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On September 5, 2017, Judge Lorna G. Schofield of the United States District Court for the Southern District of New York certified a class of Deutsche Bank employees who had filed an action under the Employee Retirement Income Security Act (“ERISA”), alleging self-dealing in the company’s retirement plan – the Deutsche Bank Matched Savings Plan (the “Plan”).  In particular, the Plaintiffs alleged that Deutsche Bank and the other defendants violated their fiduciary duties by loading the Plan with expensive funds that earned fees for the bank. The class includes between 22,000 and 32,000 current and former participants in the Plan. What is a Class Action? A class action is a type of lawsuit in which one or more persons bring an action on behalf of a group of persons, referred to as the “class.” Under federal law, the Federal Rules of Civil Procedure govern class actions. While the subject matter of class actions can vary widely, certain factors must be present for a court to certify an action as a class action: the issues in dispute are common to all members of the class; the issues predominate over all others, and the members of the class are so numerous as to make it impracticable to bring them all before the court. Moreno v. Deutsche Bank Americas Holding Corp. The plaintiffs claimed that as of 2009, the Plan had approximately $1.9 billion in assets and offered participants 22 “designated investment alternatives,” 10 of which were “proprietary Deutsche Bank mutual funds.” The gravamen of the complaint concerned Defendants’ inclusion of proprietary mutual funds among the Plan’s offerings. According to the Plaintiffs, “Deutsche Bank earned millions of dollars in investment management fees by retaining in the plan.” The complaint alleged that the Plan included three proprietary index funds that charged excessive fees in relation to other comparable index funds. The complaint also alleged that the Plan included actively managed proprietary funds in which Deutsche Bank charged management fees two to five times higher than “other actively managed funds in the same style,” and that such funds “consistently underperformed as measured by benchmark indices.” Plaintiffs further alleged that Deutsche Bank failed to include the least expensive share class for each of its offered proprietary funds and failed to rationally control recordkeeping costs. The Court found that these allegations satisfied the commonality element of Rule 23(a). Noting that “numerous courts have found commonality where plaintiffs challenge a 401(k) plan’s retention of investment products, including proprietary funds, alleging excessive fees,” the Court held that “numerous questions,” such as “whether each Defendant was a fiduciary” and whether Defendants were conflicted or acting imprudently would “generate common answers apt to drive the resolution of Defendants’ liability.” (Citation and internal quotation marks omitted.) Judge Schofield rejected the Defendants’ argument that the Plaintiffs could not show commonality because none of the alleged breaches affected all class members, holding that “ ommonality … does not mean that all issues must be identical as to each member.” The Defendants argued that “12,000 class members never invested in a single proprietary fund at any point during the relevant period.” The Defendants also argued that resolving this action involved “a massive series of individualized analyses that turn on when and in which funds each participant invested.” Again, the Court rejected the argument, holding that Defendants “misapprehends Plaintiffs’ claims, which are brought on behalf of the Plan. Liability is determined based on Defendants’ not Plaintiffs’ decisions.” As to the typicality and adequacy of representation elements, the Court found that the Plaintiffs satisfied both requirements. First, the Court found that “each class member’s claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant’s liability.” (Citations omitted.) For example, the Plaintiff’s “claims arise from the same course of events – their participation in the Plan” and involve “similar legal arguments to prove liability – that Defendants mismanaged the Plan in violation of ERISA and continue to do so today.” Such allegations, held the Court, are “sufficient to show typicality.” Second, the Court found that the Plaintiffs were adequate representatives of the class because they and the class “share an interest in remedying any alleged mismanagement of the Plan in violation of ERISA,” “d not appear to have interests antagonistic to other class members,” and retained competent counsel to represent the interests of the class. The Court found “unpersuasive” the Defendants’ argument that the Plaintiffs were not adequate class representatives because they did not understand the case, noting that the claims “involve technical financial decisions affecting billions of dollars in assets and Plan fiduciaries’ compliance with the requirements of ERISA.” “It is understandable,” therefore, “that Plaintiffs, who are not lawyers or investment professionals, may have had difficulty answering questions about the claims.” Finally, the Court found that the Plaintiffs satisfied Rule 23(b)(1)(B), which permits class certification if prosecuting separate actions by or against individual class members would create a risk of adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests. Noting that a breach of fiduciary duty is a classic example of a Rule 23(b)(1)(B) case, and that the “the structure of ERISA favors the principles enumerated under Rule 23(b)(1)(B),” the Court found that the Plaintiffs satisfied the rule: the “Defendants’ alleged conduct was uniform with respect to each participant,” and that adjudicating Plaintiffs’ claims … would dispose of the interests of the other participants or substantially impair or impede their ability to protect their interests.” The Court went on to say that “Plaintiffs allege Defendants’ conduct affected members of a class of thousands similarly as each were exposed to the same investment options and seek to restore losses to the Plan’s assets, which are comprised of the individual accounts that allegedly paid excessive fees,” and remove “Defendants as fiduciaries,” in addition to “other equitable relief.” “Such relief, if ordered,” held the Court, “would as a practical matter dispose of the interests of non-party participants.” Notably, the Court ruled that although there was split over whether class certification under Rule 23(b)(1) for breach of fiduciary duty under ERISA is appropriate in the wake of recent Supreme Court decisions, the majority of courts “have held that it is.” Plaintiffs do not assert harms based on Defendants’ misconduct that is specific to his or her individual account. Rather, named Plaintiffs – whose collective participation in the Plan covers the entire class period – challenge Defendants’ process for selecting and retaining the investment options presented to all Plan participants. Adjudicating their claims challenging Defendants’ management of the Plan as a whole would necessarily affect the resolution of any concurrent or future actions by other Plan participants. The Court further found that although Rule 23(b)(2) does not permit the combination of “individualized awards of monetary damages,” the same is not true with regard to Rule 23(b)(1)(B), which is the rule under which the Plaintiffs were proceeding: “Plaintiffs’ class claims under Rule 23(b)(1) are derivative in nature, not individualized.