court’s grant of summary judgment in favor of the plaintiff, stated: Initially, we agree with Supreme Court that the contract was wrongfully terminated for default. Notably, defendant's contract termination letter not only cited defendant's “lack of job performance” and “disregard of contractual obligations,” but specifically stated that it was terminating the contract pursuant to provisions of one of the contract documents that governs termination for default. Under these provisions, plaintiff was required to provide 10 days' prior written notice of termination to defendant, its surety and the University. However, defendant's termination letter indicated that the contract was terminated “as of this date” and defendant's surety and the University were not given written notice of termination until several days later. Under these circumstances, it is clear that defendant's termination of the contract was wrongful. MCK Builders , 301 A.D.2d at 727 -28. The Supreme Court of the State of New York, New York County, in East Empire Construction Inc. v. Borough Construction Group LLC , 2019 NY Slip Op 33284(U) (Sup. Ct. New York Co. November 1, 2019), recently revisited these issues.  A defendant in Borough , Borough Construction Group LLC (“Group”), retained plaintiff subcontractor (“East”) to perform work on a project.  A relevant provision of the subcontract provides: if the Subcontractor defaults or neglects to carry out the Work in accordance with this Agreement and fails within five working days after receipt of written notice from the Contractor to commence and continue correction of such default or neglect with diligence and promptness, the Contractor may, by appropriate Modification, and without prejudice to any other remedy the Contractor may have, make good such deficiencies and may deduct the reasonable cost thereof from the payments then or thereafter due the Subcontractor. The subcontract also provides that Group “may terminate it if plaintiff repeatedly fails or neglects to carry out its work and ‘fails within a ten-day period after receipt of written notice to commence and continue correction of such default or neglect with diligence and promptness….’”  Similarly, the “scope of work sheet, annexed to the subcontract, provides that if plaintiff fails to perform, plaintiff will be issued a seventy-two hour notice to cure, and if it fails to rectify and remedy the situation within that timeframe, the project's owner will remove it from the project, and any costs and fees associated with its failure to perform will be back-charged and deducted from any monies owed to plaintiff.” After some disputes about East’s work, Group sent a letter to East giving East “notice of termination and that the subcontract ‘will be terminated in three business days from the date of this letter ….”  While the parties attempted to resolve their differences and the termination notice was cancelled, an “identical notice of termination letter as before, and again directed plaintiff to cease all work at the site immediately.” East sued Group alleging, among other things, that Group breached the subcontract by wrongfully terminating East, “failing to give the opportunity to cure any alleged defects, and failing to pay .]  The East Court granted East’s motion for partial summary judgment as to liability and, in so doing, stated: If a contract provides that a party must fulfill conditions precedent before it can terminate it, those conditions are enforceable and binding, and a party that fails to follow them may be held liable for breach of contract. (Black Riv. Plumbing, Heating & A. C., Inc. v Bd. of Educ. Thousand Is. Cent. Sch. Dist., 175 AD3d 1051 <4th dept 2019> ). Thus, in Black Riv. Plumbing, where the parties' contract required defendants to give plaintiff seven days to cure any deficiencies before terminating the contract, and defendants failed to do so, the Court granted the plaintiffs motion for liability on its breach of contract claim. *   *   * Here, the parties' subcontract and scope of work sheet require both written notice to plaintiff and an opportunity for it to cure any alleged defaults before the subcontract may be terminated. Even assuming that Borough's 72-hour notice of termination was sufficient rather than the 10-day notice provided in the subcontract, the notice directed plaintiff to cease immediately all of its work on the project, thus failing to give it an opportunity to cure before the subcontract was terminated. Plaintiff thereby establishes, prima facie, that defendants breached their agreement by failing to comply with its proper termination provisions. The East