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By:  Jeffrey M. Haber Ponzi schemes and affinity fraud frequently overlap because both exploit trust and social interactions to operate effectively. A Ponzi scheme relies on a continuous stream of new investors to pay returns to earlier participants, creating the illusion of a profitable enterprise. To maintain the flow of funds, fraudsters often target affinity groups—close-knit communities connected by shared identity, such as religious organizations, cultural associations, or professional circles. These groups provide an environment where trust is already established, making it easier for Ponzi scheme promoters to recruit participants quickly. When an investment opportunity is endorsed by someone familiar, skepticism tends to diminish. This sense of security often discourages individuals from conducting independent research or due diligence, as they assume that a trusted member’s involvement and/or endorsement of the investment opportunity guarantees legitimacy. In other words, social proof becomes a powerful tool for deception. Ponzi schemes and affinity fraud also thrive in settings where doubts can be suppressed. If concerns arise, the promoter can dismiss them as misunderstandings or pressure the group to maintain harmony, discouraging dissent. Victims themselves may avoid reporting the fraud out of fear of damaging the group’s reputation or relationships within it. Finally, affinity fraud capitalizes on emotional bonds. People feel a sense of loyalty and belonging, which makes them more inclined to invest and less likely to question warning signs and red flags. This emotional leverage, combined with the urgency and trust that Ponzi schemes exploit, creates an ideal environment for fraud to flourish. On September 8, 2025, the Securities and Exchange Commission (“SEC”) announced ( here ) that it filed charges against Arsalan A. Rawjani (“Defendant”) and the business enterprise he operated, Trade with Ayasa, LLC (“TWA”), which operated through various corporate forms, for allegedly conducing an affinity fraud and Ponzi scheme centered in the North Texas Ismaili Muslim community, where Defendant was an active member and community leader. According to the SEC, since at least 2021, Defendants perpetrated an investment fraud and Ponzi scheme targeting members of the Ismaili Muslim community in Texas, among other victims. Touting himself as an experienced and skilled options trader and investor, Defendant allegedly represented to investors and potential investors that he operated a successful pooled-investment program that offered guaranteed monthly dividend payments as well as principal protection that would be paid from Defendant’s options trading and asset management. The SEC alleged that Defendant claimed to have raised approximately $18 million from investors between 2021 and 2024.  Although Defendant represented to these investors that his successful options trading enabled him to pay a fixed, monthly return of (usually) three to five percent of principal (i.e., a 60-percent annual return), he actually paid most “returns” by using new investor money and derived insignificant or no profits from his touted options-trading expertise, alleged the SEC.  Additionally, said the SEC, Defendant diverted millions of dollars of investors’ money to himself, his spouse, and others through undisclosed withdrawals, commissions, and loans, all of which contributed to the collapse of his Ponzi scheme and millions of dollars of investor losses.  To carry out the Ponzi scheme and recruit new investors to support it, the SEC alleged that Defendant directly and through TWA made numerous false and misleading statements to investors, including promising that his clients’ investments would be used for his profitable options trading and that investors’ principal was guaranteed from his trading profits and other secure investments. For example, said the SEC, Defendant claimed he would use investors’ funds in his trading program, but he sent only approximately $1 million of investor funds from TWA’s primary bank account to a broker dealer for trading in the options market. Thereafter, claimed the SEC, Defendant transferred back to the bank account less than $166,000 in presumed trading profits and thus had no meaningful trading revenues to pay the millions of dollars promised to investors. Defendant also claimed that a large reserve was maintained to pay dividends and offered his personal “guarantee” to some investors, said the SEC, despite maintaining neither reserves nor personal assets sufficient to repay the millions of dollars raised from investors. The SEC alleged that by late-2023, Defendant’s “lackluster or losing trades” and his inability to attract new investors caused his Ponzi scheme to collapse, resulting in Defendant ceasing to make promised dividend payments. Nevertheless, said the SEC, even after he was unable to make divided payments to earlier investors, Defendant continued to solicit new investors using the same promises and guarantees of monthly payments and principal protection. According to the SEC, bank records showed that Defendant raised more than $2 million from investors between in or about December 2023 and June 2024, during the period he was unable to make promised payments to earlier investors. The SEC filed its complaint ( here ) in federal district court in Dallas, Texas. The SEC charged Defendants with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further charged Defendants with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The SEC seeks injunctive relief, disgorgement plus pre-judgment interest on a joint and several basis, and civil penalties. _____________________________ 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. This Blog has written scores of articles addressing SEC enforcement actions and the settlement of enforcement actions involving Ponzi schemes and affinity frauds. To find such articles, please visit the  Blog  tile on our  website  and search for “Ponzi schemes”, “Affinity Fraud” or any SEC enforcement action issue that may be of interest to you.

By:  Jeffrey M. Haber In BLDG 44 Developers LLC v. Pace Companies N.Y., LLC , 2025 N.Y. Slip Op 32881(U) (Sup. Ct., N.Y. County July 25, 2025) ( here ), BLDG 44 Developers LLC sued Pace Companies New York, LLC for breach of contract, seeking approximately $16 million in consequential damages related to delays in a construction project on E. 44th Street, New York, N.Y. BLDG, the project owner, was a third-party beneficiary to a subcontract between Pace and Noble Construction Group, which was later replaced by a joint venture. The subcontract required Pace to perform HVAC work and included indemnification provisions for damages caused by delays. Pace moved for partial summary judgment to dismiss BLDG’s claim for consequential damages. The motion court granted the motion, finding that the subcontract did not explicitly provide for consequential damages, such as lost rents or revenues. The motion court noted that while the subcontract mentioned indemnification for damages, it did not specify consequential damages, and the inclusion of liquidated damages suggested intentional exclusion of other types of damages. The court emphasized that consequential damages must be foreseeable and contemplated by the parties at the time of contracting. The motion court held that BLDG failed to present evidence that such damages were discussed or anticipated during negotiations. The motion court also rejected BLDG’s reliance on industry standards and external documents, stating that the clear and unambiguous language of the subcontract governed. Consequently, the motion court ruled that the absence of express language regarding consequential damages barred BLDG’s claim, and granted Pace’s motion for partial summary judgment, dismissing the consequential damages claim. Background BLDG owns a 43-story mixed-use building located on E. 44th Street, New York, N.Y. (the “Building”). On May 29, 2015, BLDG and former third-party defendant Noble Construction Group, LLC (“Noble”) entered into an agreement (“Prime Agreement”) in which Noble was to serve as the general construction manager on the construction of the Building (the “Project”) in exchange for $175,982,009. On February 1, 2016, Noble and defendant entered into a subcontract in which defendant was to perform heating, ventilation, and air conditioning trade work for the Project in exchange for $12,200,000 (“Subcontract”).  Section 7.2 (e) of the Subcontract provided, in pertinent part, that if there were delays in the progress of the work on the Project or a failure to coordinate with other contractors by defendant then BLDG was entitled to recover its damages (including liquidated damages if applicable) in connection with such delays. On June 1, 2016, BLDG and Noble amended the Prime Agreement (“Amendment No. 2”), replacing Noble with Noble/Suffolk, a joint venture LLC (“JV”). In Amendment No. 2, BLDG and JV agreed to “waive Claims against each other for consequential damages arising out of or relating to the Agreement except as set forth in the last sentence of this Item No. 2.” The waiver provision explained that “ his mutual waiver include , without limitation, damages incurred by for losses of use, income (including, but not limited to rental income), profit, financing, business and reputation, and for loss of management or employee productivity or of the services of such persons.” “Notwithstanding the foregoing,” the parties agreed that the JV would “be liable for consequential damages arising out of Agreement to the extent caused by its breach or negligence or the breach or negligence of anyone for whom responsible in an aggregate amount not to exceed fifty percent (50%) of ’s Fee as set forth in the most updated schedule of values.” On August 23, 2018, JV provided defendant with a delay notice regarding the Project after the JV received a notice of delay from BLDG regarding defendant’s work (“Delay Notice”). The Delay Notice stated that BLDG would “be seeking reimbursement for damages and consequential damages resulting from such delay”.  On January 16, 2020, BLDG commenced the action against defendant as a third-party beneficiary alleging that defendant breached the Subcontract.  Defendant moved for partial summary judgment seeking to exclude $16 million in consequential damages from any potential award in BLDG’s favor. The Motion Court’s Decision BLDG argued that defendant explicitly agreed to indemnify BLDG for consequential damages incurred resulting from defendant’s delay. Specifically, BLDG argued that the language in Section 7.2(e) of the Subcontract included consequential damages. Under New York law, “ n claims for breach of contract, a party’s recovery is ordinarily limited to general damages which are the natural and probable consequence of the breach; any additional recovery must be premised upon a showing that the unusual or extraordinary damages sought were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.”   A party may seek consequential damages if they were foreseeable and contemplated by the contracting parties at the time the contract was made. Applying the foregoing principles, the motion court held that “the evidence fail to demonstrate that consequential damages of lost rents and revenues were contemplated by the parties to the Subcontract.” The motion court found that “the plain language of the Subcontract, itself, not specifically provide for indemnification of consequential damages.” “Consequential damages in a breach of contract case are not allowable where the contract contains no provision or language indicating that recovery of consequential damages was within the contemplation of the parties<,> ” said the motion court. The motion court noted that the “terms of the Subcontract not suggest that consequential damages would be covered.” Moreover, noted the motion court, “BLDG ha not identified … any other term in the Subcontract that would support such damages.” “Absent a contractual provision providing for such coverage,” said the motion court, “in order ‘ o determine whether consequential damages were reasonably contemplated by the parties, courts must look to the nature, purpose and particular circumstances of the contract known by the parties . . . as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made.” Thus, explained the motion court, “the question is whether and Noble reasonably foresaw or contemplated being held liable for BLDG’s consequential damages of lost rents and revenues … due to ’s alleged delays at the time they entered the Subcontract.”   The motion court held that “ here no evidence of such contemplation.”   “For example,” said the motion court, “there no evidence that establishe , or at a minimum raise an issue of fact, that the issue of liability for lost revenue and rents was contemplated by the parties at the time of contract negotiations.” Finally, the motion court rejected BLDG’s attempt to use extrinsic evidence to support its claim for consequential damages. BLDG argued that consequential damages are common in the construction industry and that the motion court could take judicial notice of the American Institute of Architects form agreement, which includes a provision waiving consequential damages. The motion court explained that there was “no need to turn to extrinsic evidence” because Amendment No. 2 was clear and unambiguous.   In that regard, the motion court found that “the agreement itself suggest the omission was purposeful. Amendment No. 2 to the Prime Agreement contain a provision limiting JV’s liability for consequential damages. If the parties intended to include consequential damages as part of the Subcontract, they would have specifically so stated.”   The motion court concluded that “ he best and only evidence that the court has the Subcontract itself, which no mention of consequential damages, unlike liquidated damages, which are specifically referenced.” Accordingly, the motion court granted defendant’s motion for summary judgment and dismissed any claim for consequential damages. Takeaway As discussed, consequential damages are recoverable only if they were foreseeable and contemplated by both parties at the time they entered the contract. Courts look to the language in the parties’ contract to make that determination. Thus, as shown in BLDG , even if a party believes consequential damages are implied or customary, courts will rely on the language of the agreement if it is clear and unambiguous. In BLDG , the motion court determined that the agreements at issue were clear and unambiguous. Lending support to that finding was the presence of a liquidated damages clause in the Subcontract, which suggested to the motion court that the parties intentionally excluded other types of damages, such as consequential damages, as recoverable damages. Therefore, based upon the evidence presented, the motion court determined dismissed BLDG's request for consequential damages. ____________________________________ 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. Brody Truck Rental, Inc. v. Country Wide Ins. Co. , 277 A.D.2d 125, 125-126 (1st Dept. 2000) (internal quotation marks and citations omitted), lv. dismissed , 96 N.Y.2d 854 (2001).  Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y. , 10 N.Y.3d 187, 192-193 (2008).  Slip Op. at *5. Id. Id. at *6 (quoting BSF W. 175th St. Holding LLC v. New Founders Constr. LLC , 2022 N.Y.L.J. LEXIS 191, *9-10 (Sup. Ct., N.Y. County 2022)) (internal citations and quotation marks omitted). Id. Id. Id. (quoting Bi-Economy Mkt. , 10 N.Y.3d at 193 (internal quotation marks and citation omitted)). Id. Id. Id. at *6-*7 (citing Ashland Mgt. v. Janien , 82 N.Y.2d 395, 405 (1993) (finding that “the issue of future earnings was not only contemplated but also fully debated and analyzed by sophisticated business professionals at the time of these extended contract negotiations”); Awards.com v Kinko’s, Inc. , 42 A.D.3d 178, 183 (1st Dept. 2007) (finding that “ he agreement fails to reflect that the parties contemplated lost profits as a potential basis for damages in the event of a breach. Nor, even if admissible, is there any extrinsic evidence that lost profits were within the parties’ contemplation”)). Id. at *7. Id. Id. Id. (citations omitted). Id. at *8. This BLOG has written numerous articles addressing consequential damages. To find such articles, please click on the  BLOG  tile on our  website  and type “consequential damages” into the “search” bar, or any other commercial litigation or contract-related issue that may be of interest to you.