… Any monetary relief will be paid to the Plan … and the Plan fiduciaries would be responsible for allocating the recovery among participants.” (Citations and internal quotation marks omitted.) A copy of the Court's opinion and order can be found here. Other 401(k) Class Action Lawsuits This ruling follows more than two dozen proposed class actions in the past three years against financial firms challenging in-house investment products in employees’ 401(k) plans. Firms targeted by proposed class actions include JP Morgan Chase Bank,  Charles Schwab, and Morgan Stanley, among others. The overarching issue in these lawsuits is that the firms violated their fiduciary duties under ERISA by packing their 401(k) plans with in-house funds that earn high fees, rather than providing participants less expensive options available through other investments. The Takeaway Although it remains to be seen whether the class will prevail in its claims against Deutsche Bank, Moreno is important because of the Court's analysis of Rule 23(b)(1), in particular, its adoption of the majority rule that Rule 23(b)(1) is an appropriate vehicle for resolution of breach of fiduciary duty claims under ERISA. The fact there is a split among the district courts makes the issue ripe for review by the Circuit Courts of Appeal, and possibly the United States Supreme Court. This Blog will continue to follow the issue as it develops.

It has long been the policy in New York to favor and encourage arbitration as a means of expediting the resolution of disputes and conserving judicial resources. Rio Algom Inc. v. Sammi Steel Co., Ltd. , 168 A.D.2d 250, 251 (1st Dept. 1990). For this reason, when parties have chosen arbitration as their forum for dispute resolution, they are precluded “from using the courts as a vehicle to protract litigation.” Matter of Weinrott (Carp) , 32 N.Y.2d 190, 199 (1973). Notwithstanding, there are times when parties choose not to invoke their arbitration clause. For example, if a defendant believes that the plaintiff’s claims are without merit, it may prefer to have a court rule on a motion to dismiss, rather than an arbitrator who is not bound by a court’s procedural and substantive rules. If a party ignores the arbitration provision, and runs to court, does that party waive its right to arbitration? In Primer Constr. Corp. v. Empire City Subway Co., Ltd. , 2017 NY Slip Op. 31909(U) (Sup. Ct. N.Y. County Sept. 6, 2017), Justice Bransten of the Supreme Court, New York County, Commercial Division, answered the question, yes. Primer Construction Corp. v. Empire City Subway Co., Ltd. Background The case arose from an agreement between Primer Construction Corp. (“Primer”), a general contractor that provides capital municipal work for New York City and its agencies, Verizon-New York, Inc., d/b/a Verizon Communications (“Verizon”), a private utility company that owns and/or operates surface and subsurface utility facilities within New York City, Empire City Subway Company, Ltd. (“Empire City”), a wholly-owned subsidiary of Verizon, and the New York City Department of Design and Construction (“DDC”). Pursuant to the agreement, the defendants agreed to cooperate with and compensate contractors, such as the plaintiff, working on DDC projects involving the defendants’ utility facilities. In June 2014, Primer entered into an agreement with the DDC for the construction of a culvert ( e.g. , a tunnel that allows water to flow under a road) in Queens, New York. The project, however, interfered with an underground network of utility lines owned by the defendants, requiring Primer to move, protect, or secure those facilities. In October 2014, Primer and the defendants entered into an agreement pursuant to which Primer would place the utility lines above the culverts (the “Interference Agreement”). The Interference Agreement contained a binding arbitration clause, which stated that “ ny and all disputes arising out of this Agreement or a breach thereof shall be submitted to arbitration ….” The agreement also contained a binding written modification clause, which stated that the agreement “shall not be modified or rescinded, except by a writing signed by a duly authorized representative of both parties.” Soon after work began, Primer found that the interference work could not be completed as originally agreed. Primer alerted the defendants to the problem, but the defendants refused to provide alternative methods for project completion. Nevertheless, Primer continued to perform the work as set forth in the Interference Agreement. Primer claimed that the defendants owed it $1.3 million for the work it performed. Primer filed the action in May 2015, and an amended complaint in November 2016, asserting three causes of action against the defendants: (1) fraudulent misrepresentation/fraudulent inducement; (2) breach of contract; and (3) quantum meruit. The defendants moved to dismiss. The Court’s Ruling Before ruling on the motion to dismiss, the Court addressed the question of whether it had subject matter jurisdiction to hear the dispute in light the arbitration provision in the Interference Agreement. The Court held that the parties had waived the arbitration requirement in the Interference Agreement. The Court found that Primer waived the right to arbitrate “by choosing to litigate the dispute in” court and the Defendants “waived the right” to arbitrate “by participating in the instant litigation.” Thus by “choos to take the course of litigation,” the parties had “waived the right to submit the question to arbitration.” Matter of City of Yonkers v. Cassidy , 44 N.Y.2d 784, 785 (1978). The Court also found that even if