By: Jeffrey M. Haber On June 26, 2025, the Securities and Exchange Commission (SEC”) announced (here) that it charged a Manchester, New Hampshire resident, Robynne Alexander, a real estate investment coach and real estate investment coach, with defrauding investors through real estate investment schemes resulting in losses of at least $3 million. According to the complaint filed by the SEC (here), from 2018 through 2024, defendant solicited investors to buy securities in real estate investment projects for multiple properties in New Hampshire and Massachusetts, that she represented she would buy, renovate, and sell for a profit. The SEC alleged that defendant did not use the investment proceeds as represented. Instead, said the SEC, defendant used a substantial amount of investor money to pay fictitious investment returns to certain favored investors (in Ponzi-like fashion), to repay some investors and lenders in unrelated projects, and as her primary means of paying her personal expenses. The SEC’s complaint (here), filed in the United States District Court for the District of New Hampshire, charged defendant with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. Defendant consented to the entry of an order permanently enjoining her from violating the charged provisions; enjoining her from participating in the issuance, purchase, offer, or sale of any security, and from engaging in activities for the purpose of inducing or attempting to induce the purchase or sale of any security, except for her own account; permanently barring her from serving as an officer or director of any public company; and providing that the Court order disgorgement plus prejudgment interest and a civil monetary penalty, in amounts to be determined by the Court. In a parallel action, the U.S. Attorney’s Office for the District of New Hampshire filed criminal charges against defendant. Defendant pleaded guilty and agreed to, among other things, provide $3 million in restitution to investors harmed by her actions. Additionally, defendant entered into a consent order (here) with the New Hampshire Bureau of Securities Regulation (the “Bureau”) pursuant to which defendant agreed to cease and desist from offering or selling securities in New Hampshire. Defendant also agreed not to hold any securities licensure in New Hampshire and to pay $96,730.06 in restitution to the victims. _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Under New York law, an action based upon fraud must be commenced within six years of the date the cause of action accrued, or within two years of the time the plaintiff discovered or could have discovered the fraud with reasonable diligence, whichever is greater.[1] The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged”,[2] “even though the injured party may be ignorant of the existence of the wrong or injury.”[3] Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud. In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.”[4] “[M]ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud.[5] “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.”[6] Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that she has been defrauded, a duty of inquiry arises, and if she fails to undertake that inquiry when it would have developed the truth, and shuts her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to her.[7] The test as to when fraud should with reasonable diligence have been discovered is an objective one.[8] Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued.[9] “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.”[10] In Milne Travel Agency, Inc. v. Altour Del., LLC, 2025 N.Y. Slip Op. 32294(U) (Sup. Ct., N.Y. County June 25, 2025) (here), the Supreme Court, New York County, Commercial Division, dismissed a fraud claim on statute of limitations grounds, finding that, inter alia, plaintiff could have discovered the alleged fraud with the exercise of diligence. The court also dismissed the fraud cause of action because plaintiffs failed to plead the justifiable reliance element of their fraud claim. In Milne, plaintiffs Scott Milne (“Milne”) and his company, Milne Travel Agency, Inc. (“MTA”, and together with Milne, “plaintiffs”) brought an action against defendants ALTOUR Delaware LLC (“ALTOUR”) and Travel Leaders Group Holdings, LLC, d/b/a Internova Travel Group (“Internova” and together with ALTOUR, defendants) relating to non-party ALTOUR Milne LLC (ALTOUR Milne), of which MTA and ALTOUR were members. In the Amended Complaint, plaintiffs asserted causes of action for breach of contract, breach of the covenant of good faith and fair dealing, fraud, fraudulent concealment, breach of fiduciary duty, accounting, and intentional interference with contract. In today’s article, we examine the fraud claims. MTA is a family-run travel services business started by plaintiff’s mother in 1975. In March 2016, MTA sold the majority of its assets to defendant ALTOUR pursuant to a joint venture agreement (“JV Agreement”) and an operating agreement (“Operating Agreement”, and together the JV Agreement, the “Agreements”). In connection with the transaction, ALTOUR formed a new company, non-party ALTOUR Milne. ALTOUR held the majority interest in ALTOUR Milne. MTA was a minority member with Milne as the sole Manager. Among other things, the Agreements granted MTA a “Tag Along” right, which allowed ALTOUR to sell “all or substantially all” of its equity or assets to a third party, which would then trigger MTA’s right to have that third party purchase MTA’s interest in ALTOUR on the same terms. In August 2017, ALTOUR “directly or indirectly sold ‘all or substantially all of its equity and/or assets’” to defendant Internova (the “2017 Transaction”). As a result of the sale, ALTOUR was “directly or indirectly” wholly owned by Internova. Plaintiffs alleged that the 2017 Transaction triggered MTA’s Tag Along Right. Plaintiffs maintained that defendants took steps to prevent plaintiffs from exercising that right. First, said plaintiffs, ALTOUR did not alert MTA about the 2017 Transaction when it occurred. Second, when plaintiffs learned about the transaction in December 2017, ALTOUR’s CFO allegedly told Milne that the transaction did not trigger the Tag Along Right because a “‘different ALTOUR’ entity” was sold, not ALTOUR itself. Plaintiffs claimed that Milne “expressed skepticism” at this assertion. On December 11, 2017, Milne emailed the then-CFO of ALTOUR, stating that the notion that the 2017 Transaction did not activate the Tag Along Right did not “really pass [the] straight face test.” Plaintiffs alleged that defendants overcame Milne’s skepticism by misrepresenting that there was “no change of control at ALTOUR” as evidenced by the fact that “Milne would continue to interface with the same ALTOUR personnel.” From 2017 through December 2023, ALTOUR Milne operated “business as usual without interference from Internova.” In that connection, Milne continued to interact with the same ALTOUR personnel as before the 2017 Transaction. Plaintiffs alleged that the continued interaction with the same ALTOUR personnel led them to believe ALTOUR’s representation that it had not been sold. Plaintiffs claimed that they eventually learned the truth in late 2023. Plaintiffs alleged that when ALTOUR’s CEO stepped down, Milne learned that “Internova was now fully in charge of ALTOUR’s business.” With the resignation, Milne allegedly believed that the sale of ALTOUR to Internova had occurred, “thereby triggering MTA’s Tag Along Right.” Plaintiffs maintained that they only learned the full truth on December 13, 2023, when during a virtual meeting, Internova’s CEO, CFO, and General Counsel informed Milne that the 2017 Transaction did involve a sale of ALTOUR and that plaintiffs missed their chance to exercise the Tag Along Right by over six years. Defendants moved to dismiss the Amended Complaint. Regarding the fraud claim, defendants argued that the cause of action was barred by the statute of limitations. Defendants maintained that plaintiffs filed the action on August 26, 2024, but the alleged fraud was based on misrepresentations made in December 2017, more than six years earlier. In response, plaintiffs argued that they should benefit from the two-year discovery rule because defendants first told plaintiffs in December 2023 that the 2017 Transaction triggered the Tag Along Rights. Defendants countered plaintiffs’ invocation of the discovery rule, arguing that plaintiffs could have discovered the truth given Milne’s skepticism about ALTOUR’s representations that the 2017 Transaction did not trigger the Tag Along Rights, especially since Milne had legal counsel to advise on the effects of the 2017 Transaction. Further, argued defendants, it was not believable that Milne, who was ALTOUR Milne’s manager for six years, did not notice the truth about the 2017 Transaction. Defendants maintained that it was unreasonable for plaintiffs to believe that a sale had not occurred “simply because the same CEO remained at ALTOUR,” especially given Milne’s lengthy experience of 50 years in the business. The court agreed with defendants. The court held that plaintiffs “could have discovered the fraud at the time it occurred with reasonable diligence.”[11] The court found that “plaintiffs were on notice of the 2017 Transaction in December 2017.”[12] The court explained that email correspondence submitted by defendants showed that “Milne did not think defendants’ argument – that the sale did not trigger the Tag Along Right because it involved a different entity – ‘passe[d] the straight face test.’”[13] As a result, noted the court, “Milne had consulted his attorney on this matter as evidenced by his emails of December 11, 2017.”[14] The court concluded from these facts that “[p]laintiffs were … aware of the transaction and had enough information to make a quasi-legal conclusion that they could activate their Tag Along Rights – all the information they needed at the time to assert those rights and avoid the fraud.”[15] The court rejected plaintiffs’ argument that they were merely “skeptical” of defendants’ statements but were nevertheless deceived by ALTOUR’s subsequent representation that “there was ‘no change of control’ because plaintiffs would continue to work with the same personnel.”[16] The court explained that “[t]he mere continuity of personnel [was] not evidence that a company was not sold, particularly if, as asserted by defendants, an ‘upstream’ entity was sold.”[17] The court reasoned that the “emails filed by defendants show[ed that] plaintiffs had a lawyer who could have explained this” to plaintiffs.[18] The court also found that plaintiffs were sophisticated in business and, therefore, had an affirmative duty to protect themselves from the alleged fraud: “Plaintiffs are also not so unsophisticated that their credulity can be overlooked – MTA’s business, family-owned or otherwise, operated for 50 years and engaged in … sophisticated corporate transactions as recently as 2016.”[19] Adding to their sophistication, said the court, plaintiffs “had legal counsel on the 2017 [T]ransaction and the Tag Along Right.”[20] Thus, concluded the court, “even if plaintiffs’ fraud claim were timely, it would fail because plaintiffs [did] not plead justifiable reliance.”[21] Accordingly, the court dismissed the fraud claim “in its entirety”.[22] Takeaway Milne highlights the need for litigants to act on facts and circumstances from which it could be reasonably inferred that they were the victims of fraud.[23] The failure to bring a lawsuit when the facts suggest fraud will result in dismissal. Thus, even though the discovery rule allows the victim of fraud to bring a lawsuit when the very nature of the fraud prevents him/her from knowing that he or she was defrauded, the courthouse doors will, nevertheless, close on the litigant who sits on his or her rights when the facts indicate that a wrong has been done. ____________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] CPLR § 213(8). See also Sargiss v. Magarelli, 12 N.Y.3d 527, 532 (2009); Carbon Capital Mgmt., LLC v. Am. Express Co., 88 A.D.3d 933, 939 (2d Dept. 2011). [2] Carbon Capital Mgmt., 88 A.D.3d at 939 (citation and alterations omitted). [3] Schmidt v. Merchants Despatch Transp. Co., 270 N.Y. 287, 300 (1936). [4] Erbe v. Lincoln Rochester Trust Co., 3 N.Y.2d 321, 326 (1957). [5] Id. [6] Trepuk v. Frank, 44 N.Y.2d 723, 725 (1978). [7] Gutkin v. Siegal, 85 A.D.3d 687, 688 (1st Dept. 2011). [8] Id. (citation and internal quotation marks omitted). [9] See Shalik v. Hewlett Assocs., L.P., 93 A.D.3d 777, 778 (2d Dept. 2012) (“The two-year period begins to run when the circumstances reasonably would suggest to the plaintiff that he or she may have been defrauded, so as to trigger a duty to inquire on his or her part”) (citation omitted) (affirming dismissal because “the defendants established, prima facie, that the plaintiffs possessed information regarding the questionable authenticity of the decedent’s signature on the Amendment more than two years before they filed the complaint.”). [10] Celestin v. Simpson, 153 A.D.3d 656, 657 (2d Dept. 2017). [11] Slip Op. at *9. [12] Id. [13] Id. [14] Id. at *10. [15] Id. [16] Id. [17] Id. [18] Id. [19] Id. [20] Id. [21] Id. (citing Globalx, Inc. v. Hogwarts Capital, LLC, 226 A.D.3d 535, 536 (1st Dept. 2024)). [22] Id. [23] To find articles related to fraud, fraudulent inducement, the statute of limitations for fraud, the discovery rule, and justifiable reliance, visit the “Blog” tile on our website and enter the search terms “fraud”, “fraudulent inducement”, the “statute of limitations for fraud”, the “discovery rule”, and “justifiable reliance” or any other related search term in the “search” box.