Court also found that because of Group’s breach of the subcontract by “fail to terminate the subcontract properly, barred from seeking an offset based on plaintiff’s alleged defaults, specifically, any expenses incurred by for finishing plaintiff’s work and other damages and costs and fees associated with plaintiff’s failure to perform, all of which depends on adherence to the notice, opportunity to cure and, termination procedures in the subcontract and scope of work sheet.” The East Court also found that “ failed to comply with section 3.4 of the subcontract, which requires five-days notice and an opportunity to cure before may correct plaintiff’s alleged deficiencies and ‘deduct the reasonable cost thereof’ from payments due plaintiff.”

Under New York’s rules of contract interpretation, “when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms.” Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 403 (2009); W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990). “This rule is applied with special force ‘… where commercial certainty is a paramount concern, and where the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length.” Riverside , 13 N.Y.3d at 403-404, quoting Vermont Teddy Bear Co. v. 538 Madison Realty Co. , 1 N.Y.3d 470, 475 (2004) (internal quotation marks, ellipses and citations omitted). In such circumstances, courts are “extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.” Rowe v. Great Atl. & Pac. Tea Co. , 46 N.Y.2d 62, 72 (1978). Consequently, courts will not “by construction 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.” Reiss v. Financial Performance Corp. , 97 N.Y.2d 195, 199 (2001) (internal quotation marks and citation omitted). When the parties to a contract dispute its meaning, resolution of the dispute often turns on the meaning of a term or terms in the agreement. Charges of ambiguity as to the meaning of the contract typically follow. Such was the case in Gristede’s Operating Corp. v. Scarsdale Shopping Ctr. Assoc., LLC , 2019 N.Y. Slip Op. 07771 (2d Dept. Oct. 30, 2019) ( here ). “Whether an agreement is ambiguous is a question of law for the courts . . . 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) (citations omitted). The entire contract must be reviewed and “ articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.” Atwater & Co. v. Panama R.R. Co. , 246 NY 519, 524 (1927). Where the language chosen by the parties has “a definite and precise meaning,” there is no ambiguity. Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002) (citation omitted). In Gristede’s , the dispute turned on the meaning of an amendment to a contract for the sale of a lease between Gristedes and defendants Walgreen Co. and Walgreen Eastern Co. (“Walgreen”). In 2006, the Gristede’s plaintiffs and the Walgreen defendants were exploring and negotiating the potential sale of, inter alia , certain leases held by the plaintiffs. By letter dated November 14, 2006, the Walgreen defendants agreed that, for a three-year period, they would refrain from approaching, discussing, or negotiating with the owner of any of the premises at issue (“2006 Confidentiality Agreement”). Approximately five months later, on April 4, 2007, plaintiffs and the Walgreen defendants entered into a contract of sale in which the Walgreen defendants agreed to purchase six leases from the plaintiffs (the, “2007 Contract of Sale”). As relevant to the appeal, one of those leases concerned a property located in Scarsdale, N.Y. – known as Store No. 90 – that was owned by defendant Scarsdale Shopping Center Associates, LLC (“Scarsdale”). The Gristede’s plaintiffs and the Walgreen defendants additionally agreed to extend the 2006 Confidentiality Agreement for five years from the date of execution of the contract of sale. By amendment dated January 1, 2009, the Gristede’s plaintiffs and the Walgreen defendants amended the 2007 Contract of Sale so as limit its applicability to the purchase of only one lease for a property located in Manhattan, and “to terminate the Contract with to all other Property which has not been sold, assigned or otherwise transferred by Sellers to Purchaser as of the date hereof” (the “2009 Amendment”). Further, the amendment provided that “the Contract is terminated and deemed of no further force with respect to each and every Property (other than Store 561) which, as of the date hereof, has not been sold, assigned or otherwise transferred by Sellers to Purchaser pursuant to the Contract . . . and that the parties shall have no rights, obligations and liabilities thereto except to the extent that the same expressly survive the termination