the parties had not manifested their “acceptance of the judicial form” by participating in the lawsuit ( Stark v. Molod Spitz DeSantis & Stark, P.C. , 9 N.Y.3d 59, 66 (2007)), they had orally waived the arbitration provision in the Interference Agreement. The Court held that such waiver was enforceable notwithstanding the “written modification provision at issue.” Taylor v. Blaylock & Partners, LP. , 240 A.D.2d 289, 290 (1st Dept. 1997). As a result, the Court concluded that it had subject matter jurisdiction to hear the matter. Takeaway Arbitration is an alternative way to resolve a dispute without going to court. It can be binding, in which the arbitrator issues a decision that can be enforced by the courts, or non-binding, in which the arbitrator issues an advisory opinion that the parties can accept or reject. Before the parties can arbitrate their dispute, they must have agreed to do so. However, like any contract, the parties to an arbitration agreement can modify, waive or abandon the right to arbitrate. They can choose to litigate in court or they can agree to waive the agreement to arbitrate. And, they can waive the agreement orally even if the contract requires modification only in writing. Primer exemplifies these principles.

It’s an unfortunate fact of life that victims of natural disasters, such as Hurricanes Harvey and Irma, and those who try to help them, often become the targets of fraud. As the floodwaters recede and the clean-up effort begins, officials have sounded the alarm, warning victims and volunteers about this threat. On September 4, 2017, Corey Amundson (“Amundson”), the Acting United States Attorney for the Middle District of Louisiana and head of the National Center for Disaster Fraud, highlighted the concern in an interview with NPR ( here ). According to Amundson, “it starts with charity fraud, contractor fraud, emergency assistance fraud” and “evolves into program fraud” as the federal government provides financial assistance to those in need. Amundson said that these types of fraud fall into two categories: (i) impersonations – individuals impersonating FEMA inspectors, insurance inspectors and National Flood Insurance Program inspectors, and (ii) false submissions – individuals filing claims on property they do not own or with social security numbers that belong to someone else. Amundson also noted the use of technology to defraud hurricane victims, citing identity fraud and false web domains that sound like disaster relief organizations that in reality are not as common examples. Amundson offered the following advice to the victims of natural disasters and volunteers who are trying to help them: Do not respond to emails soliciting donations and do not open any email attachments or links. Avoid charitable organizations whose names sound familiar “but are just slightly off.” Only work with and donate money to known and trusted charities, and only work directly with them, not with people claiming to be working on their behalf. Bullying or intimidation is a red flag for fraud. While all fraud cannot be prevented, Amundson advised people to use their “gut feelings” and “common sense,” to protect themselves from fraud. After all, as Amundson noted, “if something feels off, it probably is.” On September 13, 2017, the Financial Industry Regulatory Authority (“FINRA”) issued a fraud alert about the risk of financial fraud in the wake of hurricanes Harvey and Irma ( here ). Echoing some of the things Amundson noted, FINRA warned that hurricane victims should not “be surprised” if they “receive unsolicited  phone calls , emails and texts, including from  messaging apps , about investments that exploit a variety of hurricane-related opportunities.” FINRA noted that “stocks or  crowdfunding investments  associated with clean-up, rebuilding and breakthroughs in science and technology that purport to address current and future flood-related issues” are common forms of financial fraud. FINRA cautioned against responding to unsolicited communications that, among other things, promise “swift and exponential growth”; mention “contracts or affiliations with federal government agencies or large, well-known companies”; use facts from respected news sources “to bolster claims” of stock increases; and use pressure tactics to secure immediate investment, such as “You must act now!” FINRA offered the following advice to victims of natural disasters to “avoid potential scams”: Investigate before investing. “Never rely solely on information you receive in an unsolicited email, text message or cold call from a smooth talking “analyst” or “account executive” promoting a stock.” “Use  FINRA BrokerCheck ®  to check registration status and additional information on investment professionals and firms.” Find out the identity of the sender. “Many companies and individuals that tout stock are corporate insiders or are paid to promote the stock. Look for statements (usually found in the fine print) that indicate cash payments or the receipt of stock for disseminating a report on the company.” Find out where the stock trades. “ Most unsolicited stock recommendations involve stocks that can’t meet the listing requirements of The Nasdaq Stock Market, the New York Stock Exchange or other U.S. stock exchanges. Instead, these stocks tend to be quoted on an over-the-counter (OTC) quotation platform like the OTC Bulletin Board (OTCBB) or the OTC Link Alternative Trading System (ATS) operated by OTC Markets Group, Inc.” “Companies that list their stocks on registered exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies quoted on the OTCBB or OTC Link generally do not have to meet any minimum listing standards (although companies quoted on the OTCBB, OTC Link’s OTCQX and OTCQB marketplaces are subject to some initial and ongoing requirements).” Read a company’s SEC filings. “ Most public companies file reports with the SEC. Check the SEC’s EDGAR database  to find out whether the company files with the SEC. Read the reports and verify any information you have heard about the company.” Takeaway Victims of natural disasters have enough to worry about. They should not have to worry about being victimized by fraudsters. Yet, they do. As FINRA noted in its alert, “fraud routinely follows on the heels of disaster.” Hurricanes Harvey and Irma “are no exception.” While it may not be possible to prevent all types of fraud, Amundson and FINRA offer sound advice for the targets of fraud to protect themselves: use common sense, ask questions and be vigilant. By doing so, hurricane victims can protect themselves from being victimized again.