By:  Jeffrey M. Haber In Finkelstein v. U.S. Bank, N.A. , 2025 N.Y. Slip Op 32882(U) (Sup. Ct., July 30, 2025) ( here ), plaintiff alleged that he was underpaid on his investment in a residential mortgage-backed securities (“RMBS”) trust due to the improper exercise of termination rights by the trust’s servicers. Plaintiff claimed they excluded deferred principal and interest balances from the termination price, repackaged the remaining loans, and profited from new trusts. The servicers argued that the governing agreement – the Pooling and Servicing Agreement (“PSA”) – barred the action because it included a “no action” clause requiring certificate holders, such as plaintiff, to first demand that the trustee (“Trustee”) take action before suing. Plaintiff argued that demand was futile due to conflicts of interest, citing a “web of business dealings” and industry entanglements. The motion court, relying on Commerzbank AG v. U.S. Bank, N.A. , found plaintiff’s allegations too vague and conclusory. The motion court noted that owning equity or providing services to servicers did not inherently create a conflict sufficient to excuse the no-action clause. The motion court also rejected plaintiff’s claims that the Trustee’s role in other trusts or its acquisition of servicer roles implied a conflict. Further, the court reaffirmed that the no-action clause survived the termination of the trust. Consequently, the motion court granted defendants’ motions to dismiss the second amended complaint. Governing Principles A no-action clause is a contractual provision commonly found in trust indentures and pooling and servicing agreements. They are most often found in the context of securities and structured finance. The primary purpose of a no-action clause is to limit the ability of individual investors or certificate holders to bring legal action related to the trust or agreement unless certain procedural requirements are met. There are a number of key features of a no-action clause, including: Pre-suit Requirements: Typically, a no-action clause requires the investor or certificate holder (a) provide written notice of default to the trustee; (b) request the trustee to take action; (c) offer reasonable indemnity to the trustee; and (d) wait a specified period ( e.g. , 60 days) for the trustee to act. Majority Support: Often, a no-action clause requires that a certain percentage ( e.g. , 25% or 50%) of the holders must support the action before it can proceed. A no-action clause is designed to (a) prevent frivolous or duplicative lawsuits by minority holders; (b) centralize enforcement of the indenture documents and pooling and servicing agreements through the trustee; and (c) protect the integrity and efficiency of trust administration. One way to avoid a no-action clause is to demonstrate that the trustee is so conflicted that it could not be expected to bring suit. In that circumstance, any demand on the trustee would be futile because in effect, the certificate holder or beneficiary would be asking the trustee to sue itself. Recently, the Court of Appeals for the Second Circuit addressed the issue of demand futility in the context of alleged conflicts of interest. In Commerzbank AG v. US. Bank, N.A. , nine of the trusts at issue required notice to the trustee and the trust administrator ( i.e. , the party that was allegedly at fault). One provided for notice to the trust administrator, but the trust administrator was also a breaching servicer. Six other trusts required notice to the securities administrator, two of whom were breaching servicers, and one was a trustee accused of similar wrongdoing in other cases. The Second Circuit remanded to the district court to examine the relationships, cautioning that: (1) “some deal parties may be directly implicated in the wrongdoing such that it would be futile to demand that these parties bring claims involving their own misconduct”; while (2) “ ther deal parties may not be directly involved in the misconduct but could labor under other conflicts of interest, for example, close relationships with the breaching entities, such that requiring pre-suit demands would be futile and cause unnecessary delay since it would be improbable that they would take any action.” In doing so, the Second Circuit instructed “courts determining whether a No Action Clause requires pre-suit demands on other deal parties” to “consider whether such requirements would entail potential conflicts of interest on the demanded party, and if so, whether the nature and extent of the conflicts would indicate that these parties would be sufficiently unlikely to bring claims if asked to do so, such that the demand would be futile.” Upon remand, the district court excused demand for two sets of trusts. In the first, the demand party was both the trustee and the trust administrator. However, the trust administrator was Citibank, who was an alleged breaching party and also the custodian. Plus, its affiliate was an alleged breaching sponsor. In the second set of trusts, the demand party was the securities administrator, who likewise was implicated in the wrongdoing, because it had a duty to act to enforce the obligations of the mortgage loan purchase agreement for loans that were missing information. Finkelstein v. U.S. Bank, N.A. Plaintiff claimed he was underpaid on his investment because the defendant servicers allegedly exercised termination rights improperly. Specifically, Plaintiff claimed that the servicers should have included unpaid deferred principal and interest balances in the termination price. Instead, according to plaintiff, the servicers exercised their “call rights” (to purchase the Trust’s assets) without including the deferred payments in the valuation. Then, they repackaged the remaining loans into new trusts and sold them to new investors at a profit for themselves. Plaintiff brought suit. However, the PSA governing the Trust at issue had a no-action clause. Under Section 11.03 of the PSA, entitled “Limitation of Rights of Certificate Holders”, certificate holders were not allowed to bring suit unless they first demanded that the Trustee take action. To avoid the no-action clause, plaintiff alleged a purported “web of business dealings” that pervaded the industry such that the Trustee was too conflicted to bring suit. Therefore, according to plaintiff, demand on the Trustee would be futile. The motion court rejected plaintiff’s argument. The motion court held that the allegations alleged by plaintiff were “insufficient to show a conflict of interest on the part of .” The motion court found “ laintiffs allegations concerning the so called ‘web of business dealings’ … too conclusory to set aside the no action clause.” For example, said the motion court, plaintiff failed to allege any facts showing that the “web of business dealings” would cause the Trustee not to bring suit if a demand were made by plaintiff. The motion court also said that plaintiff failed to allege any facts showing that the Trustee was affiliated with large banks that provided banking services to other businesses and related to “repurchase rights holders” under the PSAs. In addition, the motion court found that plaintiff failed to allege any facts showing that the Trustee’s acquisition of Bank of America’s trust business included the servicers under the PSA. Further, the motion court said that plaintiff failed to allege facts showing a conflict of interest because it owned equity and debt in Wells Fargo, one of the alleged breaching parties. Finally, the motion court rejected plaintiff’s allegation that the Trustee became the trustee for some of the new resecuritization trusts and, therefore, was a participant in the alleged scheme. “Plaintiff does not allege which ones or even that some of the deferred principal loans from the trust at issue here wound up in a new trust,” said the motion court. The motion court found “ laintiffs’ allegations that the Trustee participated in a scheme to terminate the trusts to secure roles as trustee for resecuritized trusts vague and conclusory” and “certainly not excuse failure to comply with the no action clause.” The motion court concluded that “the hope of new business would swallow whole the no-action clause if that were a sufficient basis to excuse it.” In conclusion, the motion court held: plaintiff does not plead any facts to show a conflict such that it would be asking the Trustee to sue itself. There are no allegations showing: (1) the Trustee’s involvement in terminating the trusts, (2) the Trustee's obligation to ensure the correct calculation of the Termination Price, (3) the Trustee’s receipt of any “windfall” from the Termination Price, (4) the Trustee’s alleged dual role as servicers in other actions, (5) lawsuits against the Trustees in their alleged capacity as servicers, or (6) how the Trustees knew the Termination Price had been calculated incorrectly but refused to take action because of their conflicts of interest. Without more, the no action clause stands. _________________________________________ 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. Deer Park Rd. Mgmt. Co., LP v. Nationstar Mortg., LLC , 233 A.D.3d 564, 565 (1st Dept. 2024). 100 F4th 362 (2d Cir.), cert. denied , 145 S. Ct. 279 (2024). Id. at 375. Id. Id. Commerzbank AG v. US. Bank, N.A. , 2024 WL 5089017, at *4 (S.D.N.Y. Dec. 12, 2024). Id. at *6-7. Slip Op. at *3. Id. Id. at *4. Id. Id. Id. at *5. Id. at *5. Id. Id. (citing Rimrock High Income v. Avanti , 157 A.D. 3d 543 (1st Dept. 2018).