of the Contract.” Store No. 90 was one of the unsold properties that was excised from the 2007 Contract of Sale by the 2009 Amendment. In 2011, an alleged agent of the Walgreen defendants contacted Scarsdale about Store No. 90. Thereafter, the Gristede’s plaintiffs and the Walgreen defendants resumed negotiations regarding the potential sale of leases held by the plaintiffs. By letter agreement dated January 24, 2012 (the “2012 Agreement”), the Gristede’s plaintiffs and the Walgreen defendants confirmed that all the “terms, covenants and conditions” of the 2006 Confidentiality Agreement, as amended by the 2007 Contract of Sale would “remain in full force and effect.” Later in 2012, the Gristede’s plaintiffs commenced the action against the Walgreen defendants and Scarsdale. As relevant to the appeal, as against the Walgreen defendants, the plaintiffs asserted a breach of contract claim (the “fifth cause of action”) alleging that the Walgreen defendants breached the 2006 Confidentiality Agreement. The Walgreen defendants moved for summary judgment to dismiss the fifth cause of action. The Motion Court granted the motion. The Gristede’s plaintiffs appealed, and the Appellate Division, Second Department, affirmed. The Court found that “the Walgreen defendants established, prima facie, that the 2009 Amendment unambiguously terminated the 2006 Confidentiality Agreement insofar as its pertained to Store No. 90.” Slip Op. at 3. “Indeed,” said the Court, “in narrowing the applicability of the 2007 contract of sale to one property located in Manhattan, the plaintiffs and the Walgreen defendants clearly and unambiguously stated that they ‘shall have no rights, obligations and liabilities’ as to, among other properties, Store No. 90, ‘except to the extent that the same expressly survive the termination of the Contract.’” Id . (orig’l emphasis added). The Court noted that “ he 2007 contract of sale and 2009 amendment contain no express language preserving the 2006 confidentiality agreement as to Store No. 90.” Id . Consequently, “since an essential element of a breach of contract cause of action is the existence of a valid contract, the alleged contact between an agent of the Walgreen defendants and Scardale in 2011 could not have constituted a breach of the 2006 confidentiality agreement, as that agreement was clearly and unambiguosly terminated as to Store No. 90 at that time.” Id . (citations omitted). The Court rejected the claim that there was a breach because the 2012 Agreement provided that 2006 Confidentiality Agreement remained in full force and effect: “Although the subsequent 2012 agreement recited that the 2006 confidentiality agreement ‘remain in full force and effect,’ there was clearly no contractual prohibition against contact between the Walgreen defendants and Scarsdale in existence when the contact between the Walgreen defendants and Scarsdale was allegedly made.” Id . Takeaway Gristede’s shows that a clear and concise contract will be enforced according to its terms.  Claims of ambiguity will fail, as in Gristede’s , when the contract, read as a whole, and not in isolation, is susceptible to only one interpretation. This is especially so when the language used has a definite and precise meaning and cannot be the subject of a difference of opinion. In Gristede’s , the Court found that the agreements at issue satisfied these well-settled principles.

Previously, this Blog has written about the difficulties a party encounters when trying to vacate an arbitral award. ( E.g. , here , here and here .) Indeed, courts are very reluctant to disturb the decision of an arbitrator. The cases show that the courts limit vacatur of an arbitral award to a very narrow set of statutory and judicially created reasons. As shown in Matter of Nexia Health Tech., Inc. v. Miratech, Inc. , 2019 N.Y. Slip Op. 07701 (1st Dept. Oct. 24, 2019) ( here ), interpretative errors of law and fact are insufficient to overturn an arbitral award. Arbitration and the Policy That Favors It Arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral, private person will resolve any legal disputes between them, instead of a judge or jury in a court of law. In recent years, arbitration has increased in popularity and is part of most business and commercial contracts and employment agreements. This increase in popularity reflects the federal and state policy that arbitration is a favored means of resolving disputes. See , e.g. , Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24 (1983) (stating that the FAA evinces a “liberal federal policy favoring arbitration”); Epic Sys. Corp. v. Lewis , 138 S. Ct. 