Black’s Law Dictionary has defined “escheat” as “ reversion of property to the state in consequence of a want of any individual competent to inherit.”  Many people are aware that money in forgotten bank accounts is frequently deemed abandoned and is escheated to the State, however, the scope of the APL, is significantly broader. New York’s Abandoned Property Law (“APL”), sets forth various circumstances in which property is deemed to be abandoned and thus escheated to New York State.  Thus, section 102 of the APL, which is the declaration of the policy behind the APL, provides that “ t is hereby declared to be the policy of the state, while protecting the interest of the owners thereof, to utilize escheated lands and unclaimed property for the benefit of all the people of the state, and this chapter shall be liberally construed to accomplish such purposes”. Unclaimed property held or owing by banking organizations is governed by Article III of the APL.  Other provisions in the APL relate to unclaimed deposits and refunds for utility services (Article IV), unclaimed property held or owing for payment to security holders (Article V), unclaimed property held by securities brokers (Article V-A), unclaimed life insurance funds (Article VII), unclaimed condemnation awards (Article X), unclaimed property paid or deposited into federal courts (Article XII), unclaimed or abandoned property in the possession, custody or control of the United States of America (Article XII-A) and various categories of miscellaneous unclaimed property (such as, but not limited to, unclaimed property resulting from the administration of the NYS Vehicle and Traffic Law, uncashed travelers checks and money orders, unclaimed consumer credit balances) (Article XII). This blog reflects upon Article VI of the APL, which addresses the escheatment to New York State of unclaimed or unknown court funds.  Attorneys and litigants routinely deposit money into court for a variety of reasons pursuant to statute and/or court order.  These deposited funds are subject to section 600 of the APL, which deems, with some exceptions, the following unclaimed property as abandoned: (a) “any monies including the monetary proceeds from the sale of tangible personal property and securities or other intangible property paid into court which … shall have remained in the hands of any county treasurer, or the commissioner of finance of the city of New York, for three years.…”; (b) certain “…monetary proceeds representing any legacy or distribution share to which an unknown person is entitled….”; and, (c) “… monies paid to a support bureau of a family court, for the support of a spouse or child, which shall have remained in the custody of a county treasurer, or the commissioner of finance of the city of New York, for three years….”  The potentially absurd result of the blind application of Article VI of the APL is illustrated by the circumstances of the case discussed below (the true names of the parties having been changed). ABC Corporation (“ABC”) was the owner of real property in New York State on which it constructed a large building (the “Project”).  The general contractor on the Project (“GC”) was terminated, for cause.  The GC and almost two dozen subcontractors filed mechanics liens approximating $1.8 million (the “Liens”). In March of 2012, the GC commenced an action to foreclose its lien (the “Lien Foreclosure Action”).  In April of 2012, ABC moved the Court for an order pursuant to section 20 of New York’s Lien Law fixing the amount necessary for ABC to pay into Court to discharge all of the Liens (the “Discharge Motion”).  In May of 2012, the Court granted ABC’s Discharge Motion and directed that upon the deposit of the sum of $1.1 million with the County Clerk (the “Deposit”), the Liens would be discharged.  The Deposit was promptly made and, accordingly, the Liens were discharged. In the summer of 2016, ABC’s accountants, in conjunction with a routine audit, and in light of the significant amount of the Deposit, wrote to the County Clerk to inquire on the status of the Deposit.  In the County’s response to the request (the “Response”), ABC was advised that in the spring of 2016, the County Clerk deemed the Deposit abandoned and turned same over to the NYS Office of Unclaimed Funds, less a 2% “Treasurer’s Fee” that the County retained for itself (the “Turnover”).   In its Response, the County also advised that it provided notice of the Turnover in a legal advertisement placed in the local press. The news that the County turned over to New York State as abandoned property the $1.1 million Deposit was met with a resounding “HOLY ESCHEAT”. While the Turnover appears to be authorized under the APL, the County Clerk’s actions seem to lack sensibility.  The Deposit was made pursuant to an Order of the Court under section 20 of the Lien Law, which provides, in pertinent part, that a deposit made pursuant to that section “shall be repaid to the party making the deposit…upon the discharge of the liens against the property pursuant to law”, that such deposits of money “shall be considered as paid into court and shall be subject to the provisions of law relative to the payment of money into court and the surrender of such money by order of the court” and that orders for the surrender of such deposits to the lienor or depositor “may be made by any court of record having jurisdiction of the parties….”  