By:  Jeffrey M. Haber On occasion, we examine procedural matters that have an impact on the substantive rights of the parties. In Richardson v. Beal , 2025 N.Y. Slip Op. 32804(U) (Sup. Ct., N.Y. County July 24, 2025) ( here ), the procedural matter at issue concerned the date on which a filing is deemed to be filed. As discussed below, the date on which a filing is deemed filed might surprise you. Overview In  Richardson v. Beal , plaintiffs sought a default judgment against defendant, alleging that he failed to respond to their complaint in a timely manner. Plaintiffs served the summons and complaint on defendant in September 2023, with service deemed complete by October 12, 2023. Defendant did not file an answer by the November 12, 2023 deadline. Although he attempted to file a motion to dismiss in October, it was rejected by the clerk’s office due to procedural errors and not refiled until December 21, 2023. The motion court determined that the December filing was the only valid response, and thus defendant had defaulted in November 2023. Under CPLR 3215(c), plaintiffs were required to seek a default judgment within one year of the default. Their motion, filed in January 2025, exceeded this deadline. The motion court held that plaintiffs failed to provide a reasonable excuse for the delay or demonstrate a meritorious cause of action, both of which are required to excuse late filings under CPLR 3215(c). Consequently, the motion court denied plaintiffs’ motion and granted defendant’s cross-motion to dismiss the complaint, ruling the case was abandoned under CPLR  3215(c). Factual Background Plaintiffs brought the underlying action on August 23, 2023. According to the affidavit of service, on September 16, 2023, plaintiffs served the summons and complaint on defendant by means other than personal service. Proof of service was filed with the Clerk of the Court on October 2, 2023. Pursuant to CPLR 308(4), service was complete ten (10) days after such filing, on October 12, 2023. The time to answer the complaint expired on November 12, 2023. Defendant failed to file an answer within thirty (30) days after service was complete as required under CPLR 3012(c). According to NYSCEF, defendant, acting pro se , attempted to file, albeit late, a notice of motion on October 30, 2023. The Clerk rejected the filing and deleted the document from NYSCEF and returned the motion to defendant. On December 21, 2023, Defendant refiled the motion to dismiss the complaint, alleging improper service in a single sentence without any further explanation. The notice of motion was notarized and dated December 21, 2023. The motion was successfully filed. On January 29, 2024, the Court denied defendant’s motion for failure to provide an explanation for how service was improper. The Motion Court’s Decision On January 29, 2025, plaintiffs moved, pursuant to CPLR 3215, for a default judgment. Defendant, through his attorney, opposed the motion and cross-moved to dismiss the complaint pursuant to CPLR 3215(c). CLPR 3215(a) permits a plaintiff to seek a default judgment against a defendant who has failed to respond to a pleading. Pursuant to CLPR 3215(f), a defendant may extend their time to serve a pleading responsive to a complaint by serving a “a notice of motion … extends the time to serve the pleading until ten days after service of notice of entry of the order.” However, the defendant must complete service of the notice of motion before “service of the responsive pleading is required”. If the defendant does not move before service of the responsive pleading is required, the plaintiff must move for the entry of a default judgment within “one year after the default.” If the plaintiff fails to take such timely proceedings, CLPR 3215(c) provides that “the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative, or on motion, unless sufficient cause is shown why the complaint should not be dismissed.” The one-year time limit for seeking a default judgment begins to run at the time of a defendant’s default. If a plaintiff fails to seek a default judgment within the one-year window, then they must “set forth a viable excuse for the delay and demonstrate a meritorious cause of action”, or dismissal of the underlying action is mandatory. In seeking the motion for a default judgment, plaintiffs argued that the notice of motion was filed in October, when according to NYSCEF, the notice of motion was filed and then rejected and returned. Defendant opposed the motion on the grounds that it was untimely. Defendant maintained that the motion to dismiss was not successfully filed until December, and, therefore, it did not extend the time for plaintiffs to move for a default judgment. The issue before the motion court was “whether an unsuccessful attempt at filing is considered a response to the complaint, or whether Defendant did not respond to the complaint until his notice of motion was successfully filed and accepted by the Clerk.” The motion court held “that Defendant’s notice of motion was filed in December, not October.” The motion court noted that there were a number of “ mportant factors” that supported its decision, including “the fact that the notice of motion … notarized and dated in December, and … that whatever document that was attempted to be filed in October was not available on NYSCEF during the gap between October and December.” The motion court explained that the “only response by Defendant to the complaint was clearly dated and filed in December, and it was this response that the Plaintiffs and the Court responded to when deciding the motion to dismiss.” The motion court also found support in the NYSCEF confirmation notice for the notice of motion that was filed in December. According to the confirmation notice, the “NYSCEF website ha received an electronic filing on 12/21/2023 04:44 PM” and advised that the recipient should “keep notice as a confirmation of this filing.” The comments on NYSCEF concerning the filing on October 30, 2023, said the motion court, confirmed that the notice of motion was filed but that it was rejected because of a “‘missing or incorrect return date and no place of return.’” Based upon the foregoing, the motion found that “the Clerk rejected the first attempt at filing the notice of the motion to dismiss for a failure to comport with local rules. This mean that the purported filing on October 30, 2023, was not “deemed filed” in accordance with CPLR  2102(b). Therefore, concluded the motion court, defendant “defaulted in November of 2023 by failing to respond to the complaint, and therefore the present motion was not brought within the statutory one-year period after a default.” The motion court also held that plaintiffs failed to provide a reasonable excuse for their failure to timely seek a default judgment. The motion court explained that “ n their papers and at oral argument on the motion, Plaintiffs insist that the present motion timely and that this “render it unnecessary to establish a reasonable excuse for delay.” “Because Plaintiffs failed to proffer a reasonable excuse for the delay,” concluded the motion court, it was bound by CPLR 3215(c) to grant the cross-motion to dismiss the complaint. Takeaway There are a number of lessons that can be learned from the motion court’s decision in Richardson . First, timeliness is critical when seeking a default judgment. Under CPLR  3215(c), plaintiffs must seek a default judgment within one year of the defendant’s default. As shown in Richardson , the failure to do so—without a valid excuse—will result in a mandatory dismissal of the complaint as abandoned. Second, filings must comply with court rules to be considered filed. Defendant’s initial attempt to file his motion to dismiss in October 2023 was rejected by the Clerk due to procedural errors. Under CPLR 2102(b), the filing did not count as a valid filing because it did not meet the filing standards necessary to be “deemed filed.” Finally, plaintiffs bear the burden of justifying any delay in meeting the one-year deadline. As explained by the motion court in Richardson , a plaintiff can excuse the failure to file a default judgment motion within one year of the default by providing a reasonable excuse for the delay and showing that the underlying claim is meritorious. As shown in Richardson , the plaintiff must meet both requirements. _________________________________ 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. NYSCEF stands for the New York State Courts Electronic Filing System. It is a system that allows for the electronic filing and serving of legal documents in various New York State courts. This includes the Surrogate’s Court, Supreme Court, and the Court of Claims ( here ). NYSCEF enables attorneys and other authorized users to file documents, manage cases, and access court information electronically.  CPLR 3211(e). CLPR 3215(c). Id. CPLR 3215(c); see also IMP Plumbing & Heating Corp., v. 317 E. 34th St., LLC , 89 A.D.3d 593, 594 (1st Dept. 2011); PM OK Assocs. v. Britz , 256 A.D.2d 151, 152 (1st Dept. 1998) (holding that “a complaint shall not be dismissed as abandoned, pursuant to CPLR 3215(c), unless a plaintiff has failed to take proceedings for entry of a default judgment against the defendant within one year after the default”). Hoppenfeld v. Hoppenfeld , 220 A.D.2d 302, 303 (1st Dept. 1995). Slip Op. at *3 (orig’l emphasis). Id. Id. at *3-*4. Id. at *4. Id. Id. Under CPLR 2102(b), “ paper filed in accordance with the rules of the chief administrator or any local rule or practice established by the court shall be deemed filed.” Slip Op. at *4. Id. Id. Id. at *4-*5.