1612, 1621 (2018); Harris v. Shearson Hayden Stone, Inc. , 82 A.D. 2d 87, 91-93 (1st Dept.), aff’d , 56 N.Y.2d 627 (1981) (“ his State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties. . . .”). In 1925, Congress enacted the United States Arbitration Act, now known as the Federal Arbitration Act (“FAA”), for the express purpose of making “valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts, maritime transactions, or commerce among the States or Territories or with foreign nations.” Its primary purpose is to ensure that “private agreements to arbitrate are enforced according to their terms.” Volt Info. Scis., Inc. v. Board of Trustees of Leland Stanford Junior Univ. , 489 U.S. 468, 479 (1989). Whether enforcing an agreement to arbitrate or construing an arbitration clause, courts and arbitrators must “give effect to the contractual rights and expectations of the parties.” Volt , 489 U.S. at 479. “ s with any other contract, the parties’ intentions control.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 626 (1985). This is because an arbitrator derives his/her powers from the parties’ agreement to forgo the legal process and submit their disputes to private dispute resolution. See AT&T Techs., Inc. v. Communications Workers , 475 U.S. 643, 648-649 (1986). Underscoring the consensual nature of private dispute resolution, parties are “generally free to structure their arbitration agreements as they see fit.” AT&T Techs. , 475 U.S. at 648-649. And, they may specify with whom they choose to arbitrate their disputes. E.g. , Moses H. Cone , 460 U.S. at 20. It therefore falls to courts and arbitrators to give effect to contractual limitations, and when doing so, courts and arbitrators must not lose sight of the purpose of the exercise: to give effect to the intent of the parties. Volt , 489 U.S. at 479. Judicial Review of Arbitral Awards The Court’s role in reviewing an arbitration award is limited. An arbitration award will be confirmed even when the award does not conform to a court’s sense of justice so long as the arbitrator “offer even a barely colorable justification for the outcome reached.” Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479-80 (2006) (internal quotations omitted); Matter of Daesang Corp. v. NutraSweet , 167 A.D.3d 1, 15 (1st Dept. 2018), lv. denied , 32 N.Y.3d 915 (2019). Thus, an arbitral award will not be subject to vacatur for ordinary errors, even if an arbitrator’s legal and procedural rulings might reasonably be criticized on the merits. Id . As the United States Supreme Court observed: “The potential for . . . mistakes is the price for agreeing to arbitration.” Oxford Health Plans LLC v. Sutter , 569 U.S. 564, 572-573 (2013). See also Wilkins v. Allen , 169 N.Y. 494, 497 (1902) (noting that “however disappointing may be,” parties that have bargained for arbitration “must abide by it”). Under Section 10(a) of the FAA, a court will vacate an arbitral award for the following reasons: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators . . . ; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10(a)(1)-(4). here.=">here."> Apart from Section 10(a) of the FAA, courts have vacated arbitral awards when an arbitrator manifestly disregards the law. Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 388 (2d Cir. 2003); Goldman v. Architectural Iron Co. , 306 F.3d 1214, 1216 (2d Cir. 2002) (citing DiRussa v. Dean Witter Reynolds Inc. , 121 F.3d 818, 821 (2d Cir 1997)). See also Matter of Daesang , 167 A.D.3d at 15-16 (citing Wein , 6 N.Y.3d at 480-81). Importantly, the doctrine does not apply to the facts. Wein , 6 N.Y.3d at 483. Application of the doctrine is limited. Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules , 867 F.2d 130, 133 (2d Cir. 1989). It is a doctrine of last resort. Duferco , 333 F.3d at 389. It requires more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law. Id . The doctrine is “limited to the rare occurrences of apparent egregious impropriety on the part of the arbitrators.” Daesang , 167 A.D.3d 1, 15-16. To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. Wallace v. Buttar , 378 F3d 182, 189 (2d Cir. 2004) (quoting Banco de Seguros del Estado v. Mutual Mar. Off., Inc. , 344 F.3d 255, 263 (2d Cir 2003)). See also Wien , 6 N.Y.3d at 480-81 (footnotes omitted). The petitioner bears a heavy burden when invoking the doctrine. As one district court observed, the manifest disregard standard is so difficult to satisfy that it “will be of little solace to those parties who, having willingly chosen to submit to inarticulated arbitration, are mystified by the result; for a party seeking vacatur