Thus, the Deposit should have remained in the County Clerk’s possession until further order of the Court. Further, at the time the Turnover was made, the parties were still actively litigating the Lien Foreclosure Action and the Clerk was aware of the name and address of each and every litigant and their respective counsel.  Nonetheless, the only “notice” of the Turnover was made by publication pursuant to APL section 601(1), which provides that “ n or before the First day of February in each year, such county treasurer or the commissioner of finance of the city of New York shall cause to be published a notice entitled: ‘NOTICE OF NAMES OF PERSONS APPEARING AS OWNERS OF CERTAIN UNCLAIMED PROPERTY HELD BY (title of officer).’”  Under the facts of the case discussed herein, it should be apparent that published notice was not the best way to notify known and active litigants that their valuable property was about to be turned over to the State. Section 1406 of the APL establishes various claims procedures for the return of property deemed abandoned.  In the case discussed herein, upon learning of the Turnover, ABC moved the Court in the Lien Foreclosure Action pursuant to APL section 1406(2) for an order directing New York State to return the Deposit (the “Return Motion”).  Pursuant to Section 1406(2), claims is in the amount of $10,000 or more based on turnovers to New York State pursuant to, inter alia, APL section 600(1)(a), “…may be established only on order of the court which had original jurisdiction of the underlying matter, after service of a notice upon the state comptroller and upon due notice to all parties to the action or proceeding which resulted in the monies being paid into court….” At the time the Return Motion was made, the Lien Foreclosure Action was still active and the Deposit was still required to be in place pursuant to section 20 of the Lien Law.  ABC was reluctant to have the Deposit returned to the County Clerk because of its prior decision to deem the Deposit abandoned.  Thus, in its Return Motion ABC requested that the Deposit be delivered to ABC’s counsel to be held in an escrow account (as opposed to returning the Deposit to the County Clerk).  The Return Motion was granted and ABC’s counsel retained the Deposit until the matter was resolved and a subsequent court order permitted the delivery of the Deposit to ABC. Takeaway Whenever deposits into court are required, a review of the APL should be made to determine whether the circumstances present one in which the deposit may be deemed abandoned after three years and, if so, steps should be taken before the end of three years to ensure that any such deposits are not deemed abandoned pursuant to the APL. In addition, query whether it might make sense to request that the Court include in any order directing that a deposit be made into court, language prohibiting the County Clerk from deeming such deposit to be abandoned without further order of the court and/or without personally notifying the litigants of such intentions so that prophylactic steps can be taken to prevent such actions by the County Clerk.

The claim of assumpsit (from the Latin indebitatus assumpsit ) was “developed to redress circumstances involving unjust enrichment or to ‘prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep.’” Tri-State Chem., Inc. v. Western Organics, Inc. , 83 S.W.3d 189, 193-94 (Tex. App.-Amarillo 2002, pet. denied) (citation omitted); Parsa v. State of New York , 64 N.Y.2d 143, 148 (1984). “It encompassed an obligation imposed by law on one to pay a sum of money or to deliver specific property to another.” Tri-State Chem ., 83 S.W.3d at 193-94. Over time, assumpsit was divided into various categories, two of which lawyers know today as money had and received and quantum meruit. Id . at 194. Money had and received is a common law claim in which the plaintiff seeks the return money from another on equitable grounds. Parsa , 64 N.Y.2d at 148; New York v. Park , 204 A.D.2d 531 (2d Dept. 1994). All the plaintiff need show is that the defendant holds money, which in equity and good conscience, belongs to him. Staats v. Miller , 150 Tex. 581, 584, 243 S.W.2d 686, 687-88 (1951) (citation omitted). As the U.S. Supreme Court has observed, a cause of action for money had and received is “less restricted and fettered by technical rules and formalities than any other form of action. It aims at the abstract justice of the case, and looks solely to the inquiry, whether the defendant holds money which . . . belongs to the plaintiff.” United States v. Jefferson Elec. Mfg. Co. , 291 U.S. 386, 402-03 (1934). The Law in New York A claim for money had and received requires a showing that: (1) the defendant received money belonging to the plaintiff; (2) the defendant benefited from the receipt of the money; and (3) under principles of good conscience the defendant should not be allowed to retain that money. Litvinoff v. Wright , 150 A.D.3d 714 (2d Dept. 2017). On August 17, 2017, Justice Scarpulla of the Supreme Court, New York County, Commercial Division, dismissed a claim for money had and received because the plaintiff failed to establish that the defendant retained or benefitted from the receipt of the money. 