By:  Jeffrey M. Haber In Southgate Owners Corp. v. Esposito , 2025 N.Y. Slip Op. 32750(U) (Sup. Ct., N.Y. County July 24, 2025) ( here ), plaintiff sued defendant, a shareholder in its cooperative building, seeking a declaratory judgment that 80 additional shares had been properly allocated to her unit following a 1996 expansion of her unit into terrace space. Plaintiff claimed that defendant refused to accept the allocation and pay her pro rata share of expenses and sought a declaratory judgment to that effect. Defendant moved to dismiss the complaint as time-barred under CPLR 213, which imposes a six-year statute of limitations on declaratory judgment actions. The motion court found that the cause of action accrued no later than 2014, when defendant definitively refused the proposed allocation after repeated requests from plaintiff’s board. The motion court rejected plaintiff’s argument that the claim accrued only in 2024, especially since the official notice of allocation was sent after the complaint was filed. The motion court also noted that retroactive charges from 1996 were impermissible under the proprietary lease, which allowed charges from the date of issuance. Since defendant successfully defended the claim, the motion court awarded her attorneys’ fees under the proprietary lease and Real Property Law. Background Plaintiff owns the cooperative building located at 424 East 52nd Street. When the building became a co-op in 1987, each apartment was issued a number of shares relative to its size and location. In that regard, the corporation’s bylaws required the board of directors (the “Board”) to allocate shares to apartments based on a “reasonable relationship to the portion of the fair market value of equity.” Under the original offering plan, 460 shares were allocated to defendant’s unit. In 1996, defendant made changes to the apartment, expanding the interior into the terrace space. No extra shares were allocated to defendant at that time. In 2011-2012, the corporation’s President asked defendant twice if she would voluntarily accept the allocation of additional shares. Defendant rejected the requests. In 2014, plaintiff’s then-attorney considered bringing an action against defendant but did not do so, admitting that the statute of limitations had run on the Board’s ability to bring an action against defendant regarding an additional share allocation. Counsel hoped that defendant would be willing to meet with the Board on the matter. No meeting apparently happened. In 2022, plaintiff’s then-attorney wrote a letter to defendant informing her that “shares are to be allocated to this additional space”, but no official allocation was made at that time. On April 19, 2024, plaintiff initiated the action. According to the complaint, the Board had allocated extra shares to defendant “as of” 1996 at the completion of the expansion. Plaintiff also alleged “upon information and belief” that defendant refused to accept the allocation and pay her pro rata share of co-operative expenses. Three days after plaintiff filed the complaint, the Board sent a letter to defendant, stating that her account had been allocated extra shares and that her account was being charged for the extra shares retroactively to 1996. Plaintiff asserted a single cause of action, seeking a declaratory judgment that plaintiff had properly allocated 80 additional shares to defendant “as of January 1, 1996” and that defendant was liable for the full pro rata share of the additional expenses together with interest dating from 1996. Defendant timely answered the complaint and asserted two counterclaims, one for attorneys’ fees pursuant to the proprietary lease and one seeking to annul the decision that allocated 80 additional shares. Defendant moved for summary judgment, seeking to dismiss the complaint as time-barred and to receive reimbursement of her attorneys’ fees. Plaintiff opposed, and cross-moved for summary judgment in its favor. The motion court granted defendant’s motion and denied plaintiff’s cross-motion. The Court's Decision Declaratory judgments are governed by a six-year statute of limitations under CPLR 213. A claim for declaratory relief accrues “when there is a bona fide, justiciable controversy between the parties.” Such a controversy occurs when “a plaintiff receives direct, definitive notice that the defendant is repudiating his or her rights.” Plaintiff argued that its cause of action did not accrue until 2024. The motion court rejected the argument, holding that “the complaint was time-barred, for multiple reasons.” First, said the motion court, “according to Plaintiff’s own complaint, the shares were allocated ‘as of’ 1996 and seeking charges from that date.” The motion court noted that “according to the terms of the Proprietary Lease, a shareholder only be obligated to pay rent based off an additional allocation of shares ‘from and after the date of issuance.’” Thus, concluded the motion court, “ o the extent that Plaintiff alleges that the additional shares were not issued until 2024, by the terms of the Proprietary Lease they are not permitted to attempt to retroactively apply charges before the date of issuance.” Second, said the motion court, plaintiff’s claim for declaratory relief accrued in 2014, “if not earlier.” The motion court pointed to the “undisputed” fact that “from 2011 to 2014, multiple members of the Board, operating under the belief that any cause of action was time<-> barred, repeatedly attempted to get Defendant to voluntarily accept the additional shares and that she refused.” The motion court noted that “Plaintiff attempted to allocate shares to Defendant by at least 2014, and Defendant definitively refused to accept such a proposed allocation.” “It is at that time, if not earlier,” concluded the motion court, “that Plaintiff’s cause of action accrued.” Thus, the motion court concluded that plaintiff’s claim was time-barred in 2024. The motion court rejected plaintiff’s argument that defendant “did not definitively repudiate the allocation until 2024.” The motion court noted that plaintiff did not send the letter notice to defendant “first stating that additional shares had been allocated to her account until after filing the complaint (where aver that Defendant had refused to accept the allocation).” “By Plaintiff’s own complaint and records,” concluded the motion court, “ efendant made what Plaintiff considers to be a definitive repudiation worthy of judicial intervention at some time prior to the official notification of the share allocation.” Finally, the motion court held that because defendant was successful in her defense to the complaint, under the terms of the proprietary lease and the Real Property Law, she was entitled to collect attorneys’ fees. Takeaway The motion court’s decision in  Southgate Owners  serves as a reminder of the critical importance of timely legal action and adherence to contractual frameworks. The motion court’s dismissal of plaintiff’s declaratory judgment claim under CPLR 213 reinforces the principle that accrual begins to run not when a party chooses to act, but when a justiciable controversy arises—in Southgate Owners , no later than 2014, when defendant rejected the proposed share allocation. As discussed, plaintiff’s records and prior counsel’s acknowledgment of the limitations issue were pivotal in establishing the timeline for accrual of the claim. Southgate Owners also serves as a good reminder that the parties should check any agreements between them to see if the agreement governs their dispute. As noted, the language in the proprietary lease prohibiting retroactive charges prior to the date of issuance was a dispositive fact relied upon by the motion court. Finally, the decision highlights the financial and strategic risks of pursuing stale claims, particularly when internal communications and prior legal assessments acknowledge those risks. In Southgate Owners , plaintiff’s delay in formalizing the share allocation and initiating legal proceedings resulted not only in dismissal of its claim but also an award of attorneys’ fees to defendant. ______________________________________ 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. Trump Vil. Section 4, Inc. v. Young , 217 A.D.3d 711, 714 (2d Dept. 2023). Id. Slip Op. at *4. Id. Id. Id. Id. Id. Id. Id. Id. Id. at *5. Id. Id. Id.

By: Jonathan H. Freiberger Folks buy insurance to minimize loss in the event of occurrences that may cause injury to individuals or property. I would venture to say that most of the time, insureds do not read their policies and do not know the precise coverages they have purchased. While sometimes insurance is purchased directly from a carrier, many insureds rely on insurance agents or brokers to, inter alia , procure insurance for them. What happens, however, when a casualty occurs and the insured finds out that the desired coverage was not procured by the broker? This question is a fertile source of litigation, and today’s article addresses some of the issues relevant to the answer. “Insurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so: however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage.” American Bldg. Supply Corp. v. Petrocelli Group, Inc. , 19 N.Y.3d 730, 735 (2012) (citation, internal quotation, internal quotation marks and brackets omitted). This is because the “insurance agent-insured relationship is not a generally recognized professional relationship in which continuing obligations to advise might exist but, rather, is an ordinary commercial relationship which does not usually give rise to a duty to provide such ongoing guidance.” Marcellus Energy Services LLC v. Tompkins Insurance Agencies, Inc. , 238 A.D.3d 1366, 1368 (3 rd Dep’t 2025). “An insurance broker may be held liable under theories of breach of contract or negligence for failing to procure insurance upon a showing by the insured that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction.” DaSilva v. Champ Construction Corp . , 186 A.D.3d 425 (2 nd Dep’t 2020) (citations omitted). To establish that an insurance broker breached its contract or was negligence, “a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy.” Gibraltar Contracting, Inc. v. P.F. Northeast Brokerage, Inc. , 189 A.D.3d 432 (1 st Dep’t 2020) (emphasis supplied) (citation omitted). “A general request for coverage will not satisfy the requirement of a specific request for a certain type of coverage.” Hoffend & Sons, Inc. v. Rose & Kiernan, Inc. , 7 N.Y.3d 152, 158 (2006). In Ewart v. Allstate Ins. Co ., 221 A.D.3d 968 (2 nd Dep’t 2023), an insurance agent was awarded summary judgment dismissing a complaint sounding in breach of contract and negligence by “establish , prima facie, that communicated multiple quotes to the and that the failure to respond demonstrated a lack of initiative or personal indifference that resulted in a failure to obtain coverage.” Id . at 969 (citations and internal quotation marks omitted). In American Bldg ., the Court rejected the broker’s claim that the plaintiff should be barred from recovery because it received a copy of the policy, did not read it, and did not complain about its contents. Nonetheless, the Court held that, notwithstanding the absence of specific requested coverages, failure to read the policy should not foreclose plaintiff from suit. American Bldg ., 19 N.Y.3d at 736. The Court noted that: “ hile it is certainly the better practice for an insured to read its policy, an insured should have a right to look to the expertise of its broker with respect to insurance matters he failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar, altogether, an action against a broker.” Id . at 736-77 In addition to common-law theories of recovery, liability against a broker may be found “where a special relationship develops between the broker and client.” Voss v. Netherlands Ins. Co. , 22 N.Y.3d 728 (2014). If such a special relationship is found, liability against a broker may exist “even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage.” Id . at 735 (citations omitted). Thus, in certain “situations may arise in which insurance agents, through their conduct or by express or implied contract with customers and clients, may assume or acquire duties in addition to those fixed at common law” and that the question of whether such additional responsibilities should be “given legal effect is governed by the particular relationship between the parties and is best determined on a case-by-case basis.” Id. (citation and internal quotation marks omitted). “ n additional duty of advisement” may arise in special circumstances where, for example, “(1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.” Murphy v. Kuhn , 90 N.Y.2d 266, 272 (1997) (citations omitted); see also Voss , 22 N.Y.3d at 735 (relying on Murphy ). The Court of Appeals recognized that expanding the scope of liability for insurance agents and brokers was not advisable because, in addition to “opening the flood gates” to litigation, “ nsurance agents or brokers are not personal financial counselors and risk managers, approaching guarantor status nsureds are in a better position to know their personal assets and abilities to protect themselves more so than general insurance agents or brokers, unless the latter are informed and asked to advise and act.” Id . at 273 (citations omitted). On August 13, 2025, the Appellate Division, Second Department, decided SPA Castle, Inc. v. Choice Agency Corp. , a case addressing some of the issues discussed herein. In SPA , Plaintiffs commenced an action against a broker for breach of contract because, according to the plaintiff, the broker failed to procure “appropriate insurance coverage.” The trial court denied the broker’s motion for summary judgment, and it appealed. The Second Department, finding that the plaintiff never made a specific request for insurance, reversed and stated: Here, the defendant established its prima facie entitlement to judgment as a matter of law dismissing the complaint insofar as asserted against it by submitting, inter alia, transcripts of the deposition testimony of the plaintiffs' CEO and president and the defendant's vice president of operations, which demonstrated that the plaintiffs did not make a specific request for a particular kind of insurance coverage that the defendant failed to procure. The plaintiffs' CEO and president testified, among other things, that he did not remember discussing specific risks that the plaintiffs were seeking to insure against, but that the plaintiffs needed general liability insurance. The defendant's vice president of operations testified that the plaintiffs' application was for general liability insurance, which the record reflects is the kind of insurance the defendant procured for the plaintiffs. In opposition, the plaintiffs failed to raise a triable issue of fact. 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.