Summary On June 16, 2016, the U.S. Supreme Court decided Universal Health Services, Inc. v. United States ex rel. Escobar, a Medicaid case involving the “implied certification” theory of liability under the False Claims Act (“FCA”). The “implied false certification” theory provides that a defendant may violate the FCA by failing to disclose noncompliance with a relevant statutory, regulatory, or contractual requirement. In Escobar, the Court unanimously confirmed that the theory “can be a basis for liability.” In so holding, the Court identified two preconditions for the application of the theory. First, when a defendant submits a claim for government payment, the defendant must not “merely request payment”; instead, the defendant must also “make[] specific representations about the goods or services provided.” Second, the omission – that is, the defendant’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements” – must rise to the level of “misleading half-truths.” Importantly, the noncompliance must be “material to the Government’s payment decision.” In this way, “every undisclosed violation of an express condition of payment [would not] automatically trigger[] liability.” Background Escobar involved a Medicaid patient (Yarushka Rivera) who was undergoing treatment for bipolar disorder at a Massachusetts mental health clinic. During treatment, Ms. Rivera experienced an adverse reaction to prescribed medication and died. Her parents later learned that only one of the five counselors who treated Ms. Rivera at the clinic was licensed under Massachusetts law. In 2011, Ms. Rivera’s parents filed a qui tam complaint in federal court, alleging that the treating counselors were not licensed or supervised, in violation of Massachusetts health regulations. They claimed that, by seeking reimbursement from Medicaid for services performed in violation of those regulations, the clinic and its parent, Universal Health Services, Inc. (“UHS”), submitted false claims to the government. Because the clinic did not expressly certify that the services were performed in compliance with state regulations, the qui tam complaint relied on the implied certification theory of liability – that is, the clinic had impliedly (and falsely) certified that it was in compliance with applicable Medicaid licensing and supervision requirements at the time it submitted the claims for reimbursement. In 2014, the district court dismissed the complaint on the ground that none of the regulations the clinic allegedly violated was an express condition of government payment. The court concluded that the complaint did not state a claim for relief because it relied on noncompliance with regulations that were conditions of participation in the Medicaid program, rather than conditions of payment by the program. The Court of Appeals for the First Circuit reversed, holding that conditions of payment, “which may be found in sources such as statutes, regulations, and contracts, need not be ‘expressly designated.’” Instead, the court explained that whether a legal requirement is a condition of payment is “a fact-intensive and context-specific inquiry, involving a close reading of the foundational documents, or statutes and regulations, at issue” and evidence showing that the government would be entitled to refuse payment were it aware of the violation. The court concluded that the regulations at issue imposed conditions of payment, and therefore were “dispositive evidence of materiality.” The First Circuit’s decision contributed to a split among the courts of appeals over the validity and scope of the “implied false certification” theory of liability. Other courts of appeals have rejected the theory in total (e.g., the Seventh Circuit), while others have ruled that an implied certification must involve compliance with an express condition of payment (e.g., the Second Circuit). The Supreme Court granted certiorari to resolve the split and answer the questions whether the implied certification theory is a viable one, and if so, whether it would only apply where a defendant violated a legal requirement that the government had expressly designated as a condition of payment. The Supreme Court’s Decision As an initial matter, the Court held that the implied certification theory of liability is a viable one under the FCA, albeit “in some circumstances.…” The Court based its holding on the use of the word “fraudulent” in the FCA, noting that it is “a paradigmatic example of a statutory term that incorporates the common-law meaning of fraud.” “Because common-law fraud has long encompassed certain misrepresentations by omission,” the Court found that “misrepresentations by omission can give rise to liability.” Having found the theory to be viable, the Court identified two conditions under which a defendant may be liable: (1) the defendant does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading. As to the first condition, the Court emphasized that, in the case before it, the defendant had made representations “about the specific services provided by specific types of professionals,” but “failed to disclose serious violations of regulations pertaining to staff qualifications and licensing requirements for these services.” Therefore, the Court found, the representations were “clearly misleading in context,” because the defendant used specific billing codes and identifiers concerning the “types of treatment” and “specific job titles,” implying that the clinic’s counselors had the requisite training and qualifications for their jobs. Such misrepresentations, held the Court, fell “squarely within the rule that half-truths – representations that state the truth only so far as it goes, while omitting critical qualifying information – can be actionable misrepresentations.” As to the second condition, the Court held that a misrepresentation about legal compliance does not become “material” simply because the government expressly labeled the legal requirement as a “condition of payment,” or because the government could choose to withhold payment if it knew about the noncompliance. “What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.” The Court explained that “[a] statement that misleadingly omits critical facts is a misrepresentation irrespective of whether the other party has expressly signaled the importance of the qualifying information.” Therefore, the fact that a legal requirement is labeled as a condition of payment is relevant to materiality, but “not automatically dispositive.” The Court explained that the materiality inquiry focuses on the “effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” Although “minor or insubstantial” noncompliance “cannot” be material, other relevant considerations include whether the government “consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement,” or, conversely, whether the government “pays a particular claim in full despite its actual knowledge that certain requirements were violated.” To underscore the importance of the materiality inquiry, the Court stressed that the analysis is “rigorous” and “demanding,” and that the FCA is not “an all-purpose antifraud statute” or “vehicle for punishing garden-variety breaches of contract or regulatory violations.” The Court also reiterated that whistleblowers must plead their claims “with plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b).” Against this analysis, the Court found that the clinic’s submissions for reimbursement “without disclosing [the clinic’s] many violations of basic staff and licensing requirements,” could qualify as misleading misrepresentations giving rise to liability under the FCA. The Court vacated the First Circuit’s judgment and remanded the case to determine whether the alleged misrepresentations were material under the standard set forth by the Court. Implications The Court’s decision contains two core conclusions: the implied certification theory is viable; and liability in such cases turns on materiality – i.e., whether the misrepresentation about compliance with a statutory, regulatory, or contractual requirement is material to the government’s payment decision. Specific Representations and Failure to Disclose Noncompliance In adopting the theory of liability, the Supreme Court blurred the lines, if not did away with the distinction, between an express false certification and an implied false certification. Escobar makes clear that whether a requirement is expressly labeled a condition of payment is not solely dispositive of the outcome – it is only one factor. As the Court explained: Defendants can be liable for violating requirements even if they were not expressly designated as conditions of payment. Conversely, even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability. What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision. While the Court seemed to be endorsing a broad approach, the decision indicates, however, that application of the theory is more narrow than relators would prefer. Relators must show a link between the claim for payment and the undisclosed legal violation. In this regard, the Court held that the relator must plead that the defendant “ma[de] specific representations about the goods or services provided.” A request for reimbursement, without specificity as to the goods or services provided, will not suffice under Escobar. Additionally, the underlying violation must be directly relevant to a specific representation made by the defendant. A defendant’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements” must render “those representations misleading half-truths.” Thus, technical violations that cannot be linked to any affirmative representation by the defendant should not result in an FCA violation. Determining whether the link between the claim for payment and the undisclosed legal violation, as well as the nexus between the underlying violation and a specific representation, are context-dependent inquiries. It remains to be seen whether the district courts will establish a uniform standard for making these determinations. Materiality The Court’s focus on the materiality of the representation indicates that pleading and proving a false certification will be a fact-specific, hotly-contested part of any qui tam action. Notwithstanding, it is important for potential relators and defendants to understand that this focus does not mean that every qui tam complaint will survive a motion to dismiss. The Court emphasized that the materiality analysis, though “rigorous” and “demanding”, should not be “too fact intensive for courts to dismiss False Claims Act cases on a motion to dismiss or at summary judgment.” Relators have to plead “facts to support allegations of materiality” and satisfy the requirements of “plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b).” Nevertheless, the emphasis on materiality raises a number of questions. For example, since a relator must plead and prove the materiality of the legal requirement and the defendant’s knowledge that the legal requirement was material, does this mean that both have to be satisfied? What if the materiality of the legal requirement is not disputed, but the defendant’s knowledge is disputed? Can the defendant obtain a dismissal on a motion to dismiss? The Court’s opinion does not directly answer these questions, though it suggests that the defendant would likely succeed in securing a dismissal. The lower courts will have to grapple with these and other questions. It remains to be seen whether disputes surrounding the meaning of “materiality” will lead to inconsistent lower court opinions. For a look at how one court has since applied this materiality standard, see our post on the Fifth Circuit's application of the "demanding" materiality standard to dismiss an implied certification case. Conclusion Escobar has a little something for everyone. On the one hand, it permits relators to bring qui tam actions alleging an implied false certification. On the other hand, it provides the conditions under which such a claim may be viable and assures defendants that complaints based on an implied false certification theory of liability remain subject to dismissal, despite the context-dependent nature of the claim, if relators do not plausibly allege, with particularity, that the government considers the particular undisclosed legal violation at issue to be material to its payment decision. For further analysis of how courts have since defined the falsity requirement, see Defining the Contours of Falsity After Escobar. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jeffrey M. Haber Like most states in the country, New York is considered to be an “employment at will” state. This means that if there is no written agreement between the employer and employee (such as, a collective bargaining agreement) governing when the employer can fire the employee, the employer has the right to fire the employee at any time for any reason. When this happens, the employee has no legal recourse even when the termination is arbitrary, unfair or unreasonable. There are a few exceptions to an “employment-at-will” relationship. For example, employers cannot discharge an employee in violation of any law that prohibits discrimination. Additionally, an employer cannot discharge an employee: in violation of the company’s employee handbook; in retaliation for whistleblowing a violation of law to a supervisor or to a public agency; for participation, on his/her own time, in lawful political or recreational activities; in retaliation for filing a Workers’ Compensation or Disability Benefits claim or testifying before the Workers’ Compensation Board; and because of the employee’s absence from work to fulfill a jury duty obligation. Under any of the foregoing circumstances, an at-will employee may sue his/her employer for damages and/or reinstatement for wrongful termination. What happens, however, when an employee, who had an employment agreement that expired but continues to work for the company as an at-will employee until fired, seeks post-termination compensation? Can an employee under these circumstances sue his/her employer for such compensation? On June 2, 2016, the Appellate Division, First Department said no. In Holahan v. 488 Performance Group, Inc., 2016 NY Slip Op. 04311, the First Department held that an at-will employee was not entitled to post-termination commissions, even though those commissions would have been paid under the expired contract. Colleen Holahan (“Holahan”) worked for the defendant pursuant to an employment agreement until 2007, when the agreement expired. Although the agreement was not extended in writing, Holahan continued to work for the defendant as an at-will employee until her employment was terminated in 2013. Holahan claimed that she earned commissions that the defendant refused to pay. She brought suit, alleging, among other things, breach of contract and unjust enrichment related to the failure to pay the commissions. The defendant moved to dismiss the complaint, which the Supreme Court, New York County, granted on April 22, 2015. Holahan appealed. The First Department unanimously affirmed the dismissal. The Court held that, “as a matter of law,” Holahan’s breach of contract claim was properly dismissed because her employment agreement with the defendant had expired in 2007 without, as alleged in her complaint, extension: Plaintiff’s breach of contract claim, which alleged that the corporate defendant breached the parties’ employment agreement by failing to pay her certain compensation and benefits upon the termination of her employment in 2013, was correctly dismissed. The employment agreement expired in December 2007, and it unambiguously provided that any extension of the agreement needed to be in writing. Because there was no writing extending the agreement, her breach of contract claim fails as a matter of law. (Goldman v White Plains Ctr. for Nursing Care, LLC, 11 NY3d 173, 178 [2008]). The Court also held, “as a matter of law,” that since Holahan had been an at-will employee following the expiration of her employment agreement, she was not entitled to any post-termination commissions: Plaintiff’s unjust enrichment claim, which seeks post-termination commissions, also fails as a matter of law. Upon the expiration of her employment agreement, plaintiff became an “at-will” employee, and such employees are not entitled to post-termination commissions. (Mackie v La Salle Indus., 92 AD2d 821, 822 [1st Dept 1983].) Defining the Relationship Is Important Holahan stands as a reminder to employers and employees that they should define the terms of their employment relationship in writing (i.e., in documents such as employment applications, employee handbooks, and office policy and procedure manuals). This is especially important since the law generally presumes that an employee is employed at will unless he/she can prove otherwise, usually through written documents relating to the employment or through oral statements made by the employer. Freiberger Haber LLP counsels both individuals and employers regarding their legal rights related to employment termination. In this regard, the firm evaluates the circumstances surrounding an employee’s termination to determine if the discharge was lawful. The firm also helps employers minimize the possibility of being involved in a wrongful termination lawsuit, by among other things, reviewing and revising employee handbooks and company policies and procedures, as well as reviewing documents concerning the reasons for employee discharge. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger Today’s article relates to summary judgment in lieu of complaint pursuant to CPLR 3213,[1] which provides, in relevant part: When an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. The summons served with such motion papers shall require the defendant to submit answering papers on the motion within the time provided in the notice of motion…. If the motion is denied, the moving and answering papers shall be deemed the complaint and answer, respectively, unless the court orders otherwise…. CPLR 3213 is a procedural device that “is intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious. In the actions to which it applies, a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” Interman Industrial Products, LTD v. R.S.M. Electron Power, Inc., 37 N.Y.2d 151, 154 (1975) (citation and internal quotation marks omitted); see also Counsel Financial II LLC v. Bortnick, 214 A.D.3d 1388, 1390 (4th Dep’t 2023). As expressly stated in the statute, a litigant can benefit from the streamlined procedures of CPLR 3213 if the instrument sued upon is for the payment of money only. Counsel Financial, 214 A.D.3d at 1390. “A document comes within CPLR 3213 if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms.” Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437, 444 (1996) (quoting Interman, supra) (some citations and internal quotation marks omitted). The Weissman Court noted that the “prototypical example of an instrument within the ambit of the statute is of course a negotiable instrument for the payment of money—an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” Id. (citation omitted). It is also “well established that an unconditional guarantee … is an instrument for the payment of money only within the meaning of CPLR 3213.” European American Bank & Trust Co. v. Schirripa, 108 A.D.2d 684, 684 (1st Dep’t 1985). Other types of instruments may fall within the purview of CPLR 3213. Where resort to extrinsic evidence is necessary to establish the amounts due on an instrument, accelerated judgment pursuant to CPLR 3213 is “inappropriate”. Tradition North America, Inc. v. Sweeney, 133 A.D.3d 53, 54 (1st Dep’t 1987) (promissory notes); see also PDL Biopharma, Inc. v. Wohlstadter, 147 A.D.3d 494, 495 (1st Dep’t 2017). Another interesting issue was addressed in Tradition. Because the repayment of the subject notes was tied to bonuses to which the maker may have been entitled under an employment agreement, the Court held that the notes should not be considered instruments for the payment of money only because the notes could be satisfied by “performing work for his employer”. Id. These issues were addressed by the Appellate Division, Second Department, on July 9, 2025, in Pearl River Campus, LLC v. Readyscrip, LLC. The plaintiff in Pearl River sought recovery pursuant to CPLR 3213 on a guaranty of a lease agreement. With its motion, the plaintiff provided a copy of the lease, two amendments to the lease and the guaranty. The guaranty, like most guaranties, provided that “the defendant ‘absolutely and unconditionally guarantees to the plaintiff the timely payment of all amounts that Tenant may at any time owe under the Lease, or any extensions, renewals, or modifications of the Lease.’" (Internal brackets omitted.) The plaintiff also submitted an affidavit averring to the tenant’s default and the amounts allegedly due. After discussing relevant case law along the lines previously discussed, the Court, in finding that the motion court “properly denied” the motion for summary judgment in lieu of complaint, stated: To meet its prima facie burden on a motion for summary judgment in lieu of complaint, a plaintiff must prove the existence of the guaranty, the underlying debt and the guarantor's failure to perform under the guaranty. Here, a determination of the defendant's obligations to the plaintiff under the guaranty requires review of outside proof that goes well beyond a mere de minimis deviation from the face of the guaranty. In order to determine the existence and amount of the underlying debt asserted by the plaintiff, the Supreme Court would have been required to examine material outside the lease agreement and make calculations that were not shown by the plaintiff in the affidavit of its operations manager or supporting documents. Since outside proof beyond simple proof of nonpayment was required to determine the defendant's obligation to the plaintiff, the court properly determined that relief pursuant to CPLR 3213 was unavailable. [Citations and internal quotation marks omitted.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the BLOG tile on our website and search for any foreclosureor other commercial litigation issues that may be of interest to you.