on the basis of manifest disregard of the law ‘must clear a high hurdle.’” Goldman Sachs Ex’ion & Clearing, L.P. v. Official Unsecured Creditors’ Comm. of Bayou Grp. , 758 F. Supp. 2d 222, 225 (S.D.N.Y. 2010). Matter of Nexia Health Technologies, Inc. v. Miratech, Inc. Matter of Nexia arose in the context of information technology services that were performed by defendant Miratech, Inc. (“Miratech”), for plaintiff, Nexia Health Technologies, Inc. (“Nexia”). The dispute has its origins in 2012, when Nexia decided to upgrade its software platform, which had been in commercial use for approximately ten years. Nexia wanted to develop a next generation version of the software platform, Version 10 (“V10”), that would use modern development languages and incorporate more advanced software tools and architecture than the version then-in use. By May 2015, Nexia had partially developed V10, but needed external assistance to complete the upgrade for commercial release. Miratech contacted Nexia to offer its services in completing the new version of the software platform (“V10 Project”). Thereafter, in June 2015, the parties executed a Letter of Intent (“LOI”). The LOI defined the initial contractual relationship between Nexia and Miratech, the work to be performed in connection with the upgrade to V10 and informed the later negotiations and formation of the Master Services Agreement (“MSA”) between the parties. On January 1, 2016, the parties executed the MSA. The MSA contained certain limitations on liability. In Section 13.1, the parties agreed that neither would be liable for indirect damage (including negligence), loss or damage of data, loss of potential clients, lost profits, business fields or any other damages of the kind. In Section 13.2, the parties agreed that “total liability under a SOW/PO < i.e. , statements of work/purchase orders> i.e., statements of work/purchase orders> (including the sum of damages and loss reimbursements of a Party under the SOW) not exceed 10% of amounts paid by to Miratech during the 12 month period ending with the date of a Claim of other Party.” Thus, under this section, “ he total liability under an Agreement (including the sum of damages and loss reimbursements of a Party under the Agreement) not exceed (1) USD $1 million or (2) 10% of the amounts paid by to Miratech under the Agreement during the 12 month period ending with the date of the Claim of the other Party, whichever of the two amounts is lower.” Pursuant to the parties’ agreement, Miratech was to perform its services in three phases. Nexia paid Miratech the agreed-on fee for Phase 0 of the V10 Project, as well as the fee for completing Phase 1 of the project. In total, Nexia paid Miratech more than $1.6 million (Cdn) to develop the V10 software. Nexia claimed that it never received a product that met the contractual specifications in the MSA or had any commercial value. According to Nexia, as of April 30, 2016, the agreed upon deadline for completing Phase 2 of the V10 Project, Miratech had failed to deliver a compliant and stable version of V10 that could be delivered to Nexia’s clients for further testing. As a result, said Nexia, one of its primary clients cancelled its contract with the company. Because of Miratech’s alleged failure to timely deliver a marketable product, Nexia terminated the MSA on June 1, 2016. Miratech commenced an arbitration for payment of the amounts due in connection with the work performed in completing Phase 2 and Phase 3 of the V10 Project. Nexia counterclaimed, alleging that, among other things, Miratech breached the MSA. The arbitrator found in favor of Meritech. The arbitrator held that Miratech was entitled to be paid for all the time reflected in the invoices it submitted to Nexia in connection with Phase 2 of the V10 Project. The arbitrator also held that Miratech was to be compensated for Phase 3 of the V10 Project although there was no meeting of the minds as to the pricing of the work performed during Phase 3 as Nexia had been unjustly enriched by Miratech’s work during that phase. Consequently, the arbitrator awarded Miratech $1,183,633.60 (Cdn) for the work performed during Phase 2 of the V10 Project and $321,428.57 for the work performed during Phase 3 of the project. The arbitrator also awarded Miratech $410,549.24 (Cdn) in interest. At issue in Matter of Nexia was whether the arbitrator manifestly disregarded the law in failing to apply the limitations of liability clause of the MSA ( i.e. , Section 13.2) to the damages awarded for Phase 2 of the V10 Project. Slip Op. at *1. The Supreme Court held that the arbitrator did not manifestly