By:  Jeffrey M. Haber In today’s fraud notes, we examine two cases: K.M. v. Ursuline School of New Rochelle , 2025 N.Y. Slip Op. 04643 (2d Dept. Aug. 13, 2025) ( here ), and Three C, LLC v. City Settlement Serv., Inc. , 2025 N.Y. Slip Op. 04678 (Aug. 13, 2025) ( here ). Ursuline involved the failure to satisfy the elements of a fraud claim. To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” The claim must pleaded with particularity. Conclusory allegations will not suffice. Neither will allegations based on information and belief. If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed. The requirement that a fraud claim be pleaded with particularity can be found in Section 3016(b) of the Civil Practice Law and Rules (“CPLR”). Under CPLR 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”   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. As noted, a plaintiff pleading fraud must identify a misrepresentation or a material omission of fact. The misrepresentation must be a misrepresentation of present fact; it cannot be a misrepresentation of future intent to perform under the contract. The failure to plead a misrepresentation or omission will result in dismissal of the claim. Three C involved the statute of limitations applicable to a claim of fraud. Under New York law, “a fraud-based action must be commenced within six years of the fraud or within two years from the time the plaintiff discovered the fraud or could with reasonable diligence have discovered it, whichever is later” “The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud turns on whether the plaintiff was ‘possessed of knowledge of facts from which could be reasonably inferred.’” “Generally, knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute.” “‘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.’” Three C, LLC v. City Settlement Service, Inc. Three C involved a dispute between two brothers. Defendant had performed private investigation work for the defendant attorneys. Through his work, defendant learned of an investment opportunity to purchase the inventory of Warwick Winthrop Silver, an entity owned by a client of one of the attorney defendants. In connection with the opportunity, defendant approached plaintiff for a loan to purchase the inventory (primarily silver). On or about March 20, 2010, plaintiff, Three C LLC (“Three C”), and defendant, City Settlement Service Inc. (“City Settlement”) executed a promissory note (the “Note”) under which City Settlement was to repay $275,000 to Three C. The balance and interest on the Note was due September 20, 2010. The Note stated that it was “secured by a UCC Filing against certain inventory owned by City Settlement Services, Inc.” Defendant allegedly represented to plaintiff that the silver would be sold by September 2020 for double the purchase price and that the short-term note would be paid. Defendants also told plaintiff that the UCC Filing referenced in the Note had been filed with the necessary authorities. In July of 2010, plaintiffs provided defendants the $275,000 for the purchase of the silver. According to plaintiffs, defendants failed to make payment by the required September 20, 2010 due date under the Note. In 2011, defendant made intermittent payments to plaintiff toward the balance due under the Note. Those payments totaled $120,000.00. The remaining balance due under the Note remained unpaid.  On or about July 8, 2016, plaintiffs commenced the action. Defendant moved to dismiss the Complaint. Supreme Court granted the motion as to five of the six causes of action asserted in the Complaint, with the sixth cause of action severed for a separate proceeding. In 2020, plaintiff took defendant’s deposition, which, according to plaintiff, revealed additional facts warranting the filing of an amended complaint; namely, the purchase price for the silver was allegedly only $145,000, and not the $275,000 originally represented. Plaintiff alleged that he learned that defendant formed In Season Décor Corp. (“In Season”) to control the silver and deposit funds from sales of the silver. Defendant also allegedly paid himself from In Season’s bank account despite there being an outstanding balance on the Note. Deposition testimony from other defendants allegedly confirmed the foregoing. With the information learned from discovery, plaintiffs filed an amended complaint on May 12, 2021 that re-inserted defendant as a named defendant and added In Season Décor Corp. as an additional party. The Amended Complaint included allegations that the purchase price for the silver was only $145,000, and that defendant improperly transferred the silver to In Season Décor Corp. from which he sold the silver and paid himself and one of the other defendants from the proceeds. Defendants moved to dismiss the amended complaint, asserting, among other things, that the claims asserted in the amended complaint were time-barred under CPLR 3211(a)(5). Supreme Court dismissed all claims, but the fraud causes of action. Regarding the statute of limitations, Supreme Court held that there were issues of fact as to whether the two-year discovery rule applied, noting “the scheme to defraud only discovered during deposition testimony on January 30, 2020 and the Amended Complaint was filed on May 12, 2021, within the two (2) years of Statute of Limitations.” Defendants appealed. The Appellate Division, Second Department affirmed. The Court held that “Supreme Court properly denied those branches of the defendants’ separate motions which were pursuant to CPLR 3211(a)(5) to dismiss the fraud causes of action insofar as asserted against each of them as time-barred.” The Court explained that “ he facts presented … did not conclusively demonstrate, as a matter of law, that the alleged fraudulent conduct could have been discovered earlier in the exercise of reasonable diligence.” K.M. v. Ursuline School of New Rochelle Defendant, Ursuline School of New Rochelle (“Ursuline”), operates an all-girls private school in New Rochelle. Plaintiff (the “mother”) enrolled her daughter (the “student”) at Ursuline in September 2020. In January 2022, the student was expelled from Ursuline for engaging in an off-campus physical altercation in May 2021. Subsequently, the mother, as guardian for the student, commenced the action against Ursuline, asserting causes of action to recover damages for breach of contract, fraud, and breach of the implied covenant of good faith and fair dealing. Among other things, the mother alleged that Ursuline breached its obligations under a student-parent handbook that was distributed in September 2020 (the “Handbook”) by expelling the student for the off-campus incident. The mother also alleged that Ursuline engaged in fraud by inducing her to enroll the student at Ursuline and that Ursuline breached the implied covenant of good faith and fair dealing by conducting an unfair investigatory process. Regarding the fraud claim, the mother alleged that Ursuline misrepresented in its student/parent handbook its intention to: (i) perform its obligations in accordance with the teachings of Jesus Christ; (ii) allow students to learn from their mistakes; and (iii) nurture students’ emotional well-being. In support of her claim, the mother cited to two excerpts from the Handbook. Plaintiff alleged that she relied on the statements in the Handbook when she apologized to the school for her involvement in the altercation. Ursuline moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the amended complaint. In an order dated June 30, 2022, Supreme Court granted Ursuline’s motion. Regarding the fraud claim, the court held that “the Amended Complaint not meet the heightened standard of particularity required to sustain a cause of action sounding in fraud.” “Simply alleging that Ursuline not lived up to the standard of the teachings of Jesus Christ,” said the court, “does not satisfy the particularity requirement for a fraud claim.” The court also held that “upon a close reading of the Amended complaint, the court unable to make out any allegations which even suggest that Ursuline knowingly made any misrepresentation.” “In essence,” said the court, “Plaintiff argue that Ursuline breached the terms of the Handbook by expelling her.” Noting that a plaintiff alleging fraud, “must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant,” the court found that “ he Amended complaint simply does not make out a knowing misrepresentation by Ursuline.” The court further held that the mother failed to plead justifiable reliance. The court explained that the “ he portion of the Handbook which reads “ ooted in the truth and values of the teachings of Jesus Christ an aspirational statement regarding the school’s Christian ethos.” The provision was not, held the court, “a catch-all provision totally negating disciplinary procedures.” “Nor,” said the court, was it “reasonable to rely on the excerpt which reads “ chool is a place to learn and we often learn from making mistakes after being afforded opportunities to correct mistakes.” “These two excerpts,” concluded the court, were “general expressions of Ursuline’s overall philosophy and not render inoperative the specific disciplinary provisions of the Handbook.” “At best,” said the court, they were “statements indicating that Ursuline ha discretion in how it dealt with disciplinary issues.” Finally, the court held that the fraud claim duplicated the mother’s breach of contract claim. In that regard, the court noted that the fraud claim was based on Ursuline’s breach of contract “by not following the provisions of the Handbook.” The mother appealed. The Appellate Division, Second Department affirmed. The Court held that “the Supreme Court properly granted Ursuline’s motion pursuant to CPLR 3211(a) to dismiss the amended complaint.” Focusing on the particularity requirement under CPLR 3016(b) and the first element of a fraud claim ( i.e. , a false statement), the Court held that “the mother’s bare and conclusory allegations failed to identify any specific misrepresentation of material present fact made by Ursuline.” Takeaway The implications of Ursuline and Three C reflect two important aspects of fraud litigation: how fraud must be pleaded and when it can be pursued. In Ursuline , the Court emphasized the particularity pleading requirements for fraud. The plaintiff’s reliance on broad, aspirational statements from a school handbook was insufficient. The Court made clear that fraud must be based on a false statement, not “bare and conclusory” allegations. Ursuline , therefore, serves as a cautionary reminder: plaintiffs must articulate fraud claims with particularity, detailing the “who, what, where, when, and how” of the alleged fraud, and must plead all elements of the claim. Otherwise, the claim risks dismissal at the outset. Three C emphasized another aspect of pleading a fraud claim: application of the discovery rule. The Court affirmed the viability of the fraud claim under the two-year discovery rule, finding that there were issues of fact as to whether plaintiffs could have reasonably discovered the fraud absent the deposition that revealed key facts about the alleged fraudulent scheme. Three C underscores the point that the discovery of new evidence, which was not previously extant, may suffice to trigger the two-year discovery rule under CPLR 213(8). It also highlights the importance of discovery in uncovering hidden misconduct and reviving claims that might otherwise be time-barred. ____________________________________ 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. This Blog has written numerous articles addressing the elements of a fraud claim, including the failure to articulate a false and misleading statement and omission. To find such articles, please visit the  Blog  tile on our  website  and search for “misrepresentations”, or “failure to plead a misrepresentation”, or any other issue that may be of interest to you. Lama Holding Co. v. Smith Barney Inc. , 88 N.Y.2d 413, 421 (1996). Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009). Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). RKA Film Fin., LLC v. Kavanaugh , 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC , 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi , 120 A.D.3d 447 (1st Dept. 2014). Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted). GoSmile, Inc. v. Levine , 81 A.D.3d 77, 81 (1st Dept. 2010),  lv. dismissed , 17 N.Y.3d 782 (2011).  This Blog has written numerous articles addressing the statute of limitations for fraud, including the discovery rule under CPLR 213(8). To find such articles, please visit the  Blog  tile on our  website  and search for “statute of limitations”, “discovery rule”, or “CPLR 213(8)”, or any other issue that may be of interest to you. Vilsack v. Meyer , 96 A.D.3d 827, 828 (internal quotation marks omitted); see CPLR 213(8). Sargiss v. Magarelli , 12 N.Y.3d 527, 532 (quoting Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957)). Id. (internal quotation marks omitted). Id. (quoting Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978)). The factual background for Three C comes from the briefs on appeal and the decision and order appealed from. Three C , Slip Op. at *2. Id. (citations omitted). Lama , 88 N.Y.2d at 421. Ursuline , Slip Op. at *3. Id. (citations omitted).