By: Jeffrey M. Haber In Wilburger v. Ava Labs, Inc., 2025 N.Y. Slip Op. 51072(U) (Sup. Ct., N.Y. County July 3, 2025) (here), plaintiff sued defendant for breach of contract, unjust enrichment, and fraudulent inducement related to unpaid compensation for services rendered under an Independent Contractor Agreement. Plaintiff alleged that he worked over 2,300 hours between 2019 and 2023, including tasks beyond the scope of the agreement, and was promised payment in AVAX cryptocurrency tokens. After initially receiving 100,000 AVAX tokens, plaintiff claimed he was owed an additional 150,000 tokens, based on various agreements and assurances by defendant’s executives. Thereafter, plaintiff signed two additional agreements with defendant, which, according to plaintiff, included conditions to receiving the tokens and treated receipt of the tokens as options rather than earned compensation. Plaintiff claimed that he was misled into signing these agreements based on repeated assurances that the foregoing terms were legal formalities and that the tokens had already been earned. The court found plaintiff’s allegations sufficiently detailed to support a fraudulent inducement claim and denied defendant’s motion to dismiss the fraudulent inducement claim. In so holding, the court permitted plaintiff to rely on parol evidence to support his claim because there was no disclaimer in the agreements that negated his allegations of reliance. Background Facts Plaintiff brought the action defendant, asserting claims in connection defendant’s purported failure to compensate plaintiff for services rendered pursuant to an independent contractor agreement. Defendant is a New York City-based company that offers an open-source framework to businesses for developing decentralized finance applications and blockchain solutions through its platform known as Avalanche. To facilitate development on this framework, defendant uses a cryptocurrency token called AVAX as its basic unit of account. To build its branding and corporate identity, defendant Labs contracted with plaintiff in 2019 pursuant to an Independent Contractor Agreement (the “ICA”). Plaintiff agreed to render services to defendant in exchange for a lump sum payment of $3,800.00 at the end of the engagement and/or “a mutually agreed upon fixed lump sum payment” for any “extra requests” deemed “out of the scope of” the ICA’s enumerated services. Upon termination of the ICA, defendant was obligated to pay, within 30 days, all amounts due and owing to plaintiff for services actually performed. Between 2019 and 2023, Wilburger devoted more than 2,300 hours to expand defendant’s community outreach and provided, at defendant’s request, an array of services that were outside scope of the ICA. In exchange for the additional services, defendant agreed to compensate plaintiff with AVAX tokens. An initial compensation of AVAX tokens occurred in or around April 2020, when defendant, via one of its subsidiaries, offered plaintiff the right to acquire 100,000 AVAX tokens at a rate of $0.33 per token through a contract dated April 12, 2020 (the “April 12 Agreement”). The next month, on May 20, 2020, plaintiff wired $33,000 USD Coin (“USDC”) and received 100,000 AVAX tokens in return. Plaintiff alleged that beyond this transfer, defendant used a series of agreements and amendments to deprive him of an additional 150,000 AVAX tokens purportedly due and owing to him. Initially, on May 15, 2020, defendant, via one of its subsidiaries, granted plaintiff the right to acquire 100,000 AVAX tokens at a rate of $0.50 per token. This amount was increased to 150,000 AVAX tokens. A few days later, on May 19, 2020, plaintiff was presented with an agreement titled “Proposed Changes to your Consultant Agreement,” which amended the ICA (the “May 19 Amendment”). Under the May 19 Amendment, Section 3 of Exhibit A of the ICA would be amended to provide that plaintiff would “be granted a one-time right to purchase 150,000 AVA Mainnet tokens.” Section 3 of Exhibit A was further amended to state that plaintiff's tokens would “vest in 25% of the Restricted Tokens after 12 months of continuous service, and the balance [would] vest in equal monthly installments over the next 36 months of continuous service.” Plaintiff maintained that, notwithstanding the inclusion of the terms “right to purchase” and “continuous service” in the May 19 Amendment, he was assured by defendant that he had already earned the 150,000 AVAX tokens and that, according to defendant’s Chief Operating Officer (“COO”), the inclusion of the term “continuous service” was “just legalese” and “largely irrelevant”. Based on the representations, plaintiff signed the May 19 Amendment. On June 7, 2020, after plaintiff received his compensation of 100,000 AVAX tokens, defendant allegedly agreed, via chat communication between Wilburger and the COO, that plaintiff would—through “a discount of 33% on the current sale” of AVAX tokens and a $17,000 USDC “credit” to “top off” plaintiff’s initial $33,000 USDC investment—be entitled to 150,000 AVAX tokens that would “unlock[] at the investor schedule.” In that same communication, the COO also indicated that defendant would offer plaintiff “an additional 90k tokens on top of the contract,” which would “unlock[] at the employee 4 year vesting schedule.” Defendant then purportedly later agreed, again via chat communication, to increase the additional 90,000 AVAX tokens to 100,000 AVAX tokens. Hence, plaintiff averred, defendant, through the COO, had reiterated that it was granting him 150,000 AVAX tokens, with 50,000 AVAX tokens still outstanding, and confirmed that plaintiff would receive an additional 100,000 AVAX tokens in compensation for his services. In other words, plaintiff maintained that he was promised a total of 250,00 AVAX tokens from defendant and, to date, he had received only 100,000 of them. Plaintiff alleged that he was repeatedly assured by defendant’s Chief Executive Office (“CEO”), its Head of Strategy and Operations, and additional personnel, that his acquisition of the outstanding 150,000 AVAX tokens “had been conclusively secured” in exchange for plaintiff’s professional contributions and USDC payments. Yet, by September 16, 2020, according to plaintiff, defendant had still not transferred to plaintiff the remaining 150,000 AVAX tokens that were promised by the COO. Instead, said plaintiff, defendant presented plaintiff with a document titled the Antarctica, Inc. 2020 Equity Incentive Plan (the “Antarctica Agreement”). Under the terms of the Antarctica Agreement, defendant, through Antarctica, would grant plaintiff the option to acquire 150,000 AVAX tokens. This option would “vest with respect to one-forty-eighth (1/48th) of the covered Shares on the 12-month anniversary of the Vesting Commencement Date and then as to an additional one-forty-eighth (1/48th) of the covered Shares on each subsequent month thereafter for the next forty-seven months.” Like the May 19 Amendment, plaintiff’s option to purchase AVAX tokens was subject to his “continuous service”. Upon receiving the Antarctica Agreement, plaintiff allegedly expressed various concerns, including the fact that the 150,000 AVAX tokens that he was still owed were now seemingly being converted into an option. In response to these alleged concerns, defendant purportedly told plaintiff that (1) plaintiff had already earned the 150,000 AVAX tokens “with [his] labor,” (2) there would be no need for plaintiff to purchase the AVAX tokens, and (3) the Antarctica Agreement was nothing more than a recordkeeping formality. Although he continued to have questions about the Antarctica Agreement, plaintiff signed the agreement on September 21, 2020, purportedly under pressure from defendant. On October 28, 2023, defendant terminated the ICA without cause. Yet, despite its repeated assurances, claimed plaintiff, defendant has, to date, never issued any of the remaining 150,000 AVAX tokens purportedly owed to plaintiff. Hence, plaintiff maintained, defendant had failed to pay him all amounts due and owing under the ICA for services actually performed. Plaintiff further maintained that defendant’s failure to issue the remaining 150,000 prevented him from earning valuable “staking” rewards in an amount of at least 69,650 AVAX tokens. The Court’s Ruling Plaintiff brought the lawsuit, alleging, breach of contract, unjust enrichment and fraudulent inducement. Defendant moved to dismiss the fraud claim – e.g., misrepresentations by defendant that induced him to sign the May 19 Amendment and Antarctica Agreement. The court denied in part and granted in part the motion. Noting that the complaint was “not a model of clarity,” the court held that “all of the required elements of a fraudulent inducement claim are present.”[1] The court found that, although plaintiff “apparently recognized that the terms of [the May 19 Amendment and the Antarctica Agreement] were at odds with [defendant’s] unconditional promise to compensate him with the remaining 150,000 AVAX tokens he was owed …. [defendant] … repeatedly assured [plaintiff] that all of his AVAX tokens were already earned and that the May 19 Amendment and Antarctica Agreement were nothing more than mere formalities that had no actual bearing on his earned compensation.”[2] “Thus,” explained the court, “relying on [defendant’s] assurances, [plaintiff] executed these two agreements.”[3] “Eventually,” further explained the court, defendant “terminated [plaintiff’s] contractual relationship under the ICA and, contrary to its prior representations, used the May 19 Amendment and the Antarctica Agreement as a basis to deny compensating [plaintiff] with his remaining 150,000 AVAX tokens.”[4] “Consequently,” concluded the court, “as alleged, [defendant’s] repeated assurances proved to be false. [Eds. Note: Under CPLR 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[5] To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. Notwithstanding, in Pludeman v.Northern Leasing Systems, Inc., the Court of Appeals held that CPLR 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.”[6] Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.”[7] Thus, as noted, a plaintiff will satisfy CPLR 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct.[8]] The court rejected defendant’s argument that plaintiff’s “fraudulent inducement claim must be dismissed because he … failed to establish justifiable reliance.”[9] Defendant argued that plaintiff improperly relied on the extra-contractual statements and assurances to contradict the express terms of the May 19 Amendment and Antarctica Agreement.[10] Under New York law, a party is generally not permitted to introduce extrinsic evidence to vary or add to the terms of a contract.[11] However, “where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud” unless the agreement between the parties expressly disclaims reliance on the particular misrepresentation underlying the fraud claim.[12] Against the foregoing principles, the court found that defendant “fail[ed] to identify any specific disclaimer of reliance on the at-issue alleged misrepresentations made by [defendant].”.[13] “For this reason,” explained the court, “there [was] no basis at the pleading stage to conclude that, as a matter of law, it was unreasonable for [plaintiff] to rely on [defendant’s] extra-contractual misrepresentations to support his fraudulent inducement claim in connection with his execution of the May 19 Amendment and Antarctica Agreement.”[14] [Eds. Note: In New York, a party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party.[15] “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.”[16]] Notwithstanding the foregoing ruling, the court reached a “a different conclusion … with respect to [plaintiff’s] other purported claim … that he was fraudulently induced to transfer $50,000 USDC in exchange for a promise to transfer 150,000 AVAX tokens.”[17] “As a preliminary matter,” noted the court, “although the Complaint does reference [plaintiff’s] transfer of $50,000 USDC …, he failed to plead any facts, let alone with specificity, suggesting that this transfer was the product of fraud or even the basis of a fraud claim.”[18] “Therefore,” concluded the court, “even if [plaintiff] were asserting this particular claim as part of his Third Cause of Action, it was not pleaded with any sufficient amount of particularity to survive a motion to dismiss.”[19] _________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] To state a claim for fraudulent inducement, a plaintiff must allege “(1) a misrepresentation or an omission of material fact which was false and known to be false by the defendant, (2) the misrepresentation was made for the purpose of inducing the plaintiff to rely upon it, (3) justifiable reliance of the plaintiff on the misrepresentation or material omission, and (4) injury.” CANBE Props., LLC v. Curatola, 227 A.D.3d 654, 656 (2d Dept. 2024). [2] Slip Op. at *5. [3] Id. [4] Id. [5] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted). [6] Id. at 491 (internal quotation marks and citation omitted). [7] Id. at 492. [8] Id. [9] Id. at 5-6. [10] Id. at *6. [11] See generally NAB Constr. Corp. v Consolidated Edison Co. of NY, Inc., 222 A.D.2d 381, 381 (1st Dept. 1995). [12] See Danann Realty Corp v. Harris, 5 N.Y.2d 317, 320 (1959); International Bus. Machs. Corp. v. GlobalFoundries US Inc., 204 A.D.3d 441, 442 (1st Dept. 2022) (permitting use of parol evidence to establish fraudulent inducement claim where “the various contracts’ merger clauses [were] general, vague, and merely omnibus statements”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC, 19 A.D.3d 273, 275 (1st Dept. 2005) (holding that “only where the parties expressly disclaim reliance on the particular misrepresentations is extrinsic evidence barred” for purposes of a fraudulent inducement claim). [13] Slip Op. at *6. [14] Id. (citations omitted). [15] Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty, 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011). [16] Basis Yield, 115 A.D.3d at 137. [17] Slip Op. at *7. [18] Id. [19] Id. (citation omitted). The court noted that “even assuming the allegations underlying [the] specific theory of fraud was sufficiently particular, the claim would still be dismissed as currently framed because, as [defendant] aptly note[d], ‘a mere failure to perform’ a promise is ‘insufficient to sustain a cause of action alleging fraud.”” Id. (citing Cavalry Invs., LLC v. Household Automotive Fin. Corp., 8 A.D.3d 317, 318 (2d Dept. 2004)).