413 W. 48th St. Housing Development Fund Corp. v. Saparn Realty, Inc . , 2017 NY Slip Op. 31773(U) (Sup. Ct., N.Y. Co. Aug. 17, 2017). 413 W. 48th St. Housing Development Fund Corp. v. Saparn Realty, Inc. Background In May 2012, the plaintiff, 413 West 48th Street Housing Development Fund Corporation (“HDFC”), retained the defendant, Saparn Realty, Inc. (“Saparn”), as the managing agent for its property. As part of Saparn’s responsibilities, it was required to collect and deposit funds in a separate bank account as agent of HDFC, without commingling them with any other funds collected from other properties managed by Saparn. Saparn was also required to provide copies of bank statements to HDFC every month. In October 2012, HDFC implemented a policy requiring that at least $200,000 be kept in its reserve account, to be used for emergency purposes only. HDFC communicated that policy to Saparn. Over time, Saparn stole funds from HDFC’s reserve account. In August 2013, HDFC learned that its bank accounts with Saparn were closed out, and its reserve fund had “vanished.” To conceal the theft of funds, Saparn delivered false reports to HDFC, containing altered bank statements showing a balance of more than $200,000 in the reserve account. HDFC investigated and discovered that Saparn had been transferring money out of HDFC’s bank accounts since May 2013. HDFC reported the theft to the New York District Attorney and informed other building owners defrauded by Saparn, including The Oaks at La Tourette Condominium Section II (“Oaks”), one of the defendants in the action. HDFC commenced the action against Saparn and its principals to recover the money that was stolen from it. Thereafter, it discovered that approximately $91,000 of the money taken from the reserve account was deposited into two bank accounts held by Oaks. HDFC had no dealings with Oaks, so there was no agreement or obligation pursuant to which that payment was made. HDFC informed Oaks of its findings and demanded the return of its funds in March 2014, and again in September 2014. Oaks refused to return any of the money demanded by HDFC. Thereafter, HDFC sued Oaks for the funds. HDFC moved for summary judgment on, among other things, its cause of action for money had and received against Oaks. HDFC argued that its money was wrongfully deposited into Oaks’ bank accounts, thereby conferring a benefit on Oaks. HDFC argued that, even though Oaks did not participate in the wrongdoing, it could not retain the windfall. Oaks also moved for summary judgment, arguing that because it was a victim just like HDFC, it should not have to lose money twice by having its own money stolen and then having to pay another of Saparn’s victims. One victim of a fraudulent scheme should not be permitted to recover from another victim. Oaks further claimed that Saparn admitted to moving funds between accounts and creating false bank statements, so it could not be established that any money Oaks had in its account belonged to HDFC. The Oaks account was used as a vehicle to move money between other third parties. The money deposited into its account from HDFC could have just as easily been transferred out. The Court’s Decision The Court held that HDFC failed to meet its burden of establishing “that Oaks benefitted from the receipt of HDFC’s money,” finding that “any factual conclusion to that effect could only be made on speculation.” The Court agreed with Oaks that “ oth parties were victims of Saparn’s fraud.” While HDFC has demonstrated that Oaks received money from HDFC’s account, HDFC has not made a prima facie showing that Oaks either retained or benefitted from the receipt of that money. HDFC has not provided any forensic report of its own, or any expert analysis of Oaks’ accounts. There is simply no probative evidence submitted to establish that Oaks benefitted from the receipt of HDFC’s money, and any factual conclusion to that effect could only be made on speculation. Both parties were victims of Saparn’s fraud. Accordingly, the Court dismissed HDFC’s claim for money had and received. Takeaway Money had and received is a category within the common law cause of action of assumpsit. The remedy for the claim is restitution, or the return of money, to restore the plaintiff to his/her original position. 413 W. 48th St. Housing Development Fund Corp . teaches that even where a plaintiff can demonstrate that a third party received money belonging to the plaintiff, the plaintiff must nevertheless make a prima facie showing of entitlement to the relief requested. As HDFC learned that showing cannot be based on speculation.  It must be based on evidence.