By:  Jeffrey M. Haber On August 1, 2025, the Securities and Exchange Commission (“SEC”) announced ( here ) that it charged a Wisconsin resident and three limited liability companies that he owns and controls – Investors Capital LLC, Global Investors Capital LLC, and High Income Performance Partners LLC (collectively, the “Entity Defendants”) – with perpetrating a real estate-related offering fraud. According to the SEC’s complaint ( here ), from approximately May 2020 through at least January 2024 (the "Relevant Time Period"), Defendants allegedly solicited investors by promising to purchase, fix, and flip real estate for profit. Defendants collectively raised at least $1.9 million from at least 30 investors throughout the United States, including at least nine investors in Wisconsin. Many of the investors were members of the Nigerian-American community. According to the SEC, defendant misused the money raised by spending at least 80% of it on himself and his other ventures, and not on the promised real estate transactions. The SEC alleged that defendant held himself out as an “Incredibly Successful Entrepreneur” who amassed a multi-million dollar real estate portfolio after emigrating from Africa to Wisconsin in 2016 “with just $4,700,” to become a “notable and sought after millionaire investor” who serves as a speaker, life coach, mentor, consultant, and philanthropist. Defendant allegedly made these and similar representations on his website, on social media sites, during presentations to potential investors, and during financial coaching seminars. According to the SEC, defendant’s story was misleading. Defendant allegedly had sufficient assets when he emigrated to the United States to support himself and his family without needing to work. Likewise, said the SEC, defendant’s claims on his website in 2024 that he owned “real estate assets currently valued at over $23 million,” were also untrue. According to public records searches, noted the SEC, during the Relevant Time Period, defendant and the entities he controlled –  including defendants Investors Capital, Global Investors Capital, and High Income Performance Partners (together, the “Entity Defendants,”) – owned only 11 properties with a collective value of approximately $1 million. The SEC alleged that defendant enticed investors with promises of lucrative returns on investments (or “ROI”) in one year or less. Defendants allegedly promised different investors a variety of different ROI, typically in the range of 10% to 30%, but at times higher. The SEC alleged that defendants usually promised to make a payment to investors within three to 12 months consisting of the ROI and the return of their principal investment. According to the SEC, defendants usually entered into written investment agreements with investors making their first investment. The SEC claimed that the agreements typically stated that the relevant Entity Defendant would provide services, including purchasing, fixing, and flipping properties, on behalf of investors and “acquir investment property that befits the investment fund.” Defendants allegedly told investors that profits would be generated through defendant’s investment of their funds in either a specific property or in unspecified real estate to be purchased, renovated, and sold. Some investors, said the SEC, subsequently entered into verbal agreements with defendant and one or more of the Entity Defendants for additional real estate investments, subject to terms similar to the terms of their initial investments. Regardless of whether the investment agreements were written or verbal, defendant allegedly told investors that the money they invested was to be used for real estate development projects with repayment of their investment principal and ROI by a specified time. Despite these core representations and promises, claimed the SEC, defendants spent only a small fraction (less than one-fifth) of the investors’ money on purchasing or renovating real estate. Instead, alleged the SEC, defendant commingled investor funds in his personal bank accounts and accounts for the Entity Defendants and his other businesses, and often used the investors’ funds for other purposes, including paying his personal living expenses, buying jewelry and automobiles, and paying for travel and entertainment. Although the written investment agreements identified at least l0 specific properties that defendants were going to purchase, fix, and flip, the SEC alleged that public records showed that during the Relevant Time Period, seven of those 10 properties were never owned by defendants and, of the three properties that were acquired by defendant or a company he controlled, two were subject to foreclosure proceedings. According to the SEC, Defendants have not paid most investors as promised in the written and verbal investment agreements. The SEC alleged that investors who contacted defendant seeking repayment of their investment principal and ROI when their investment period ended were met with a series of excuses and delays. In addition, maintained the SEC, several of the investors sued defendant and/or the Entity Defendants when the defendants failed to meet their payment obligations. Despite these lawsuits, said the SEC, defendants continued to solicit funds for additional “successful investments” without disclosing that defendants had not repaid prior investors. The SEC alleged that, based on the foregoing conduct, defendants violated the federal securities laws, namely Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule l0b-5 promulgated thereunder. Accordingly, the SEC seeks a judgment against defendants that: (a) imposes permanent injunctive relief, including prohibiting defendant from offering or selling securities; (b) orders disgorgement of ill-gotten gains, plus prejudgment interest; and (c) imposes civil monetary penalties. The SEC filed the action ( SEC v. Nantomah , Case No. 2:25-cv-01130) in the United States District Court for the Eastern District of Wisconsin. Takeaway Nantomah reflects an ongoing effort by the SEC to target affinity fraud. Affinity fraud is a deceptive investment scheme that preys on trust and close relationships within specific communities or social groups. These groups often share a common identity, such as religious affiliation, ethnicity, profession, or membership in a social organization. The promoter of the fraud either belongs to the group or uses a trusted insider to promote the scam, making it more believable and harder to detect. Victims of affinity fraud are often persuaded to invest in fraudulent ventures with promises of high returns and minimal risk. Because the offer comes from someone they trust—or appears to—individuals may forego due diligence and even encourage others in the group to invest, amplifying the damage. Affinity fraud and real estate scams often intersect in ways that make these schemes particularly damaging and difficult to detect.  Real estate is an attractive vehicle for fraud because it typically involves large sums of money and complex transactions that can be difficult for the average investor to fully understand. Fraudsters use this complexity to their advantage, presenting fake or exaggerated investment opportunities that appear legitimate. They may promise high returns from flipping houses, investing in commercial developments, or participating in exclusive property deals. These offers are often framed as opportunities to build wealth within the community or support shared values, making them emotionally compelling. One case of an alleged real estate affinity fraud involved a Miami-based developer who allegedly orchestrated a $135 million Ponzi scheme targeting the South Florida Cuban exile community. The developer allegedly used his cultural ties and community standing to gain trust, convincing over 400 investors to fund real estate projects that either didn’t exist or were grossly misrepresented. Another case in California saw an alleged promoter targeting the Filipino-American community with promises of high returns from legal funding tied to real estate. The alleged scam operated as a Ponzi scheme, using new investors’ money to pay earlier ones, while the fraudster lived lavishly off the proceeds. The SEC and other regulators have warned that affinity real estate scams often involve fake deeds, inflated property values, or nonexistent developments, and they urge investors to verify all claims independently—even when the opportunity comes from someone within their group. ________________________________________ 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. This BLOG has examined enforcement actions and the settlement of enforcement actions involving affinity fraud on numerous occasions. To find these articles, visit the “ BLOG ” tile on our  website  and enter “affinity fraud” in the “search” box.

By: Jonathan H. Freiberger In today’s BLOG, we will address the enforcement of foreign judgments (i.e., judgments obtained outside the State of New York) in New York. Simply stated, armed with a money judgment, a judgment creditor can employ numerous available procedures to assist in the collection of the outstanding judgment debt. Article 52 of the CPLR (Enforcement of Money Judgments) provides for many enforcement options. Judgments obtained in New York can be enforced immediately. What happens, however, when a litigant obtains a judgment in another state, but would like to enforce it in New York because the judgment debtor has real property, personal property or bank accounts in New York? The United States Constitution provides that “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.” U.S.Const., Art. IV, § 1 . The “Full Faith and Credit Clause” “requires each State to recognize and give effect to valid judgments rendered by the courts of its sister States. It serves to alter the status of the several states as independent foreign sovereignties, each free to ignore obligations created under the laws or by the judicial proceedings of the others, and to make them integral parts of a single nation.” V.L. v. E.L. , 577 U.S. 404, 406-07 (2016) (citations and internal quotation marks omitted). Thus, a “final judgment in one State, if rendered by a court with adjudicatory authority over the subject matter and persons governed by the judgment, qualifies for recognition throughout the land” even if a sister state “disagrees with the reasoning underlying the judgment or deems it to be wrong on the merits.” Id . at 407. However, states are “not required … to afford full faith and credit to a judgment rendered by a court that did not have jurisdiction over the subject matter or the relevant parties.” Id . (citation and internal quotation marks omitted). While foreign judgments are entitled to full faith and credit in New York, they must first be “domesticated” in New York before they are enforceable. The CPLR provides two methods for domestication. The first method is contained in Article 54 of the CPLR , which codified the Uniform Enforcement of Foreign Judgments Act. Under CPLR 5402(a) , to recognize a foreign judgment, a judgment creditor must: (1) obtain an authenticated copy of the foreign judgment and, within 90 days of authentication, file it in the office of any county clerk of New York State; and (2) file an affidavit, stating (i) that the judgment was not obtained by default in appearance or by confession of judgment, (ii) that the judgment is unsatisfied in whole or in part, (iii) that the amount remaining on the judgment is unpaid, (iv) that enforcement of the judgment has not been stayed, and (v) setting forth the name and last known address of the judgment debtor. If the judgment creditor complies with the requirements of CPLR 5402(a), CPLR 5402(b) permits the foreign judgment to be treated “in the same manner as a judgment of the supreme court of this state.” Therefore, a foreign judgment that is filed in accordance with the requirements of CPLR § 5402 will have the same legal effect as a judgment entered in New York and will be “subject to the same procedures, defenses, and proceedings for reopening, vacating or staying” a New York judgment. CPLR 5402(b). Since CPLR § 5402(a) specifically excludes judgments obtained by default, a foreign judgment creditor must commence a plenary action or move for summary judgment in lieu of complaint to domesticate the foreign judgment. CPLR 5406 ; Madjar v. Rosa , 83 A.D.3d 1011, 1012-13 (1 st Dep’t 2011) (citations omitted). Against this backdrop, today’s article addresses Cadlerock Joint Venture, L.P. v. Simms , an opinion rendered on August 6, 2025, by the Appellate Division, Second Department. The abridged and simplified facts of Cadlerock follow. The plaintiff in Cadlerock was a judgment creditor who obtained a money judgment, by default, in North Carolina. Because the judgment was obtained by default, it could not be domesticated by the procedures found in CPLR 5402(a) . Accordingly, in 2023, the judgment creditor commenced an action by moving for summary judgment in lieu of complaint pursuant to CPLR 3213 to domesticate, in New York, its North Carolina judgment. The judgment debtor opposed the motion by arguing that there was no personal jurisdiction over him in New York and, therefore, the motion must be denied. The judgment creditor opposed the cross-motion by arguing that “lack of personal jurisdiction in New York was not a cognizable defense to an action seeking to domesticate a judgment from another state.” The motion court, in granting the cross-motion and denying the motion for summary judgment in lieu of complaint, held that New York lacked personal jurisdiction over the judgment debtor. On the judgment creditor’s appeal, the Second Department reversed and answered in the negative, the question presented on appeal – “whether New York must possess personal jurisdiction over the defendant in order for the plaintiff to obtain such recognition and potential enforcement of the judgment in New York.” After discussing full faith and credit and CPLR Article 54, the Court explained the issue of personal jurisdiction. Among other things, the Court reiterated that the “Due Process Clause of the Fourteenth Amendment limits the power of a state court to render a valid personal judgment against a nonresident defendant protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful contacts, ties, or relations.” (Citations and internal quotation marks omitted.) The Court also noted that a “judgment rendered in violation of due process is void in the rendering State and is not entitled to full faith and credit elsewhere. Due process requires that the defendant be given adequate notice of the suit, and be subject to the personal jurisdiction of the court.” (Citation and internal quotation marks omitted.) There could be no dispute that while “New York would lack jurisdiction to pass upon the merits of the controversy underlying the 2017 North Carolina judgment<, the judgment creditor> is not asking the New York courts to consider the merits of the underlying action, only to recognize the judgment entered by the North Carolina court so as to make it enforceable in New York.” The Court then held “that New York need not possess personal jurisdiction over the defendant judgment debtor in order to recognize and domesticate a judgment entitled to full faith and credit.” “Accordingly, the Supreme Court should have granted the plaintiff’s motion for summary judgment in lieu of complaint and denied that branch of the defendant’s cross-motion which was pursuant to CPLR 3211(a)(8) to dismiss the action for lack of personal jurisdiction.” 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. This BLOG has previously addressed the recognition of foreign judgments (s ee, e.g., < here =">here"> , < here =">here"> and < here =">here"> ) and some of the introductory points of this article have been adapted from prior articles. The second method, which is found in Article 53 of the CPLR and relates to the domestication of judgments obtained in foreign countries, is beyond the scope of today’s article. This BLOG has addressed CPLR 3213 numerous times. To find our numerous BLOG articles related to CPLR 3213, visit the “ BLOG ” tile on our website and enter “3213” in the “search” box. This BLOG has addressed personal jurisdiction numerous times. To find our numerous BLOG articles related to Personal jurisdiction, visit the “ BLOG ” tile on our website and enter “personal jurisdiction” in the “search” box.