By: Jeffrey M. Haber A Ponzi scheme is an investment scam that induces people to invest money in a business or investment vehicle with promises of high returns and minimal risk. Rather than earning profits through actual investments or legitimate business operations, the scheme functions by paying early investors with money contributed by new or repeat participants. The name of the fraud comes from Charles Ponzi, who infamously ran such a scheme in the early 1900s.[1] A Ponzi scheme depends on a steady flow of new money; once the stream of money slows down or stops, the fraud collapses.[2] At the heart of a Ponzi scheme is fraud and deceit. The promoter of the scheme claims to have access to exclusive investment opportunities or proprietary financial strategies, often shrouded in vague or complex explanations. These assertions are unsupported by verifiable evidence but presented with assurances to inspire trust and induce investment. To maintain the illusion of legitimacy, early investors receive returns—sometimes referred to as “phantom profits” or “fictitious profits”—which are, in fact, funds provided by new or repeat investors. The “success” of the scheme, therefore, depends upon the influx money from new investors and the reinvestment of money by existing investors.[3] The success of a Ponzi scheme depends on victim referrals and the “credibility” of the promoter.[4] Promoters often use fake account statements, falsified performance data, and positive (but staged or scripted) testimonials to build trust. Little to no actual income is generated by the promoter. Thus, when the pool of new investors dries up or too many people request withdrawals at once, the fraud becomes unsustainable and eventually falls apart—leaving most investors, particularly later investors, with significant losses. The consequences of Ponzi schemes can be devastating.[5] Victims often lose their homes or businesses, life savings, retirement funds, or borrowed money.[6] The psychological toll can be severe, as victims may feel betrayed, ashamed, or financially ruined,[7] especially when the Ponzi scheme is based on an affinity fraud.[8] Affinity fraud is a type of fraud that exploits the personal and social bonds within a specific group or community.[9] In cases involving affinity fraud, the fraudster targets groups based on shared identity—such as family, religious affiliations, cultural backgrounds, professions, or social circles—and uses that shared identity to build trust.[10] The fraudster may be a respected member of the group or pose as one, which lowers suspicion and increases the likelihood of participation by leaders and members of the community or group.[11] When affinity fraud and Ponzi schemes intersect, the result can be devastating. People typically trust investment opportunities that come from within their familial, social, or religious network, and once a few members of the community begin receiving profits and returns (funded by new or existing investors), word-of-mouth spreads the scheme further. Unwitting participants often become the scheme’s best accelerant, drawing in other members of the community who assume that if the investment is profitable for a friend or fellow community member then it must be one worth investing in.[12] Even when doubts arise, victims of affinity-based Ponzi schemes are often hesitant or reluctant to report the fraud.[13] Concerns about embarrassing the group, damaging relationships, or implicating a community leader can delay exposure, giving the fraud more time to spread—and cause more financial harm. Today, we examine SEC v. Edwin Brant Frost IV, et al., Case 1:25-cv-03826-MLB (N.D. Ga.) (here), an enforcement action involving an alleged Ponzi scheme, originally based on affinity fraud, that was perpetrated by defendants Edwin Brant Frost IV (“Frost”) and First Liberty Building & Loan, LLC (“First Liberty”). According to the SEC, between 2014 and June 2025, defendants raised at least $140 million from approximately 300 investors through the sale of loan participation agreements and promissory notes which offered annual returns of 8% to 18%. The SEC alleged that defendants represented to investors that their funds would be used to make short-term small business loans at relatively high interest rates (“Bridge Loans”). Defendants allegedly represented that these Bridge Loans and interest thereon would be repaid by borrowers via loans issued by the Small Business Administration (“SBA”) or other commercial loans, which defendants claimed they would help broker. Initially, said the SEC, defendants solicited and sold these investments to friends and family in the form of either loan participation agreements or promissory notes. These agreements and notes offered investors the opportunity to make an investment that would be pooled with other investor funds and then lent to specific borrowers. The SEC alleged that beginning in 2024, defendants started a more widespread public solicitation of potential investors, advertising the opportunity to invest in promissory notes through radio advertising, internet podcasts, and the First Liberty website. All the investments, whether offered as a loan participation agreement or a promissory note, alleged the SEC, were purportedly to fund Bridge Loans. The SEC alleged that defendants did not, however, use investor funds as represented. According to the SEC, while some investor funds were used to make Bridge Loans, those loans did not perform as represented. Of the Bridge Loans defendants actually made, only a few had been paid in full, claimed the SEC. Most Bridge Loans ultimately defaulted and ceased making interest payments, said the SEC. Notwithstanding, defendants allegedly continued to make interest payments to investors on the defaulted loans. Since at least 2021, defendants allegedly had to use funds raised from new investors to make those interest payments. Most, if not all, of the funds raised through the publicly advertised offering, alleged the SEC, were either misappropriated or used to make Ponzi-style payments to existing investors. For example, said the SEC, defendant used investor funds to make payments to himself and members of his family[14] and used investor funds to pay for the operations of affiliated companies that he controlled. As recently as May 24, 2025, alleged the SEC, defendant withdrew $100,000 of investor funds for his personal use. In addition to not using investor funds as represented, i.e., to make Bridge Loans, the SEC alleged that defendants made other misrepresentations when soliciting new investments. Specifically, said the SEC, defendant knowingly misrepresented the success of the Bridge Loan program to investors. According to the SEC, defendant told some potential investors that First Liberty had only one Bridge Loan default. Defendant also allegedly told other potential investors that very few loans had defaulted. In reality, said the SEC, a significant portion of the Bridge Loans issued by First Liberty were in default when defendant allegedly made those statements. Commenting on the complaint, Justin C. Jeffries, Associate Director of Enforcement for the SEC’s Atlanta Regional Office, stated: “The promise of a high rate of return on an investment is a red flag that should make all potential investors think twice or maybe even three times before investing their money. Unfortunately, we’ve seen this movie before – bad actors luring investors with promises of seemingly over-generous returns – and it does not end well.”[15] The SEC filed its complaint (here) in the U.S. District Court for the Northern District of Georgia. The SEC charged defendants with violating the antifraud provisions of the federal securities laws and named five entities that defendant controlled as relief defendants. The SEC seeks emergency relief, including an order freezing assets, appointing a receiver over the entities, and granting an accounting and expedited discovery. The SEC also seeks permanent injunctions and civil penalties against the defendants, a conduct-based injunction against defendant, and disgorgement of ill-gotten gains with prejudgment interest against defendants and relief defendants. Without admitting or denying the allegations in the complaint, defendants and relief defendants consented to the SEC’s requested emergency and permanent relief, with monetary remedies to be determined by the court at a later date. ___________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] Ponzi promised clients a 50% profit within 45 days or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the U.S. as a form of arbitrage. Wikipedia, Charles Ponzi (here); see also SEC, Investor.gov, Ponzi Schemes (here). In reality, Ponzi was paying earlier investors using the investment funds of later investors. Wikipedia, Charles Ponzi. Although Ponzi did not invent this type of investment fraud, it became so identified with him that it is now referred to as a “Ponzi scheme”. Id. Ponzi’s scheme ran for over a year before it collapsed, costing investors $20 million. Id. [2] See SEC Spotlight, “SEC Enforcement Actions Against Ponzi Schemes” (here). [3] See SEC General Resources on Ponzi schemes (here). [4] Chen, James, Investopedia, Ponzi Scheme: Definition, Examples, and Origins (Updated Jan. 26, 2025) (here). [5] Bar Lev, Eldad, Main Implications and Reactions For The Ponzi Schemes’ Victims (“Main Implications”), 99 Journal of Public Administration, Finance and Law (Issue 24/2022), at 100 (here). [6] Id. at 100-101. [7] Main Implications, at 101. [8] This Blog has examined Ponzi schemes and affinity fraud on numerous occasions. To find the articles related to Ponzi schemes and affinity fraud, visit the “Blog” tile on our website and enter “Ponzi scheme” and “Affinity Fraud” in the “search” box. [9] SEC, Investor.gov, Affinity Fraud (here); see also Rasure, Erika, Investopedia, Affinity Fraud: What It is, How It Works, Example (“Affinity Fraud”) (Nov. 26, 2021) (here). [10] Affinity Fraud. [11] Id. see also Investor.gov, Affinity Fraud. [12] Id. see also Investor.gov, Affinity Fraud. [13] Main Implications, at 101. [14] According to the SEC, defendant used investor funds to make over $2.4 million in credit card payments, pay more than $335,000 to a rare coin dealer, and pay $230,000 on family vacations. [15] Readers can obtain more information about the action through the news media, e.g., here.