In prior posts, this Blog has written about the financial exploitation and abuse of vulnerable adults. ( Here , here and here .) Late last month, CNBC ran a story about this growing and disturbing problem. ( Here .) Financial exploitation of the elderly and vulnerable is a common occurrence. According to the U.S. Department of Justice, financial exploitation of senior adults is one of the most frequently reported forms of elder abuse. Indeed, a recent survey from the North American Securities Administrators Association (“NASAA”) found that three in 10 state securities regulators had reported an increase in complaints from victims of financial fraud and exploitation. ( Here .) As the incidence of exploitation and abuse increase, so do the costs to its victims. An oft-cited study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Polytechnic Institute and State University, titled “Broken Trust: Elders, Family & Finances,” estimates that about one million seniors lose approximately $2.6 billion annually from financial exploitation and abuse. ( Here .) In 2011, MetLife updated its estimate to at least $2.9 billion. Other, more recent studies, estimate the losses to exceed $36 billion a year, 12 times the MetLife estimate. ( Here .) The numbers from these studies show that the financial exploitation of senior and vulnerable adults is growing, and not just with older adults experiencing cognitive decline. “Many of the victims of financial fraud are not demented or disabled,” Patricia Boyle, professor of behavioral sciences at Rush University Medical Center in Chicago, told the International Association of Gerontology and Geriatrics conference in July. Indeed, one in 18 “cognitively intact” seniors fall victim to financial fraud and exploitation each year, according to a recent study in the American Journal of Public Health. ( Here .) Researchers believe that the true prevalence of exploitation and abuse is underestimated. Financial Exploitation of Investors Financial exploitation occurs when individuals steal and/or misuse a vulnerable adult’s financial assets and property for their own personal gain, often without the informed celder exploitation elder exploitation and abuseand abusonsent or knowledge of their victim. According to a recent study by the New York State Office of Children and Family Services, titled “The New York State Cost of Financial Exploitation Study,” approximately five million seniors and vulnerable Americans are financially exploited each year.” ( Here .) The financial exploitation and abuse of senior and vulnerable investors ( e.g. , senior citizens and the disabled) takes many forms. The most common involves: churning, unauthorized trading, unsuitable investing, over-concentrating an investor’s portfolio in a single type of investment or iEndustry segment, and misrepresenting the risk or potential returns of an investment product for the purpose of generating high commissions. Unscrupulous investment professionals (such as, stockbrokers, financial advisors and insurance brokers) often exploit the fact that many elder and disabled investors are not market savvy and financially sophisticated or are trusting of those in a position of knowledge and authority. They prey on the fact that senior and vulnerable investors are often hesitant to admit they do not understand what is being presented to them. Regulatory Action Last October, the Financial Industry Regulatory Authority (“FINRA”) announced that it had submitted proposed rule changes to the Securities and Exchange Commission (“SEC”) to help member firms detect and prevent the abuse and financial exploitation of senior and vulnerable adult customers. (This Blog wrote about the proposed rule changes here .) On March 30, 2017, FINRA announced that the SEC approved the proposed rule changes. In connection with the announcement, FINRA issued Regulatory Notice 17-11, and set February 5, 2018, as the effective date for the new rules. ( Here .) The changes approved by the SEC involve two key protections for seniors and other vulnerable investors. First, member firms will be required to make reasonable efforts to obtain the name and contact information of a trusted contact person for a customer’s account. Second, member firms will be permitted to place a temporary hold on the disbursement of funds or securities when there is a reasonable belief of financial exploitation and abuse. The NASAA Model Act In 2016, NASAA adopted a model act that resembles FINRA’s rule. ( Here .) The model act requires brokers and advisers to report instances of suspected elder abuse to state authorities, and authorizes them to delay disbursements of funds for up to 15 days if they believe their clients were being abused, conferring civil and administrative liability protections in those cases. The model act has served as the basis of legislation or regulations in five states. Alabama and Indiana adopted laws, and Vermont promulgated a regulation, which implements the model act’s mandatory reporting requirements, immunity, and delayed disbursement provisions. Louisiana passed a law that maintains the model act’s immunity and disbursement provisions, but relaxed its reporting requirements, making them only voluntary. Texas recently passed a bill that closely tracks the model act, requiring investment professionals to report suspected exploitation and abuse and offering a 10-day hold on suspicious disbursement requests. Some, like California, adopted the model act’s mandatory reporting requirements, while others, like Washington State, enacted more robust statutory schemes that are nearly identical to the model act. Dozens of states have used the model act as the template for their own proposed legislation and/or regulations. Maryland, Mississippi, New Mexico, North Dakota, and Oregon, for instance, are considering legislation that imposes mandatory reporting requirements in line with the model act. At least two states, New York and Tennessee, are considering bills that would provide for voluntary reporting of suspected financial exploitation. Takeaway Financial exploitation and abuse of senior and vulnerable adults remains an all too common fact of life. Defending seniors and vulnerable adults from financial exploitation and abuse starts with trusted persons who are sensitive to facts and circumstances that are, or seem to be, out of the ordinary. Recent legislative and regulatory efforts should help. At the end of the day, however, vigilance by trusted individuals in overseeing and monitoring the property and assets of the elderly and vulnerable is the best way to help detect and stop financial exploitation and abuse before it results in financial ruin.