By: Jeffrey M. Haber The Custody Rule provides that “it is a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of section 206(4) of the Act … for to have custody of client funds or securities unless” the adviser implements an enumerated set of requirements to prevent loss, misuse, or misappropriation of those funds and securities. The purpose of the Custody Rule is to protect investment advisory clients from, among other things, the loss, misuse, or misappropriation of their funds and securities. Under the rule, an investment adviser has custody if it holds, directly or indirectly, client funds or securities, or if it has the ability to obtain possession of those funds and securities. Custody is defined to include, among other things, “ ny arrangement … under which authorized or permitted to withdraw client funds or securities maintained with a custodian upon instruction to the custodian” and “ ny capacity (such as … trustee of a trust) that gives supervised person legal ownership of or access to client funds or securities.” A “related person” is defined as any person, directly or indirectly, controlling or controlled by the adviser, and any person that is under common control with the adviser. Under the Custody Rule, an investment adviser who has custody of client funds and securities must, among other things: (i) ensure that a qualified custodian maintains the client funds and securities; (ii) notify the client in writing of accounts opened by the adviser at a qualified custodian on the client’s behalf; (iii) have a reasonable basis for believing that the qualified custodian sends account statements at least quarterly to clients; and (iv) ensure that client funds and securities are verified by actual examination each year by an independent public accountant pursuant to a written agreement at a time chosen by the accountant without prior notice or announcement to the adviser ( i.e. , the “surprise examination” requirement). The written agreement with the accountant must provide for the first examination to occur within six months of becoming subject to the requirement and require, among other things, that the accountant file a Form ADV-E with the SEC within 120 days of the date chosen by the accountant to perform the examination, which states that the accountant has examined the client funds and securities and describes the nature and extent of the examination. Today, we examine In the Matter of Munakata Associates LLC ( here ), an administrative action that was settled in anticipation of the institution of enforcement proceedings involving the alleged violation of the Custody Rule. According to the SEC, from at least 2018 to 2024 (the “Relevant Period”), respondent’s president, sole principal, and chief compliance officer (the “Munakata’s President”) served as a co-trustee of two trusts that were advisory clients of Munakata. The trust agreements granted each co-trustee “broad investment and other powers under the trust agreement and applicable law to enter into transactions and to trade, buy, sell, sell short or otherwise acquire, receive, deliver, assign, endorse for transfer, hold or dispose of all manner of securities, futures, currencies and commodities …” as well as “broad powers under the trust agreements and applicable law to engage in borrowing and other loan and credit transactions ….” The trust agreements further stated that each co-trustee could act independently. As a result, respondent had access to and/or the ability to obtain possession of trust funds and securities without the consent of the respective co-trustees. During the Relevant Period, said the SEC, Munakata’s President had signatory authority on four client accounts. Pursuant to this authority, explained the SEC, Munakata’s President had the same ability to instruct the broker about the delivery of the accounts’ funds and securities as did the beneficial owner of the account. Thus, said the SEC, respondent had access to and/or the ability to obtain possession of client funds and securities. During the Relevant Period, said the SEC, Munakata’s President acted as an authorized agent with power of attorney on five client accounts. Pursuant to the power of attorney, explained the SEC, Munakata’s President had “the power to place orders in an account, request disbursements and make inquiries concerning the account such as obtaining account balances” as well as the power “to make gifts or other transfers of … money or other property from account during lifetime, without restriction, to any one or more persons, including the agent himself or herself .” (Orig’l emphasis). Thus, said the SEC, respondent had access to and/or the ability to obtain possession of client funds and securities. As a result, said the SEC, during the Relevant Period, respondent had custody of client funds and securities under the Custody Rule. Accordingly, noted the SEC, respondent was required to obtain surprise examinations in accordance with Rule 206(4)-2(a)(4) during the Relevant Period. According to the SEC, at no time during the Relevant Period, however, did respondent arrange for the required surprise examinations for the client accounts. As a result, the SEC alleged that, during the Relevant Period, respondent violated Section 206(4) of the Investment Advisers Act and Rule 206(4)-2 thereunder. Without admitting or denying the findings in the SEC’s order instituting cease-and-desist proceedings ( here ), respondent agreed to cease and desist from committing or causing any violations and any future violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder, and to pay a civil penalty in the amount of $50,000. Takeaway: Over recent years, the SEC has actively enforced the Custody Rule: In September 2022, the SEC resolved nine enforcement proceedings alleging violations of the Custody Rule and associated requirements for amending Form ADV to provide accurate information about fund audits. In September 2023, the SEC resolved five additional enforcement proceedings arising out of the Custody Rule. In December 2023, the SEC settled charges with an investment adviser who allegedly failed, among other things, to conduct surprise examinations of its client funds or securities. In August 2024, the SEC settled charges against an investment advisory firm for failing to deliver required audited financial statements in a timely manner and failing to promptly file an annual updating amendment to its Form ADV. In September 2024, the SEC settled charges against a Florida-based (former) registered investment adviser for a private fund that primarily invested in crypto assets, for failing to comply with requirements related to the safeguarding of client assets, including crypto assets being offered and sold as securities. Munakata stands as another recent example of the SEC’s active enforcement of, and commitment to, enforcing the Custody Rule. Munakata also underscores the SEC’s emphasis on compliance even in the absence of client loss. As discussed, there was no allegation of investor loss in Munakata . ____________________________________________ 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. Rule 206(4)-2(a). Rule 206(4)-2(d)(2). Id. Rule 206(4)-2(d)(7). Rule 206(4)-2(a)(1) – (4). Rule 206(4)-2(a)(4).