By Jonathan H. Freiberger Appearing in an action may give rise to a waiver of a litigant’s right to challenge the court’s jurisdiction over the litigant. As explained in prior blog articles, it is axiomatic that a “plaintiff appears [in an action] merely by bringing it.” Deutsche Bank Nat. Trust Co. v. Hall, 185 A.D.3d 1006, 1007 (2nd Dep’t 2020) (citation and internal quotation marks omitted).[1] Once served with process, a defendant must appear in an action to avoid a default. CPLR 320(a), which sets forth, inter alia, how a defendant can appear in an action, provides that “[t]he defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer.” See also Deutsche Bank, 185 A.D.3d at 1007-8 (describing the ways in which a defendant appears and the pitfalls of failing to do so). An appearance pursuant to CPLR 320(a) is a formal appearance. New York courts, however, also recognize “informal appearances.” An informal appearance occurs “by actively litigating the action before the court.” Bank of New York Mellon v. Taylor, 230 A.D.3d 457, 458 (2nd Dep’t 2024) (citations and internal quotation marks omitted). An appearance, whether formal or informal, can have a significant impact on litigation. Among other things, an appearance could: preclude the entry of a default judgment by plaintiff; operate to preclude a defendant from interposing a defense of lack personal jurisdiction; and, preclude a defendant from having a complaint dismissed pursuant to CPLR 3215(c) based on a plaintiff’s failure to seek a default judgment within a year of default.[2] See, e.g., OneWest Bank, FSB v. Villafana, 231 A.D.3d 845, 847-48 (2nd Dep’t 2024); Bank of New York, 230 A.D.3d 457, 458-49 (2nd Dep’t 2024). Depending on the circumstances, a plaintiff or a defendant may argue that an informal appearance has been made in an action. A plaintiff may argue that an informal appearance has been made to obtain jurisdiction over a defendant and a defendant may argue that an informal appearance has been made to avoid a default. CPLR 317 permits a defendant to appear in, and defend, an action within one year after obtaining knowledge of the entry of a judgment: (1) if the summons was not personally delivered to the defendant or an agent for service designated by CPLR 318; (2) if the defendant did not appear; (3) if the court finds that the defendant did not have actual notice of the action in time to defend; and, (4) if the defendant has a meritorious defense. Whether the defendant appeared in an action for the purpose of availing itself of CPLR 317 was an issue decided on July 16, 2025, by the Appellate Division, Second Department, in Chondrite Asset Trust v. 34 Dr. Corp., a mortgage foreclosure action.[3] The borrower in Chondrite borrowed almost $350,000 from the lender and secured its repayment obligations with a mortgage on real property located in Nassau County. The lender commenced a foreclosure action and served the borrower with process through the New York Secretary of State. The borrower failed to answer the complaint. Despite failing to interpose an answer to the complaint, the lender and borrower entered into two stipulations adjourning the lender’s motion for leave to enter a default judgment and for an order of reference. Subsequently, the court issued an order of reference. When the lender moved to confirm the referee’s report as to the amount due to it and for a judgment of foreclosure and sale, the borrower cross-moved pursuant to CPLR 317 and 5015(a)(1)[4] to vacate the default in answering the complaint, and pursuant to CPLR 3012(d) for leave to serve a late answer. The motion court granted the lender’s motion, denied the borrower’s cross-motion and, inter alia, issued a judgment of foreclosure and sale. The Second Department affirmed. As to CPLR 317, the Court found that the borrower “appeared in the action” by executing the two stipulations and noting that CPLR 317 is only applicable when a defendant does not appear. In addition. The Court found that the borrower failed to establish that it did not receive actual notice of the summons in time to defend the action. As to CPLR 5015, the Court stated: “A defendant seeking to vacate a default in answering a complaint on the basis of excusable default (see CPLR 5015[a][1]) and to compel the plaintiff to accept an untimely answer (see CPLR 3012[d]) must show both a reasonable excuse for the default and the existence of a potentially meritorious defense” (Deutsche Bank Natl. Trust Co. v. Benitez, `, 893, 118 N.Y.S.3d 173; see Wilmington Sav. Fund Socy., FSB v. Cabadiana, 230 A.D.3d 831, 832, 217 N.Y.S.3d 638). Here, [borrower] was not entitled to relief pursuant to CPLR 5015(a)(1) and 3012(d), as it failed to demonstrate a reasonable excuse for its default (see Wilmington Sav. Fund Socy., FSB v. Cabadiana, 230 A.D.3d at 832, 217 N.Y.S.3d 638; Bank of N.Y. v. Krausz, 144 A.D.3d 718, 41 N.Y.S.3d 84). Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This BLOG has written numerous articles relating to formal and informal appearances (see, e.g., [here], [here], [here], [here] and [here]. The introduction to today’s article is based on some of those articles. [2] This BLOG has addressed CPLR 3215(c) numerous times. To find one of our numerous BLOG articles related to CPLR 3215(c), visit the “Blog” tile on our website and enter “3215(c)” in the “search” box. [3] This BLOG has written dozens of articles addressing numerous aspects of residential mortgage foreclosure. To find such articles, please see the Blog tile on our website and search for any foreclosure, or other commercial litigation, issue that may be of interest to you. [4] This BLOG has addressed CPLR 5015 numerous times. To find one of our BLOG articles related to CPLR 5015, visit the “Blog” tile on our website and enter “5015” in the “search” box.

What are the requirements to obtain a monetary award under the SEC Whistleblower Program? In June, the Securities and Exchange Commission ("SEC") announced its second largest whistleblower award of more than $17 million to a former financial services employee (the largest award of $30 million was awarded in 2014). This bounty comes after the SEC issued two awards in May. The securities watchdog continues to see a significant uptick in whistleblower claims. "The information and assistance provided by this whistleblower enabled our enforcement staff to conserve time and resources and gather strong evidence supporting our case," said Andrew Ceresney, Director of the Division of Enforcement. What is the SEC Whistleblower Program? The Securities Exchange Commission's Whistleblower Program was created in 2010 under the Dodd-Frank Act to encourage individuals to report violations of the federal securities laws. To be eligible, a person must voluntarily provide the SEC with original information about a possible violation that has occurred, is ongoing or is about to occur. The tip must lead to a successful enforcement action by the SEC that results in monetary sanctions exceeding $1 million, of which the whistleblower will be awarded between 10 and 30 percent. $17 Million Award In order to protect the whistleblower, the SEC did not identify the relator and the agency did not identify the subject of this action. However, the case reportedly involved wrongdoing at a large financial services organization. The $17 million award indicates that the enforcement action was in the range of $56 to $170 million. The order concerning the award stated that the whistleblower provided the SEC with original, detailed and new information. The SEC believes the whistleblower program has been effective since it was launched in 2011. In fact, more than $84 million has been awarded to 32 whistleblowers during this time, of which $26 million was awarded to five whistleblowers in the last month alone. The SEC attributes this recent uptick in awards to growing public awareness of the program. "We hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC," said Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower. In the end, this case illustrates how crucial it is for financial firms to establish and implement compliance programs to prevent, detect and respond to potential securities violations. If you have vital information that you believe makes you eligible for a whistleblower award, or need assistance with an SEC investigation, you should engage the services of an attorney with experience in securities law. Whistleblower claims arise across a range of federal programs, not just the SEC. This Blog previously examined a Tesla employee's SEC whistleblower claim and how IRS whistleblowers can recover significant awards for reporting tax fraud. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber Disputes over closely held family corporations frequently arise when ownership of corporate stock is transferred informally within a family. While a parent may intend to make a lifetime, or inter vivos, gift of corporate shares to a child, courts generally require more than evidence of donative intent alone. The transfer must also be accompanied by proof that the gift was completed in accordance with governing corporate law and the corporation’s own stock-transfer requirements. When the transfer does not have the appropriate proof, the consequences of failing to properly document the transaction can be significant, often leading to litigation among heirs, beneficiaries, and surviving family members. Stock ownership in a corporation is not transferred merely because a shareholder expresses an intention to give the stock to another person. Depending upon the circumstances, a valid transfer may require endorsement and delivery of the stock certificate, surrender of the certificate for reissuance, entries on the corporation’s stock ledger, corporate resolutions memorializing the transaction, stock powers, gift documents, or other records demonstrating both the donor’s intent and completion of the transfer. Where a corporation has issued stock certificates containing transfer restrictions, compliance with those provisions is often critical to establishing ownership. The failure to observe these formalities can create substantial uncertainty after the shareholder’s death. In many cases, family members claiming ownership through an alleged inter vivos gift are unable to produce endorsed stock certificates, corporate records, shareholder resolutions, or other contemporaneous proof that the transfer was completed. Courts are then called upon to determine whether ownership passed during the decedent’s lifetime or whether the shares remained part of the decedent’s estate or trust and must be distributed pursuant to the governing estate-planning documents. The Appellate Division, Second Department’s recent decision in Perkins v. Small, 2026 N.Y. Slip Op. 04216 (2d Dept. July 1, 2026), illustrates the complexity of these issues in the context of a family-owned real estate corporation. The case involved a dispute among siblings over ownership of a closely held corporation that held title to real estate in Queens, New York. One sibling claimed that their father had transferred ownership of the corporation to him through an inter vivos gift, while another contended that no valid stock transfer had occurred and that the corporation remained part of the father’s trust estate. As discussed below, the Court found issues of fact with respect to the ownership of the disputed corporate shares because of the lack of evidentiary proof. Applicable Principles An inter vivos gift is a voluntary transfer of property or assets made by a donor to a recipient while the donor is still alive. It “requires that the donor intend to make an irrevocable present transfer of ownership.”[1] If the donor intends “to make a testamentary disposition effective only after death, the gift is invalid unless made by will.”[2] Moreover, an inter vivos gift requires delivery to the beneficiary, either by a physical delivery of the subject of the gift or a constructive or symbolic delivery.[3] “The requirement of delivery is not rigid or inflexible but is to be applied in light of its purpose to avoid mistakes by donors and fraudulent claims by donees.”[4] Whether the gift has been delivered is a fact-intensive inquiry, based on the totality of the evidence.[5] Notably, “mere possession of a gift after the donee’s death creates a presumption of delivery to the donee during the donor’s lifetime.”[6] “Unsupported, conclusory allegations” that the gift had not been delivered are “insufficient to overcome the presumption of delivery and raise a triable issue of fact.”[7] Real Property and stock are recognized as valid inter vivos gifts.[8] When stock certificates are being given as a gift, symbolic delivery is enough if no other practical method of delivery is available. However, even symbolic delivery must be irrevocable. That point is reached only when ownership is officially transferred on the company’s stock records.[9] Although a will cannot be used to prove that the transferor intended to make an inter vivos gift, it may be considered as evidence of the parties’ relationship, their status, and the transferor’s affection for the recipient of the gift.[10] Perkins v. Small Perkins concerned the ownership of Dayton Small Realty Co., Inc. (the “Corporation”) and, ultimately, the ownership of real property located in Flushing, New York (the “subject premises”). Plaintiff and Defendant are siblings. Plaintiff is the stepdaughter of the parties’ late father, and defendant is his son. The subject property was originally owned by the parties’ father pursuant to a deed dated July 8, 1980. On March 22, 1993, the father formed the Corporation under a certificate of incorporation authorizing the issuance of 200 shares of no-par-value stock. Defendant later contended that his father gifted the Corporation to him during the father’s lifetime and that he became its sole owner by inter vivos gift. On May 1, 2000, the father executed a living trust as settlor.[11] Through that trust, he transferred various real estate holdings and established a comprehensive estate plan for the benefit of his children. The trust specifically directed the distribution of certain properties to the parties and their siblings. The trust further provided that the trustee was to distribute “all the rest, residue and remainder of the residuary trust estate” equally among the settlor’s children, per stirpes.