disregard the limitations of liability clause. In doing so, the court denied Nexia’s petition to vacate the award and granted Meritech’s cross motion to confirm the award. The Court’s Decision The Appellate Division, First Department, affirmed. The Court found that the arbitrator “gave a colorable justification for the outcome reached.” Slip Op. at *2. “In reaching his conclusion,” observed the Court, “the arbitrator did not contradict an express term of the contract, rather, he interpreted it.” Id . The arbitrator found that a correct reading of the clause “assumes that invoices and amounts due must have been paid and the clause limits liability upon payment in the ordinary course.” Since no invoices were paid for Phase 2, the arbitrator reasoned that the limitation of liability clause did not limit the damages awarded to respondent for work performed under Phase 2. Id . “Even if the arbitrator’s interpretation was erroneous,” noted the Court, “it not equate to manifest disregard of the law.” Id . “Vacatur on the basis of manifest disregard of a contract is appropriate . . . where the arbitral award contradicts an express and unambiguous term of the contract.” Id . (quoting Wien at 6 N.Y.3d at 485). Moreover, the Court held that vacatur was not appropriate under 9 USC § 10(a)(4) of the FAA ( i.e. , the arbitrator exceeded his authority) because the arbitrator “had the power to interpret the contract and decide the issues based on the parties’ submissions.”   Id . Takeaway The First Department’s analysis and opinion, though short, underscores the difficulties a party faces trying to vacate an arbitration award on any of the enumerated grounds under the FAA and the manifest disregard of the law doctrine – difficulties that this Blog has noted in its previous posts. In light of the difficulties one encounters trying to vacate an arbitral award, parties agreeing to arbitrate their disputes should do so with their eyes wide open.  Arbitration can be a very effective forum for the resolution of disputes. It is a less formal and less costly alternative to resolve disputes.  But, as Matter of Nexia shows, parties should expect to live with the outcome of their arbitration, even if the outcome seems unjust or erroneous, or both.

There has been a lot of litigation regarding an out of possession landlord’s tort liability to third parties.  Generally, an out of possession landlord “is not liable for injuries resulting from the condition of the demised premises….”  Henry v. Hamilton Equities, Inc. (Ct Appeals October 24, 2019).  An exception exists where “the landlord covenants in the lease or otherwise to keep the land in repair.”  Henry (citing , Putnam v. Stout , 38 N.Y.2d 607 (1976)) (internal quotation marks and brackets omitted).  The general rule and its exception have a long history in the Court of Appeals and English law. In Cullings v. Goetz , 256 N.Y. 287 (1931), overruled by Putnam v. Stout , 38 N.Y.2d 607 (1976), plaintiff, after being injured while attempting to open defective sliding entrance doors at a garage, sued the lessee of the automobile repair shop where he was injured as well as the lessor/owner of the property.  The tenancy was subject to an oral lease.  “The trial judge left the question to the jury whether as one of provisions the owners had agreed to make the necessary repairs .”  Cullings , 256 N.Y. at 289.  The trial court instructed the jury that, in the event such an agreement was found, and a “failure to repair after notice of the need, owners as well as lessee were to be held for any negligence in the unsafe condition of the doors.”  Cullings , 256 N.Y. at 289. The Cullings lessor appealed after a jury found in favor of the plaintiff as against both defendants.  The Appellate Division reversed the trial court and dismissed the complaint as against the lessor holding that the failure of the owners to keep the promise to repair was unavailing to charge them with liability in tort.”  Cullings , 256 N.Y. at 289.  The Appellate Division ruled that “liability in tort must be confined to the lessee, whose possession and dominion were exclusive and complete.”  Cullings , 256 N.Y. at 289 - 90. The Cullings Court of Appeals, in concurring with the Appellate Division, held that “in this country as in England, a covenant to repair does not impose upon the lessor a liability in tort at the suit of the lessee or of others lawfully on the land in the right of the lessee.”  Cullings , 256 N.Y. at 290 (citations omitted).  “Liability in tort is an incident to occupation or control … occupation and control are not reserved through an agreement that the landlord will repair.”  