By: Jeffrey M. Haber This Blog has written frequently about the substance and scope of general releases. In New York, “a valid release constitutes a complete bar to an action on a claim which is the subject of the release.” If “the language of a release is clear and unambiguous, the signing of a release is a ‘jural act’ binding on the parties.” For this reason, “ release should never be converted into a starting point for … litigation except under circumstances and under rules which would render any other result a grave injustice.” “Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release ‘shifts the burden of going forward … to the to show that there has been fraud, duress or some other fact which will be sufficient to void the release.’”   “A plaintiff seeking to invalidate a release due to fraudulent inducement must ‘establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.’” A party that releases “a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.”  Id . (citation omitted). “Were this not the case,” observed the Court of Appeals, “no party could ever settle a fraud claim with any finality.”  Id . “‘A party may move for judgment dismissing one or more causes of action asserted against on the ground that … the cause of action may not be maintained because of … release.’” “In resolving a motion to dismiss pursuant to CPLR 3211(a)(5), ‘the plaintiff’s allegations are to be treated as true, all inferences that reasonably flow therefrom are to be resolved in his or her favor.’” In Schneier v. Clermont York Assoc., LLC , 2025 N.Y. Slip Op. 04498 (2d Dept. July 30, 2025) ( here ), the foregoing principles were before the Appellate Division, Second Department. Schneier involved a putative class action brought on behalf of “opt out members of” a prior class action, entitled Gerard v. Clermont York Assoc. LLC , commenced in the Supreme Court, New York County, under Index No. 101150/10 (the “prior class action”), against defendant, inter alia , to recover damages for certain rent overcharges. The prior class action was settled by an agreement dated May 20, 2019 (the “settlement agreement”). Plaintiff was a member of the prior class. The settlement agreement was approved by the Supreme Court by judgment dated August 26, 2020, and contained a general release barring every class member “who not timely and properly opt out” of the settlement agreement from asserting “all … claims[ or] causes of action … of any nature whatsoever … arising at any time on or before entry of the that are based upon or related to, or arise out of, in whole or in part, the facts, transactions, events, occurrences, acts, or failures to act that were or could have been alleged” in the prior class action by a class member. The settlement agreement further provided that a class member could opt out of the settlement by sending a written request for exclusion from the settlement by first-class mail postmarked by a certain date. In Schneier , Plaintiff moved, inter alia , pursuant to Article 9 of the Civil Practice Law and Rules (“CPLR”) for class certification and, in effect, pursuant to CPLR 3126 to impose discovery sanctions. Defendant opposed the motion and cross-moved pursuant to CPLR 3211(a) to dismiss the complaint as barred by the release. In an order entered April 1, 2024, the Supreme Court denied plaintiff’s motion and granted defendant’s cross-motion. Plaintiff appealed. The Second Department affirmed. The Court held that defendant “met its initial burden of establishing that the instant action was barred by the release.” The Court found that, “in support of its cross-motion, the defendant submitted,” inter alia , evidence sufficient to support dismissal of the action. This evidence included “the settlement agreement containing the release, which, by its terms, barred the action against defendant for those class members in the prior class action who did not opt out of the settlement in the manner required by the settlement agreement” and “evidence that the plaintiff, who was a class member, received the requisite notice of the settlement agreement and its opt out provision but failed to opt out of the settlement in the manner required by the settlement agreement.” The Court noted that “ n opposition, the plaintiff failed to show that there been fraud, duress, or some other circumstance that would be sufficient to set aside the release.” The Court rejected plaintiff’s argument that she was relieved of the settlement agreement’s opt-out provision by the Governor’s executive orders during the pandemic: “Contrary to the plaintiff’s contention, she was not relieved of the opt out requirements of the settlement agreement by virtue of the toll provided by Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8) and the subsequent orders extending that order, issued by the Governor in response to the COVID-19 public health crisis.” Accordingly, concluded the Court, “the Supreme Court properly granted the defendant’s motion pursuant to CPLR 3211(a) to dismiss the complaint as barred by the release.” Takeaway A “release is … a species of contract” that “is governed by the same principles of law applicable to other contracts.” Therefore, in the absence of duress, illegality, fraud, or mutual mistake, a release will not be set aside. In Schneier , the release language at issue was expansive and released “all … claims[ or] causes of action … of any nature whatsoever … arising at any time on or before entry of the that are based upon or related to, or arise out of, in whole or in part, the facts, transactions, events, occurrences, acts, or failures to act that were or could have been alleged” in the prior class action by a class member. For the Second Department (and the Supreme Court), such language was broad enough to cover the claims asserted in plaintiff’s complaint. Since the release barred the action, and plaintiff failed to plead fraud, duress, mistake, or illegality, the Second Department affirmed dismissal of the complaint. ________________________________________ 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. We have written numerous articles addressing releases and their bar on subsequent actions involving the released subject matter. To find such articles, please see the  BLOG  tile on our  website  and search for “release”, “general release”, or any other commercial litigation issue that may be of interest you. Global Minerals & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006). Booth v. 3669 Delaware, Inc. , 92 N.Y.2d 934, 935 (1998) (quoting Mangini v. McClurg , 24 N.Y.2d 556, 563 (1969)). See also Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V. , 17 N.Y.3d 269, 276 (2011). Id. (internal quotation omitted). Centro Empresarial Cempresa , 17 N.Y.3d at 276 (“A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake”) (internal quotation marks and citation omitted) (quoting  Fleming v. Ponziani , 24 N.Y.2d 105, 111 (1969)). Id. (quoting  Global Mins. & Metals Corp. v. Holme , 35 A.D.3d 93, 98 (1st Dept. 2006)). Davin v. Plymouth Rock Assur. Co. of N.Y. , 227 A.D.3d 862, 863 (2d Dept. 2024) (quoting CPLR 3211(a)(5)). Id. at 863-864 (quoting Sacchetti-Virga v. Bonilla , 158 A.D.3d 783, 784 (2d Dept. 2018)). Slip Op. at *2. Id. Id. (citations omitted). Id. (citations omitted). Id. (citations omitted) Id. Schuman v. Gallet, Dreyer & Berkey, L.L.P. , 180 Misc. 2d 485, 487 (Sup. Ct., N.Y. County 1999), aff’d , 280 A.D.2d 310 (1st Dept. 2001). See also Ivasyuk v. Raglan , 197 A.D.3d 635, 636 (2d Dept. 2021). Toledo v. W. Farms Neighborhood Hous. Dev. Fund Co., Inc. , 34 A.D.3d 228, 229 (1st Dept. 2006).

By: Jonathan H. Freiberger Today’s BLOG deals with the “Relation Back Doctrine” (the “Doctrine”) , which, inter alia , “allows a claim asserted against a defendant in an amended filing to relate back to claims previously asserted against a codefendant for Statute of Limitations purposes where the two defendants are “‘united in interest.’” Buran v. Coupal , 87 N.Y.2d 173, 177 (1995) (citation omitted). The Doctrine was codified by the CPLR. See, e.g., CPLR 203(b), (c), (e) and (f) . As explained by the Court of Appeals, the “doctrine enables a plaintiff to correct a pleading error by adding either a new claim or a new party after the statutory limitations period has expired thus gives courts the sound judicial discretion to identify cases that justify relaxation of limitations strictures to facilitate decisions on the merits if the correction will not cause undue prejudice to the plaintiff's adversary.” Id. at 177-178 (citations, internal quotation marks, and ellipses omitted). Under the Doctrine, claims against a later added party would relate back to the commencement date of the action if: “(1) both claims arose out of the same conduct, transaction or occurrence; (2) the new party is united in interest with the original defendant, and by reason of that relationship can be charged with such notice of the institution of the action that they will not be prejudiced in maintaining their defense on the merits; and (3) the new party knew or should have known that, but for an excusable mistake by the plaintiff as to the identity of the proper parties, the action would have been brought against as well.” Nemeth v. K-Tooling , 40 N.Y.3d 405, 411 (2023) (citations, internal quotation marks and brackets omitted); see also O’Halloran v. Metropolitan Transp. Authority , 154 A.D.3d 83, 86-87 (1 st Dep’t 2017). A “more relaxed” standard is recognized in the application of the Doctrine when a party seeks to add a new claim against an existing party as opposed to adding a new party to an existing action. O’Halloran , 154 A.D.3d at 86. In such circumstances, “the relevant considerations are simply (1) whether the original complaint gave the defendant notice of the transactions or occurrences at issue and (2) whether there would be undue prejudice to the defendant if the amendment and relation back are permitted.” Id . at 87 (citations omitted). On July 30, 2025, the Appellate Division, Second Department, had occasion to address the Doctrine in U.S. Bank National Association v. 1702 Dean, LLC , a mortgage foreclosure action. The facts of U.S. Bank are somewhat tortured and will be simplified herein for editorial purposes. In 2006, the borrower executed a note in the amount of $600,000 and secured her repayment obligations with a mortgage on residential property located in Brooklyn, New York. Upon the borrower’s death, the mortgaged premises was transferred to Gerald, one of the borrower’s sole surviving heirs. The lender commenced a foreclosure action against Gerald in 2010. In the complaint, the “Block” number in the tax map designation was incorrectly listed, and that error was carried over to the filed notice of pendency. Gerald defaulted in appearing and, in 2013, the lender’s motion for a default judgment and for the appointment of a referee to compute was granted. Later in 2013, Gerald conveyed the property to an unrelated LLC. Thereafter, a second and a third notice of pendency were filed, which, again, contained incorrect “Block” numbers. A judgment of foreclosure and sale was issued in February of 2017. In April of 2017, a fourth notice of pendency was filed, which contained, for the first time, a proper property description. In November of 2017, the lender withdrew the judgment of foreclosure and sale. The LLC moved to intervene in the action in July of 2018, and, in October of 2018, the lender moved for leave to file a supplemental summons and amended complaint to add the LLC as a necessary party. Both motions were granted by the trial court. The supplemental summons and amended complaint were filed by the lender along with a notice of pendency containing a proper property description. “The LLC interposed an answer in which it asserted various affirmative defenses, including that the action was barred by the statute of limitations and that it was not bound by any proceedings in the action because the notice of pendency was not properly indexed against the premises.” The lender moved for summary judgment against the LLC, and the LLC cross-moved for summary judgment dismissing the amended complaint as time-barred. In support of its cross-motion, the sole member of the LLC submitted an affidavit in which he averred that “the LLC obtained its interest in the premises pursuant to the deed dated February 13, 2015, which was recorded on March 11, 2015, that no notice of pendency was filed against the premises at that time, and that he was not on notice of this foreclosure action when the LLC acquired the premises.” The lender opposed the cross-motion by arguing that the action was timely commenced against the LLC by virtue of the Doctrine. Both motions were denied. The LLC appealed. The Second Department reversed. The Court found that the LLC met its initial burden of demonstrating that the amended complaint was filed outside the six-year statute of limitations period for foreclosure actions and, in opposition, the lender failed to meet its burden of demonstrating the applicability of the Doctrine. In addition to the legal issues previously discussed herein, the Court noted that the “linchpin of the relation-back doctrine is whether the new defendant had notice within the applicable limitations period. (Citations and internal quotation marks omitted.) The Court noted compliance with the first “prong” of the Doctrine’s test because the claim arose from the same conduct, transaction or occurrence. As to the second “prong,” however, the Court found that Gerald and the LLC were not united in interest. “Here, a judgment of foreclosure and sale would not similarly affect Gerald and the LLC, as Gerald no longer has an interest in the premises, while the LLC would have its interest in the premises foreclosed. Moreover, any claim of identical interests is undermined by Gerald's default in appearing or answering the complaint.” (Citations, internal quotation marks, and ellipses omitted.) Compliance with the third “prong” was missing as well because the “failure to name the LLC as a defendant in the original complaint was not a mistake on the plaintiff's part of which the LLC could have been aware, as there would have been no reason to name the LLC when the action was commenced since the LLC had no interest in the premises at that time.” Further, and “most importantly” there was no showing that the LLC had actual notice of the action prior to the expiration of the statute of limitations. While the LLC acquired its interest in the property prior to the expiration of the statute of limitations, “the notices of pendency filed before the LLC acquired the premises did not, in fact, provide constructive notice of the action as they were indexed against the wrong block and, thus, the wrong property.” (Citation omitted.) Further, the sole member of the LLC averred that he did not have actual notice of the pendency of the action. Finally, the Court noted that while the LLC may have been chargeable with notice of the lender’s recorded mortgage, “the recording of the mortgage did not provide actual notice of the foreclosure action, as required under the relation-back doctrine.” (Citation 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. This BLOG has previously addressed the “Relation Back Doctrine.” See, e.g., < here =">here"> and < here =">here"> . 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 you. This BLOG has written numerous articles addressing notices of pendency. To find such articles, please see the BLOG tile on our website and type “notice of pendency” into the “search” box. Simply stated, a notice of pendency (or lis pendens) is a provisional remedy governed by Article 65 of the CPLR. The purpose of a notice of pendency is to put defendants and the world on constructive notice of the full scope of the rights claimed by plaintiff to defendant’s real property. Sjogren v. Land Assoc., LLC , 223 A.D.3d 963, 965 (3 rd Dep’t 2024). This BLOG has written numerous articles on Referee’s in mortgage foreclosure actions. See. e.g. , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . This BLOG has written numerous articles addressing statute of limitations issues in residential mortgage foreclosure actions. To find such articles, please see the BLOG tile on our website and type “statute of limitations mortgage foreclosure” into the “search” box.