[12] In 2009, during an attempted mortgage refinance of the subject premises, it was discovered that the Corporation was not listed as the owner of record, despite an earlier conveyance. Following that discovery, a corrective deed dated July 30, 2009, was executed. The corrective deed stated that its purpose was “to correct the grantee’s name in the recorded deed” and identified the Corporation as the corrected grantee. Plaintiff challenged the validity of the corrective deed, asserting that the signature appearing on the instrument was forged and that the deed was therefore void ab initio. Plaintiff also alleged that defendant had previously been named executor under an earlier will executed by their father, a document that allegedly distributed the father’s real property among plaintiff’s brothers while excluding her. According to plaintiff, she did not learn of the superseding trust arrangement, which provided benefits to all of the children, until proceedings relating to her late brother’s estate. Plaintiff further claimed that defendant concealed or refused to disclose the Corporation’s ownership of various real estate holdings. Defendant, in turn, maintained that he was the sole owner of the Corporation by virtue of an inter vivos gift from his father. Based on that assertion, he argued that the Corporation and its assets were not part of the father’s trust estate and were therefore not subject to distribution under the trust agreement. Plaintiff commenced the action in 2019 against defendant and the Corporation seeking, among other things, a judgment declaring that she was entitled to an interest in the property by way of her interest in the father’s residuary trust estate. Defendants interposed an answer and asserted counterclaims alleging the father made an inter vivos gift of his shares in the Corporation to his son, such that defendant was entitled to a judgment declaring that he was the sole owner of the Corporation. Plaintiff moved for summary judgment seeking, among other relief, a declaration that she owned a 25% interest in the Corporation. Defendant cross-moved for summary judgment, asserting that he was the Corporation’s sole owner based upon the alleged inter vivos gift from his father. The motion court rejected defendant’s position and granted plaintiff’s motion. The motion court declared that plaintiff held a 25% ownership interest in the Corporation and further held that the Corporation’s shares were subject to distribution in accordance with the terms of the father’s trust agreement. Central to the motion court’s ruling was defendants’ failure to produce evidence demonstrating that the father had completed a valid transfer of the corporation’s stock to defendant during his lifetime. Although defendant claimed that his father had gifted him the corporation, the motion court found no documentary proof establishing a legally effective transfer of ownership. In particular, defendants failed to produce endorsed stock certificates, corporate resolutions, stock transfer documents, or other contemporaneous records evidencing both donative intent and delivery of the shares. The motion court also relied upon the corporation’s original 1993 stock certificate, which identified the father as the owner of the corporation’s shares. Significantly, the certificate expressly provided that the shares were transferable only upon the corporation’s books and only after surrender of the certificate properly endorsed by the shareholder. Despite defendant’s claim that the shares had been gifted to him, no evidence was produced showing that the father endorsed the certificate, surrendered it for transfer, authorized the issuance of replacement shares, or otherwise complied with the requirements governing the transfer of corporate stock. Nor was there evidence that the father, as the sole shareholder of the Corporation, executed a corporate resolution approving a transfer of the 200 authorized shares or took any other formal steps demonstrating completion of the alleged gift. Absent such proof, the motion court found that defendant could not establish the essential elements of a valid inter vivos transfer of the Corporation’s stock. Accordingly, the motion court concluded that defendants failed to raise a triable issue of fact regarding the alleged lifetime transfer. Because the evidence showed that the father remained the owner of the corporation’s shares, those shares became part of his trust estate and were required to be distributed pursuant to the trust’s terms. As a result, plaintiff was entitled to a 25% ownership interest in the Corporation as one of the trust beneficiaries. On appeal, the Appellate Division, Second Department, modified the order with respect to the ownership interest in the Corporation. The Court held that “plaintiff failed to establish her entitlement to judgment as a matter of law.”[13] The Court noted that even though “plaintiff’s submissions established that the father owned all of the Corporation’s stock at some point after its formation, she failed to eliminate triable issues of fact as to whether the Corporation remained a part of the father’s residuary estate at the time of his death.”[14] Therefore, concluded the Court, the motion court “should have denied that branch of the plaintiff’s motion which was for summary judgment declaring that she has a 25% ownership interest in the Corporation, as she failed to establish, as a matter of law, that she was entitled to receive any ownership interest in the Corporation through the father’s residuary trust estate.”[15] Moreover, the Court held that “defendants failed to demonstrate, prima facie, that the father transferred ownership of the Corporation to [defendant] before the father’s death.”[16] The Court explained that “defendants’ submissions, purportedly demonstrating the father’s donative intent and delivery of the corporate kit, were insufficient to establish transfer of ownership in the absence of a written record as required by the Corporation’s stock certificate.”[17] “Accordingly,” concluded the Court, “neither party was entitled to judgment as a matter of law, as triable issues of fact existed regarding ownership of the Corporation, and the Supreme Court should have denied that branch of the plaintiff’s motion which was for summary judgment declaring that she has a 25% ownership interest in the Corporation, and properly denied the defendants’ motion for summary judgment dismissing the complaint and on their counterclaims.”[18] Takeaway The Second Department’s decision in Perkins underscores an important principle in disputes involving closely held corporations: proving ownership of corporate stock requires more than testimony about a decedent’s intentions. A party claiming ownership through an inter vivos gift must demonstrate that the donor effected the transfer in accordance with the corporation’s governing documents and applicable legal requirements. In Perkins, defendant’s assertion that his father gave him the Corporation during his lifetime was not enough, standing alone, to establish ownership as a matter of law. At the same time, the decision illustrates that the absence of proof supporting a claimed stock transfer does not automatically entitle an opposing party to summary judgment. Although plaintiff pointed to the lack of endorsed stock certificates, corporate resolutions, transfer records, and other documentation necessary to establish a completed gift, the Second Department concluded that she nevertheless failed to eliminate all triable issues of fact regarding whether the corporation remained part of her father’s residuary trust estate at the time of his death. As a result, she could not obtain a declaration of a 25% ownership interest as a matter of law. Perkins also highlights the significance of corporate formalities in determining ownership of closely held corporations. The corporation’s stock certificate expressly provided that shares were transferable only on the corporation’s books and upon surrender of a properly endorsed stock certificate. Yet neither side was able to produce conclusive evidence demonstrating compliance with, or the legal effect of noncompliance with, those transfer requirements. The Court viewed the absence of a written record of transfer as a substantial obstacle to defendant’s claim that ownership had passed to him during his father’s lifetime. Perhaps most importantly, the decision serves as a reminder that ownership of a corporation and ownership of the corporation’s assets are distinct concepts. Because the Corporation held valuable real estate, the determination of who owned the stock effectively controlled who would benefit from those assets. Consequently, the dispute turned not on the real property’s title alone, but on whether the father’s shares had ever been validly transferred before his death. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Gruen v. Gruen, 68 N.Y.2d 48, 53 (1986). [2] Id. [3] Id. at 56. [4] Id. [5] Id. [6] Mirvish v. Mott, 17 N.Y.3d 510, 518 (2012). [7] Id. at 519, quoting Sofsky v. Rosenberg, 76 N.Y.2d 927, 930 (1990). [8] Gruen, 68 N.Y.2d at 53. [9] Matter of Szabo, 10 N.Y.2d 94, 98 (1961). See also Estate of Wooters v. Goujjane, 305 F. Supp. 2d 280, 285 (S.D.N.Y. 2003). [10] Matter of Varrone, 146 N.Y.S.3d 921 (Surr. Ct., Queens County 2021). [11] A settlor (also called a grantor, trustor, or donor) is the person who creates a trust by transferring property into it and establishing the terms under which the trust will be managed and distributed. [12] Per stirpes means “equal shares by family branch,” not necessarily equal shares to each individual recipient. [13] Slip Op. at *2. [14] Id. [15] Id. [16] Id. [17] Id., citing Celauro v. 4C Foods Corp., 88 A.D.3d 846, 846-847 (2d Dept. 2011); see also Hong Qin Jiang v. Li Wan Wu, 179 A.D.3d 1035, 1038 (2d Dept. 2020). [18] Id.

By: Jeffrey M. Haber Forum non conveniens is a common law doctrine in which a court may dismiss an action where another forum would be better suited to adjudicate the matter.[1] In New York, the doctrine is codified in CPLR 327(a). Under this section, a court may “stay or dismiss [an] action in whole or in part on any conditions that may be just” if it finds that “in the interest of substantial justice the action should be heard in another forum.”[2] The doctrine reflects the basic principle that the “courts need not entertain causes of action lacking a substantial nexus with New York.”[3] The party seeking dismissal bears a heavy burden of establishing that New York is not the proper forum for the action.[4] In considering a forum non conveniens motion, New York courts consider a number of factors, including the burden on New York courts, the potential hardship to the defendant, the unavailability of an alternative forum, whether both parties are nonresidents, whether the transaction out of which the cause of action arose occurred primarily in a foreign jurisdiction, the location of potential witnesses and documents, and the potential applicability of foreign law.[5] No one factor is controlling.[6] Nonetheless, where the foregoing factors establish that New York is an inconvenient forum, “[f]orum non conveniens relief should be granted.”[7] On July 14, 2025, Justice Margaret Chan of the New York Supreme Court, Commercial Division, issued a decision and order in Korea Inv. & Sec. Co., Ltd. v Seabury Capital Group LLC, 2025 N.Y. Slip Op. 51098(U) (Sup. Ct., N.Y. County July 14, 2025) (here), dismissing plaintiffs’ complaint on forum non conveniens grounds. As discussed below, the court found that “all of the key misrepresentations and transactional details and logistics perpetuating defendants’ [alleged] fraud occurred in Singapore, Hong Kong, and/or Korea.” Background In or around May 2019, Seokwon Jang (“Jang”), a resident of South Korea acting in his capacity as a director for RiverTweed Co., Ltd. (“RiverTweed”), a company incorporated in South Korea with its principal place of business in Seoul, approached Arumdree Asset Management Co., Ltd. (“Arumdree”) about a multinational investment project involving certain trade receivables held by Agritrade International Pte Ltd. (“AIPL”), a Singaporean commodities company (the “Project”). Jang’s outreach resulted in Arumdree visiting Singapore to explore the Project. While in Singapore, Arumdree met with Robert C. M. Lin (“Lin”), a United States national, who at the time was residing and working in Hong Kong. Lin served as the President and Chief Executive Officer (“CEO”) of (1) Seabury Trade Finance Exchange LLC (“Seabury Trade”), a holding company organized under the laws of Delaware and a wholly owned subsidiary of the New York-based Seabury Capital LLC (“Seabury Capital”), and (2) Seabury TFX (HK) Limited (“Seabury Hong Kong”), a Hong Kong-based operating company in which Seabury Trade holds an interest. Lin invited Arumdree to AIPL’s office to meet with AIPL’s representatives and customers. It was during the visit that Lin, Jang, and AIPL’s then-Chief Operating Officer (“COO”), Fong Nang Seng (“Fong”), allegedly represented to Arumdree that the Project would be a great investment opportunity with Lin in charge of managing any such investment. Following Arumdree’s visit, Jang sent Arumdree AIPL’s 2018 Consolidated Financial Statements, which indicated that AIPL had more than $113 million in net assets as of 2018 and would be able to pay its debts when due. Jang later forwarded an email from Lin attaching 70 documents that related to AIPL’s past transactions with another purported customer. On May 21, 2019, and June 20, 2019, respectively, plaintiff subscribed to the following two notes offered by Seabury Trade Capital SPC (“SPC”), a Cayman Island-based segregated portfolio company: (1) the Series 2019-2 USD 20,000,000 Secured Fixed Rate Notes due 2020 (the “SPC2 Note”), and (2) the Series 2019-3 USD 19,540,000 Secured Fixed Rate Note due 2020 (the “SPC3 Note”, and together with the SPC2 Note, the “Notes”). Concurrent with the Notes, plaintiff executed a corresponding subscription agreement on behalf of Arumdree AI Private Investment Trust No. 7 and Arumdree AI Private Investment Trust No. 9 (the “Trust Fund”) (the “Subscription Agreement”). The Subscription Agreement, and “any non-contractual obligations arising out of or in connection with” the agreement, was governed by English law. The Project