Cullings , 256 N.Y. at 290 (citations omitted). The Court of Appeals, in Putnam v. Stout , 38 N.Y.2d 607 (1976), had occasion to reconsider the reasoning of, and overruled its decision in, Cullings.   The plaintiff in Putnam was injured when her foot got stuck in a hole in the driveway of a supermarket.  Plaintiff sued the lessee supermarket and the lessor property owner.  The Putnam Court of Appeals affirmed the liability rulings of the trial court and Appellate Division that both the lessee and lessor were liable for plaintiff’s injuries. Among other things, the lease in Putnam provided: the Tenant covenants and agrees that it will make all necessary incidental repairs to the interior of the demised premises. All other necessary repairs the Landlord agrees to make. * * * Should the Landlord neglect or refuse to make any such repairs * * * within a reasonable time after notice that the same are needed, the Tenant without liability or forfeiture of its term hereby demised may have such repairs made at the expense of the Landlord and may deduct from the rent the cost thereof. Putnam, 38 N.Y.2d at 613 (internal quotation marks and brackets omitted).  Because the tenant had the right and control to repair the defects in the driveway, the Court concluded that the tenant was properly found liable.  Putnam, 38 N.Y.2d at 613. The landlord in Putnam, relying on Cullings, argued that it had no liability for plaintiff’s injuries.  The Court of Appeals stated that the time to “reevaluate our adherence to the Cullings rule and reappraise the modern trend toward assessing liability solely upon the basis of the covenant to repair” has come.  Putnam, 38 N.Y.2d at 614 (citation omitted).  In overruling Cullings , the Putnam Court stated: We overrule Cullings … and adopt the Restatement formulation as the law rule to be applied. The Restatement rule rests on a combination of factors which, we think, more accurately and realistically place an increased burden on a lessor who contracts to keep the land in repair: First, the lessor has agreed, for a consideration, to keep the premises in repair; secondly, the likelihood that the landlord's promise to make repairs will induce the tenant to forego repair efforts which he otherwise might have made; thirdly, the lessor retains a reversionary interest in the land and by his contract may be regarded as retaining and assuming the responsibility of keeping his premises in safe condition; finally, various social policy factors must be considered: (a) tenants may often be financially unable to make repairs; (b) their possession is for a limited term and thus the incentive to make repairs is significantly less than that of a landlord; and (c) in return for his pecuniary benefit from the relationship, the landlord could properly be expected to assume certain obligations with respect to the safety of the others. Putnam, 38 N.Y.2d at 617 - 18 (citations omitted).  Thus, the Putnam Court held that “a landlord may be liable for injuries to persons coming onto his land with the consent of his lessee solely on the basis of his contract or covenant to keep the premises in repair.”  In determining that, in light of the holding, the lessor in Putnam was liable to the plaintiff, the Court stated: … it is clear that the landlord is also liable to plaintiff. It is undisputed, of course, that plaintiff was on the land with the permission of , that covenanted to keep the driveway in repair, that the disrepair created an unreasonable risk of harm to plaintiff, which performance of the covenant would have prevented, and that since had not even attempted to repair the driveway, he failed to exercise reasonable care to perform his contract. We conclude, therefore, that liable to plaintiff. The Henry Court of Appeals had the opportunity to revisit Putnam .  In reiterating the general rule of liability, the Court stated: Landowners generally owe a duty of care to maintain their property in a reasonably safe condition, and are liable for injuries caused by a breach of this duty. The duty is premised on the landowner's exercise of control over the property, because the person in possession and control of property is best able to identify and prevent any harm to others. In contrast, a "landowner who has transferred possession and control is generally not liable for injuries caused by dangerous conditions on the property. (Citations, quotation marks and brackets omitted.) The plaintiff in Henry was a nurse who was injured after slipping on water caused by a leaking roof in the nursing home where she worked.  