was structured as follows: (1) plaintiff would transfer $39,540,000 of the Trust Fund’s money to SPC; (2) using a platform hosted by Seabury Hong Kong, SPC would use the proceeds from the Notes to purchase AIPL’s trade receivables (the “Purchased Receivables”), which would then entitle SPC to payments from certain AIPL customers (the “Approved Debtors”); (3) Seabury Hong Kong would manage the Purchased Receivables by requesting and reviewing necessary documents from AIPL and the Approved Debtors; and (4) on or before the Notes’ maturity dates, SPC would pay back the Trust Fund the full purchase price of the Notes, with interest. As a purported protection for any investment in the Project, AIPL’s then-CEO, Ng Xinwei (“Ng”), guaranteed payment, on demand, of the full amount of all obligations or indebtedness owed from AIPL. The Project was also allegedly backed by certain trade credit policies insuring the Purchased Receivables. The policies were underwritten by Hong Kong-based insurance companies, with SPC listed as the “loss payee”. In the initial months following plaintiff’s subscription to the Notes, there was no indication of an issue with AIPL and, by all accounts, the Trust Fund’s investment was proceeding as originally contemplated. That allegedly changed on January 16, 2020, when AIPL applied for a moratorium under Section 211B of Singapore’s Companies Act. Soon after, AIPL was placed under judicial management at the request of creditors, with Ernst & Young LLP (“E&Y”) appointed as judicial manager. On August 7, 2020, E&Y filed its judicial manager report with the Singapore High Court. The report identified numerous irregularities and conflicts of interest underlying AIPL’s business and accounting practices. The report also revealed that AIPL had been experiencing severe liquidity problems for years and had been attempting to procure loans from banks and other financial institutions using forged documents and false information. According to plaintiff, the Project was an extension of AIPL’s alleged fraud because it was able to use the ill-gotten gains from the Trust Fund to pay off its mounting debts and/or shield its wrongdoing. Subsequent criminal investigations into AIPL and its executives seemingly corroborated and expanded upon this alleged revelation of fraudulent conduct. AIPL was ultimately wound up by court order on September 21, 2020. Three years later, on August 17, 2023, Arumdree emailed Lin to inquire about (1) the measures being taken against the Approved Debtors to recover the Purchased Receivables, and (2) the lack of proceedings against AIPL and the Approved Debtors for fraudulent conspiracy. Lin responded on August 25, 2023, stating that, outside of demand notices served on the Approved Debtors, no other actions were taken against them. Lin further represented that there were no plans to commence proceedings against AIPL or the Approved Debtors. Two months later, on October 16, 2023, Arumdree instructed Seabury to withdraw and return the remaining funds in SPC’s account. On December 19, 2023, Seabury transferred to the Trust Fund $43,644.05 from the SPC2 Note’s account and $316,409.941 from the SPC3 Note’s account. According to plaintiff, the Project was the product of a scheme to defraud, which defendants carried out through an intricate web of connections and cross-directorships. As alleged, Lin and Jang were in constant communications with Fong while attempting to solicit the Trust Fund’s investment in the Project. Plaintiff alleged that these three individuals discussed specific terms of the Project, such as deal structure, interest rates, insurance policies, payment dates, and the amount of the notes to be sold. In addition to these individuals, plaintiff alleged that Margaret L. Chan (“Chan”) – a California resident based out of Los Angeles who is the President and COO of Seabury Capital, a board member of various affiliates of the New York-based Seabury Capital Group LLC (“Seabury Group”) and its subsidiary Seabury Capital, a Vice-Chairman of Seabury Hong Kong, and a director of SPC – was “actively involved” in structuring the Project and gave directions regarding its funding. Plaintiff noted that RiverTweed and Seabridge Trade, a Singapore-incorporated company, were paid a commission from Seabury Hong Kong for arranging the Project. Plaintiff commenced the action on June 21, 2024, asserting claims under New York law for conspiracy to commit fraud, fraudulent inducement, fraudulent misrepresentation, and breach of fiduciary duty. Both the Seabury defendants and RiverTweed defendants moved to dismiss the complaint primarily on the basis of forum non conveniens. In support, defendants contended that every factor of the forum non conveniens analysis favored dismissal: (1) the transactions alleged in the complaint all occurred abroad and largely involved foreign parties; (2) New York lacked an interest in the action given that Singapore was the epicenter of AIPL’s alleged fraud; (3) key documents and essential witnesses were located outside of New York and outside of the court’s subpoena power; and (4) Singapore was an adequate alternative forum to New York that is fully capable of resolving plaintiff’s claims. Plaintiff opposed the motions. To start, plaintiff maintained that New York had the strongest nexus to the case because New York was the “control tower” of the alleged fraudulent scheme, meaning that it was “likely” that key witnesses and documentary evidence would be located in New York. Plaintiff also contended that defendants failed to identify an adequate alternative forum because litigating this case in Singapore or Korea would result in piecemeal litigation, and there was no guarantee that a Singaporean or Korean court would exercise jurisdiction over all defendants. Plaintiff maintained that defendants would not suffer any hardship by litigating in New York because they were either financial companies or corporate officers with ample resources to bring witnesses to New York. Plaintiff concluded by arguing that, because the alleged fraud involved New York companies, New York had an interest in adjudicating the dispute. The Court’s Decision The court granted the motions. The court found that “each of the forum non conveniens factors weigh[ed] in favor of dismissal.”[8]”To start,” said the court, “nearly all of [the] parties in this action are located outside of New York, with most located outside the United States.”[9] The court noted that plaintiff was a Korean trustee of certain private equity funds regulated by Korean law and “the vast majority of defendants [were] based in South Korea, California, Hong Kong, the Cayman Islands, and/or Singapore.”[10] “This readily apparent pervasiveness of foreign residents,” concluded the court was “‘entitled to … substantial weight’” and “plainly militate[d] in favor of dismissal of th[e] action.”[11] The court rejected plaintiff’s argument that because “three of the named defendants [were] purportedly based in New York”, New York was the proper forum.[12] The court found that, as alleged, “none of [these defendants] appear to have played a meaningful role in the alleged fraudulent scheme.”[13] “Further supporting dismissal on forum non conveniens ground,” concluded the court, was “the fact that the scheme alleged in the Complaint occurred primarily in foreign jurisdictions.”[14] The court noted that “[a]ccording to the Complaint, defendants conspired to induce plaintiff to subscribe to the Notes without disclosing the dire financial condition of … AIPL and the fraudulent nature of the Project…. Yet, as alleged, none of the key aspects of the Project or defendants’ fraudulent scheme took place in New York.”[15] The court rejected plaintiff’s contention that New York was the “control tower” for the alleged fraudulent scheme.[16] The court found plaintiff’s allegations to be conclusory and insufficient to “establish the requisite nexus to New York necessary to survive forum non conveniens dismissal.”[17] “As a consequence of [the] strong foreign nexus,” said the court, “it is likely that the majority of material witnesses, relevant documents, and other evidence in support of plaintiff's claims and defendants’ defenses are located outside of the United States.”[18] “For instance,” explained the court, “all of the key misrepresentations and transactional details and logistics perpetuating defendants’ fraud occurred in Singapore, Hong Kong, and/or Korea. And many of the relevant details regarding the fraud perpetrated by AIPL and defendants were only revealed from documents disclosed during court proceedings and criminal investigations that took place in Singapore.”[19] For these reasons, said the court, “the bulk of relevant documentary evidence will be located in Singapore and Hong Kong, and [the] key witnesses will be also located in those countries (and thus outside of the court’s subpoena power). “Consequently,” explained the court, “even assuming, as plaintiff argue[d], some witnesses or documents may be in New York, litigating th[e] action would almost certainly impose substantial burdens on defendants and nonparty witnesses so as to decidedly tip the scales in favor of dismissal.”[20] “Finally,” said the court, “although New York law does not require that the parties … identify an adequate alternative forum to support forum non conveniens dismissal, such a forum exists in Singapore and further support[ed] dismissal of the case.”[21] The court explained that “many of the claims in the Complaint directly flow[ed] from conduct and transactions that originated out of Singapore.”[22] Though plaintiff expressed doubt that a Singaporean court could exercise personal jurisdiction over all defendants, the court held that the nexus emanating from plaintiff’s claims to Singapore was strong and could not be overcome by speculation.[23] Moreover, observed the court, the fact that the Singaporean legal system is primarily derived from the English system and incorporates English common law further supported the conclusion that Singapore was an adequate alternative forum for the dispute.[24] “Because case law in New York suggests that [the] type of language used in the Subscription Agreement’s choice-of-law provision is generally to be construed broadly to reach tort claims,” the court concluded that “all of plaintiff’s claims should be governed by English law and not, as asserted, New York law.”[25] Therefore, said the court, “a court in Singapore would be more than capable of overseeing the parties’ dispute given its familiarity with English common law and the English legal system.”[26] Takeaway Korea Inv. & Sec. reaffirms the principle that the burden on plaintiffs to withstand a motion to dismiss on forum non conveniens grounds is high. Plaintiffs must demonstrate a substantial connection or nexus to New York sufficient to overcome a forum non convenience motion. Vague or conclusory allegations that New York is the “hub”, “nerve center” or the “control tower” of the wrongful misconduct will not suffice. Plaintiffs must come forward with facts and evidence demonstrating a substantial nexus to the state. Korea Inv. & Sec. shows that even if some defendants are based in, or have ties to, New York, that alone is insufficient to overcome a forum non conveniens challenge if the facts and circumstances are substantially centered elsewhere. Korea Inv. & Sec. also underscores the importance of witness location, document availability, and the burden on courts and parties. If these factors favor a foreign jurisdiction, New York courts are more likely to dismiss an action in favor of the more convenient forum. Finally, Korea Inv. & Sec. shows that a forum selection clause can play an important role in the court’s consideration of the factors necessary to decide a forum non conveniens motion. In Korea Inv. & Sec., the forum selection clause at issue evinced an intention by the parties to have their disputes (in contract and tort) governed by English law. As such, a court in Singapore was more than capable of managing the parties’ dispute given its familiarity with English common law and the English legal system. As noted by the court in Korea Inv. & Sec., New York courts regularly dismiss actions that may require the interpretation of foreign laws, especially where, as in Korea Inv. & Sec., a more convenient forum exists, and dismissal would avoid an “inordinate burden upon New York's courts.”[27] ______________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] This Blog has examined the forum non conveniens doctrine, here, here, and here. [2] CPLR 327(a); National Bank & Trust Co. of N. Am. v. Banco De Vizcaya, 72 N.Y.2d 1005, 1007 (1988). [3] See Martin v. Mieth, 35 N.Y.2d 414, 418 (1974). [4] Bank Hapoalim (Switzerland) Ltd. v. Banca Intesa S.p.A., 26 A.D.3d 286, 287 (1st Dept. 2006). [5] Id. See also Fekah v. Baker Hughes Inc., 176 A.D.3d 527, 529 (1st Dept. 2019). [6] Bank Hapoalim, 26 A.D.3d at 287. [7] Silver v. Great Am. Ins. Co., 29 N.Y.2d 356, 361 (1972). [8] Slip Op. at *5. [9] Id. [10] Id. [11] Id. (quoting Wyser-Pratte Mgt. Co., Inc. v. Babcock Borsig AG., 23 A.D.3d 269, 270 (1st Dept. 2005)). [12] Id. [13] Id. (citations omitted). [14] Id. [15] Id. at 5-6 (record citations omitted). For example, the Notes were offered by a Cayman Island issuer, SPC. Id. at *6. Key meetings took place in Singapore and involved individuals from Korea, Singapore, and Hong Kong. Id. The terms and structure of the Project occurred between alleged co-conspirators who reside in Korea, Hong Kong, Singapore, and California. Finally, plaintiff only learned about defendants’ alleged fraudulent scheme because it came to light through bankruptcy proceedings and a criminal investigation in Singapore. Id. “Taken together,” said the court, “these allegations establish that this case has no meaningful connection to New York. Rather, plaintiff’s claims exhibit a ‘strong foreign nexus’ that is ‘largely attributable to plaintiff’s sophisticated business dealings abroad.’” Id. (citing Wyser-Pratt Mgt., 23 A.D.3d at 270). [16] Id. [17] Id. (citations omitted). [18] Id. at *7. [19] Id. [20] Id. (citations omitted). [21] Id. (citation omitted). [22] Id. [23] Id. at 7-8 (citations omitted). [24] Id. at *8. [25] Id. (citations omitted). [26] Id. (citations omitted). [27] Tilleke & Gibbins Intl., Ltd. v. Baker & McKenzie, 302 A.D.2d 328, 329 (1st Dept. 2003).

By: Jeffrey M. Haber In Light & Wonder, Inc. v. Mohawk Gaming Enters. LLC, 2025 N.Y. Slip Op. 51070(U) (Sup. Ct., N.Y. County July 2, 2025 (here), the Supreme Court, New York County, Commercial Division, upheld an arbitrator’s class certification award. The decision centered on whether the arbitrator exceeded his authority or manifestly disregarded the law by certifying a class without individually analyzing the arbitration clauses of absent class members. Light & Wonder argued that the arbitrator violated U.S. Supreme Court precedents (Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) and Lamps Plus, Inc. v. Varela, 587 U.S. 176 (2019)), which emphasize that consent for class arbitration must be explicit. However, the court found these cases did not address class certification involving absent class members, and thus did not provide “well-defined, explicit, and clearly applicable” law to bind the arbitrator. The motion court concluded that the arbitrator acted within his authority and followed the AAA rules, and that minor contract variations did not preclude class treatment. Thus, Light & Wonder’s motion to vacate the award was denied. The Applicable Law Under Section 10(a) of the Federal Arbitration Act (“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.[1] Apart from Section 10(a) of the FAA, courts have vacated arbitral awards when an arbitrator manifestly disregards the law.[2] Importantly, the doctrine does not apply to the facts.[3] Application of the doctrine is limited.[4] It is a doctrine of last resort.[5] 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.[6] The doctrine is “limited to the rare occurrences of apparent egregious impropriety on the part of the arbitrators.”[7] 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.[8] Essentially, the movant must show that the arbitrator “willfully flouted the governing law by refusing to apply it.”[9] 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.’”[10] [Eds. Note: On many occasions, this Blog has examined the grounds upon which an arbitration award may be vacated under the FAA and the manifest disregard of the law doctrine. To find such articles, please see the Blog tile on our website and search for “FAA”, “vacatur”, and “manifest disregard of the law” or any other issue that may be of interest to you.] Light & Wonder, Inc. v. Mohawk Gaming Enters. LLC Background Light & Wonder concerned the lease by plaintiffs Light & Wonder, Inc. (f/k/a Scientific Games Corporation) and LNW Gaming, Inc. (f/k/a SG Gaming, Inc.) (together, “LNW”) of automatic card shufflers to defendant Mohawk Gaming Enterprises LLC (“Mohawk”), which used them in its casino. On November 9, 2020, Mohawk filed a class arbitration claim with the American Arbitration Association (“AAA”) alleging antitrust violations against LNW on behalf of itself and all other similarly situated consumers. Among other things, plaintiffs alleged that LNW charged consumers (i.e., casinos) supracompetitive prices for inferior products. Mohawk maintained that the agreement with LNW allowed its claims to be brought in arbitration as a class action. In this regard, the arbitration clause provided: “The parties agree that any and all controversies, disputes or claims of any nature arising directly or indirectly out of or in connection with this Agreement (including without limitation claims relating to the validity performance, breach, and/or termination of this Agreement) shall be submitted to binding arbitration for final resolution.” On February 8, 2022, the Arbitrator issued a Partial, Final Clause Construction Award regarding the threshold issue of class arbitrability (the “Clause Construction Award”). After examining the applicable U.S. Supreme Court jurisprudence on the matter,[11] the Arbitrator concluded that the language of the arbitration clause was “exceedingly broad” and permitted class arbitration. On February 11, 2022, LNW petitioned the court to vacate the Clause Construction Award. Mohawk filed a cross-motion to confirm the Award on March 11, 2022. The motion court denied LNW’s petition and granted Mohawk’s cross-motion. The motion court’s decision was affirmed on appeal by the Appellate Division, First Department.[12] Two years after the Arbitrator issued the Clause Construction Award, Mohawk moved for class certification. Mohawk sought to certify a class that consisted of All persons and entities that directly purchased or leased automatic card shufflers within the United States, its territories and the District of Columbia from any Respondent or any predecessor, subsidiary or affiliate thereof, at any time between April 1, 2009 and December 31, 2022, and that agreed in writing to arbitrate disputes arising from such purchases or leases under the rules of the [AAA]. Two months later, LNW filed its opposition to Mohawk’s class certification motion. LNW argued that it had not agreed to resolve the claims of absent putative class members through class arbitration, invoking the standard articulated in Lamps Plus to support its position. LNW also argued, citing examples, that many of the absent class members’ arbitration clauses did not include the same “strikingly broad” language included in the Mohawk Agreement, and thus those absent class members would not have contemplated class arbitration under the Lamps Plus standard. Finally, LNW argued that the Arbitrator was required to “undertake a clause-by-clause analysis to determine whether the absent class members’ agreements permit[] classwide arbitration,” and upon such a review, LNW said, it would be apparent that the absent class members did not agree to be part of a class. LNW maintained that at no point following the conclusion of briefing on the motion did the Arbitrator request for review each contract signed by a putative absent class members. Instead, said LNW, on December 9, 2024, the Arbitrator issued an award certifying a proposed opt-out class that substantially adopted Mohawk’s proposed class definition (the “Class Determination Award”). In the Class Determination Award, the Arbitrator first analyzed Mohawk’s motion pursuant to the factors set forth in Rules 4(a) and (b) of the AAA’s Supplementary Rules for Class Certification (the “AAA Rule 4 Factors”). Applying the AAA Rule 4 Factors, the Arbitrator determined that Mohawk had established numerosity of the class, questions of law or fact that were common to the class, typicality of the claims or defenses of the class, adequacy of class representation, adequacy of class counsel, and the superiority of class arbitration to other available methods for the fair and efficient adjudication of the controversy. The Arbitrator then addressed the AAA Rule 4 Factor requiring a showing that each class member had entered into an agreement containing a “substantially similar” arbitration clause as compared to the one contained in the agreement signed by the class representative. On this point, the Arbitrator concluded that Mohawk had met this requirement because (1) each class member had agreed to adopt the AAA Arbitration Rules, thus consenting to AAA-administered arbitration, (2) the arbitration clauses signed by all proposed class members encompassed claims in Mohawk’s arbitration demand and covered the same period of time, and (3) “[t]here ha[d] been nothing brought to the Arbitrator’s attention suggesting that anything in any of the class clauses directly preclude[d] class arbitration.” In reaching this conclusion, the Arbitrator expressly rejected LNW’s reliance on Lamps Plus, observing that its “holding related to the class representative and his arbitration agreement—it had nothing to do with absent class members.” The Arbitrator reasoned that “absent class members are in a different position and have certain unique safeguards [that] the class representative and [LNW] do not,” including, among others, opportunities to opt-out. The Arbitrator also posited that “if one were to turn long-accepted doctrine on its head and require analysis, for example, of 100,000 arbitration contracts of absent class members, that would either grind the process to a complete halt or would render it so unwieldy and expensive as to be completely ineffective.” Finally, pointing to the example arbitration clauses supplied by LNW, the Arbitrator concluded that the “[n]arrow differences” between them provided “no basis for decertifying the class.” The Arbitrator continued, “absent class members are [often] fine with adopting the language of the majority and, if not, they are fully protected by the option to opt out of the class.”[13] On December 10, 2024, following the issuance of the Class Determination Award, proceedings were stayed for 30 days “to permit the parties to move a court of competent jurisdiction to confirm or vacate the Class Determination Award.” LNW filed a petition to vacate the Class Determination Award on January 9, 2025. LNW sought to vacate the Class Determination Award primarily on the basis that the Arbitrator erroneously certified a class of all LNW customers with arbitration clauses in their licensing agreements with LNW without reviewing whether those agreements contained a consent to arbitrate on a class basis. LNW maintained that the Arbitrator should have engaged in an analysis guided by the United States Supreme Court’s decisions in Stolt-Nielsen and Lamps Plus to assess whether absent class members consented to arbitration. Had he done so, LNW argued, the Arbitrator would not have found an evidentiary basis to conclude that LNW and each absent class member agreed to class proceedings. Given the Arbitrator’s failure to follow Lamps Plus and its progeny and to analyze the arbitration clauses in the contracts of absent class members, LNW argued that there were three bases under which the motion court should vacate the Class Determination Award: (1) the Arbitrator exceeded his contractual authority by imposing his own policy justifications for class-wide arbitration instead of interpreting the relevant absent class members’ agreements; (2) by failing to follow Stolt-Nielsen and Lamps Plus, the Arbitrator disregarded well-established law governing class arbitration; and (3) the Arbitrator was required, but failed, to consider the absent class members’ contracts in order to determine whether class certification was appropriate under the AAA Rule 4 Factors. In response, Mohawk argued that LNW could not demonstrate that the Arbitrator’s analysis of the AAA Rule 4 Factors, which included his rejection of the applicability of Lamps Plus and its progeny, was erroneous because nothing in those cases ever considered the issue of absent class members in its analysis or otherwise suggested that their holdings applied at the class certification stage. Mohawk separately asserted that none of the grounds for vacatur advanced by LNW under Section 10(a)(4) of the FAA had merit. The Motion Court’s Decision The motion court denied LNW’s motion to vacate and granted Mohawk’s cross-motion to confirm the Class Determination Award. The motion court concluded that LNW failed to establish any grounds to vacate the Class Determination Award. As an initial matter, the motion court held that there was “no basis to conclude … that the Arbitrator manifestly disregarded the law in rendering the Class Determination Award.”[14] After presenting “[a] thorough review of” Stolt-Nielsen and Lamps Plus, the motion court reasoned that “it [was] not so clear [either case] … applied to the Arbitrator’s class certification analysis.”[15] “[W]hen construed together,” said the motion court, these decisions “establish that (1) consent to submit a dispute to class arbitration must be discerned from the plain terms of the parties’ arbitration agreement, and (2) such consent cannot be presumed from the arbitration agreement’s silence or ambiguity on the issue.”[16] “But critically,” said the motion court, “neither Stolt-Nielsen nor Lamps Plus addressed or otherwise extended the issue of consent to class arbitration in the context of certifying a class for arbitration.”[17] “Recognizing this silence,” explained the motion court, “the Arbitrator grappled with LNW’s contention that the legal principles in Lamps Plus should be interpreted as governing his analysis at the class certification stage. He, in turn, clearly laid out his reasoning for why they did not, including a review of the central holdings in Lamps Plus, policy arguments, and an analysis of analogous case law and arbitration awards.”[18] Noting that “[r]easonable minds [could] certainly differ as to whether the Arbitrator’s determination was the correct conclusion to draw from the holdings of Stolt-Nielsen and Lamps Plus,” the motion court found that there was nothing in the record to conclude “that his analysis and conclusion ignored ‘well defined, explicit, and clearly applicable’ case law so as to constitute a manifest disregard of the law.”[19] On the law, the motion court concluded that “given Stolt-Nielsen and Lamps Plus’s silence on the issue of class certification, there was a notable lack of clearly defined and explicitly applicable law to guide the Arbitrator’s class certification analysis.”[20] “Therefore,” concluded the motion court, “the Arbitrator’s decision not to follow Lamps Plus and progeny as part of his class-certification analysis [was] not a basis to vacate the … Class Determination Award.”[21] Turning to whether the Arbitrator exceeded his authority under the FAA or manifestly disregarded any contracts in granting class certification, the motion court held that “he did not”.[22] Looking at the record, the motion court concluded that “[t]here [was] plainly no basis to conclude he exceeded his authority under the Mohawk Agreement, the AAA Rules, or the other absent class members’ agreements.”[23] Finally, the motion court held that the fact “[t]hat the Arbitrator did not consider each of the absent class members’ contracts to assess whether they also contemplated class arbitration [did] not alter this conclusion or otherwise warrant a determination that the Arbitrator manifestly disregarded [the] contract.”[24] The motion court agreed with the Arbitrator that AAA Rule 4(a)(6) only required that “each class member has entered into an agreement containing an arbitration clause which is substantially similar to that signed by the class representative(s) and each of the other class members.”[25] Applying the rule, the motion court found that there was nothing improper with the Arbitrator “considering the examples [of the arbitration agreement] submitted by LNW” and finding that “the differences” between the agreements “that had been identified were ‘narrow’ and did not preclude certification.”[26] “[N]othing in the Arbitrator’s analysis,” concluded the motion court, ‘contradict[ed] an express and unambiguous term of [a] contract’ or ‘depart[ed] from the terms of [any] agreement’ so that it was ‘not even arguably derived from the contract.’”[27] __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] 9 U.S.C. § 10(a)(1)-(4). [2] 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 Corp. v. NutraSweet, 167 A.D.3d 1, 15-16 (1st Dept. 2018) (citing, Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 480-81 (2006)), lv. denied, 32 N.Y.3d 915 (2019)). [3] Wein, 6 N.Y.3d at 483. [4] Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules, 867 F.2d 130, 133 (2d Cir. 1989). [5] Duferco, 333 F.3d at 389. [6] Id. [7] Daesang, 167 A.D.3d 1, 15-16. [8] 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). [9] Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 217 (2d Cir. 2002). [10] Goldman Sachs Execution & Clearing, L.P. v. Official Unsecured Creditors’ Comm. of Bayou Grp., 758 F. Supp. 2d 222, 225 (S.D.N.Y. 2010). [11] Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013), and Lamps Plus, Inc. v. Varela, 587 U.S. 176 (2019). [12] Matter of Scientific Games Corp. v. Mohawk Gaming Enters. LLC, 217 A.D.3d 556 (1st Dept. 2023). This Blog examined the motion court’s decision and the First Department’s affirmance, here. [13] Citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 810-11 (1985). [14] Slip Op. at *3. [15] Id. at *4. [16] Id. at *5. [17] Id. [18] Id. [19] Id. (citations omitted) [20] Id. (citation omitted). [21] Id. [22] Id. [23] Id. at *6. [24] Id. [25] Id. [26] Id. [27] Id. (citations omitted).