As to the parties’ repair obligations: he lease stated that the tenant would, at its "sole cost and expense, maintain and keep all parts of the leased premises . . . in a good state of repair and condition." Moreover, although maintained the right to enter the facility to make repairs if the tenant failed to do so, the lease specified that it was not to be construed "as making it obligatory upon the part of to make such repairs or perform such work." Rather, the lease provided that "shall not be required to maintain, repair or replace any part of the leased premises or any of its fixtures, furniture, machines, equipment or appurtenances. Therefore, under the subject lease, it was the tenant who was obligated to make the repairs that related to the accident.  Accordingly, under a straightforward Putnam analysis the landlord should have no liability to the plaintiff.  The plaintiff in Henry , however, tried to use additional facts to confer liability on the landlord.  The subject nursing home was financed with a mortgage insured through the Federal Housing Administration, which is part of HUD.  Among other things, the agreements with HUD, which were incorporated into amendments to the lease, required the landlord to maintain the “mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition.”  Significantly, “the HUD regulatory agreement, as incorporated into the 1978 amendment to the lease, did not alter the contractual relationship between the and regarding control of the premises or replace 's contractual duty to perform maintenance and repairs at the facility.” As explained by the Henry Court of Appeals, “ he issue presented on this appeal is whether exception applies to a regulatory agreement between defendants, as owners of the property, and … HUD, as guarantor of the mortgage on defendants' premises.  After analyzing Putnam , the Court concluded that “it is the relationship between those two parties — the landlord and the tenant — as reflected in their agreements regarding the maintenance of the property, that drives the analysis.”  In this regard, the Henry Court stated: Critically, the HUD regulatory agreement, as incorporated into the 1978 amendment to the lease, did not alter the contractual relationship between the and regarding control of the premises or replace 's contractual duty to perform maintenance and repairs at the facility. Although the terms of the HUD agreement were to supersede all other requirements in conflict therewith, the regulatory agreement did not conflict with, or absolve of, its responsibilities under the original lease. Indeed, as previously noted, the amendment continued all terms from the lease that did not conflict with the regulatory agreement. Given the absence of a conflict on the issue of 's duties to make repairs, the HUD agreement, as incorporated into the lease amendment, was not a covenant that could be said to displace 's duties or alter the relationship between landlord and tenant in the manner contemplated by . In that regard, an analysis of the Court's rationale in Putnam for adopting the rule further indicates that the exception does not apply to (and should not be expanded to cover) the HUD regulatory agreement. In particular, the Putnam Court's emphasis on the likelihood that the landlord's promise to make repairs will induce the tenant to forgo repair efforts which it might otherwise have made clearly is not implicated by that agreement. The record reflects that regularly performed repairs (although perhaps negligently), including repairs to the alleged injury-causing roof condition in 2009, and retained a contractor to make further repairs to the roof two weeks before the accident. In addition, the regulatory agreement required monthly deposits into a reserve fund to be used for replacement of structural elements and mechanical equipment at the facility, and the 1978 amendment to the lease permitted only to withdraw money from the fund "for the purposes for which such fund is established." Significantly, successfully sought HUD's authorization for the release of money from this fund for the purpose of maintaining the facility's sprinkler system, whereas nothing in the record suggests that defendants ever performed any repairs. After its analysis, the Henry Court determined that the Putnam exception to the general rule regarding out of possession landlords was inapplicable to the case and, therefore, the landlord had no liability to plaintiff.  It should be noted that Justice Rivera filed a lengthy dissenting opinion in Henry . TAKEAWAY Lease language requiring a landlord to make certain repairs to leased premises could operate to make the landlord liable for personal injuries.