Ponzi schemes seem to be in vogue lately. Last week the Securities and Exchange Commission (“SEC”), and the Department of Justice, announced the filing of two enforcement and criminal proceedings involving Ponzi schemes ( here and here ), one involving New York sports radio personality, Craig Carton, and the other involving a New Jersey-based tax preparer and investment adviser. Both are charged with bilking investors out of millions of dollars. What is a Ponzi Scheme? Named after the originator of this type of investment fraud, Charles Ponzi, a Ponzi scheme involves the payment of purported returns to existing investors from funds contributed by new investors. To make the scheme work, the perpetrator solicits new investors by promising to invest money in securities that will generate high returns with little or no risk.  Ponzi schemes rely on a constant flow of money from new investors in order to provide “returns” to earlier ones. This constant payment of “returns” gives the illusion that the investor is receiving “profits” from a legitimate business. However, when the cash flow stops, the scheme falls apart. Bernie Madoff is probably the most well-known perpetrator of a Ponzi scheme. Over more than 17 years, Madoff carried out the largest Ponzi scheme in history, defrauding thousands of investors out of tens of billions of dollars. What are the Common Characteristics of a Ponzi Scheme? Many Ponzi schemes share the following characteristics: Guaranteed promise of high returns with little or no risk to principle. Consistent returns regardless of market conditions. Unregistered investments. Undisclosed and/or complex investment strategies. Periodic statements, confirmation tickets and other documentation withheld from investors. Inability to withdraw client money. WFAN Radio Host Charged with Ticket Ponzi Scheme On September 6, 2017, the SEC charged Craig Carton, a New York sports radio personality, and Joseph Meli (“Meli”), a New York City resident, with stealing millions of dollars from investors who were allegedly promised their funds would be used for the purchase and resale of concert tickets. (The SEC’s announcement can be found here .) The SEC alleged that Carton and Meli falsely claimed they had access to large blocks of face value tickets to popular concert performances.  (The SEC’s complaint can be found here .) According to the complaint, investors were falsely promised high returns from the price markups in ticket resales.  However, instead of purchasing tickets for resale, Carton and Meli allegedly misappropriated at least $3.6 million to repay earlier investors and cover such other expenses as Carton’s gambling debts.  Additionally, Carton allegedly misappropriated $2 million “by making misrepresentations to investor and a third-party concert venue, so as to trick the concert venue into forwarding the investor’s funds to an entity controlled by Carton.” According to the SEC’s complaint, one investor was provided documents falsely representing that large blocks of Adele tickets were being purchased at face value directly from Adele’s management company when in fact there was no such agreement. “As alleged in our complaint, investors were lured with promises of big profits from resales of A-list concert tickets, but little did they know their money was being used to cover Carton’s gambling debts among other things,” said Paul Levenson, Director of the SEC’s Boston Regional Office. The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties against Carton and Meli along with six businesses they control: Advance Entertainment LLC, AdvanceM Ltd., Misoluki Inc., Misoluki LLC, Ticket Jones LLC, and Tier One Tickets LLC. Meli is no stranger to run-ins with the law. Earlier this year, he was charged with operating a Ponzi scheme involving the purported resale of tickets to the Broadway musical Hamilton and other events. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced ( here ) that it filed criminal charges against Carton and his associate, Michael Wright. Carton and Wright were charged with securities fraud, wire fraud, and conspiracy to commit those offenses. (The criminal complaint can be found here .) Acting Manhattan U.S. Attorney Joon H. Kim said: “As alleged, Craig Carton and Michael Wright deceived investors and raised millions of dollars through misrepresentation and outright lies. Their schemes were allegedly propped up by phony contracts with two companies to purchase blocks of concert tickets, when in fact, Carton and Wright had no deals to purchase any tickets at all. As alleged, behind all the talk, the Wright and Carton show was just a sham, designed to fleece investors out of millions ultimately to be spent on payments to casinos and to pay off other personal debt.” FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Carton and Wright thought they could get off easy by allegedly paying off their debts with other people’s money. They then attempted to pay off investors with money that would eventually become future debt, as alleged. We see this time and time again, the rise and fall of a Ponzi scheme destined for failure. The truth is, the time will come when your luck runs out. Unfortunately for those arrested today, that time is now.” If convicted, Carton can serve up to 45 years of prison time and pay fines that can exceed $5 million. Tax Preparer and Investment Advisor Charged With Stealing Investor Money Also on September 6, 2017, the SEC announced that it charged a New Jersey-based tax preparer and investment adviser with stealing more than $1 million from clients to support his gambling habit and other personal expenditures. In its complaint , the SEC alleged that Scott Newsholme (“Newsholme”) “fabricated account statements, doctored stock certificates, and forged promissory notes as part of a scheme in which he convinced clients seeking his financial planning advice to give him their money to invest in various securities.”  Instead of investing clients’ money, Newsholme allegedly cashed their investment checks and pocketed the funds “while assuring clients that their assets were safe and flourishing.”  According to the SEC, “Newsholme used investor money for personal expenses, gambling in Atlantic City, and Ponzi-like payments to clients who sought a return of their funds.” In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced the filing of criminal charges against Newsholme. In that regard, Newsholme was charged with one count of mail fraud, wire fraud, and securities fraud. (The criminal complaint can be found here .) If convicted on the mail and wire fraud counts, Newsholme can serve a maximum sentence of 30 years in prison and pay a $1 million fine. The securities fraud count carries a maximum sentence of 20 years in prison and a $5 million fine. Takeaway The SEC has warned investors to be vigilant in protecting themselves before they invest money. ( Here .) “Whether you are a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.” Many of the questions investors should ask are based upon the common features of a Ponzi scheme. If these questions are not answered, investors should not be afraid to request more information. Any push-back or doublespeak should raise red flags. After all, as the proverb says: “if it sounds too good to be true, then it probably is.”

Implicit in every contract is a covenant of good faith and fair dealing. New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318 (1995). “The covenant is breached where one party to a contract seeks to prevent its performance by, or to withhold its benefits from, the other.” Michaan v. Gazebo Hort., Inc. , 117 A.D.3d 692, 693 (2d Dept. 2014) (citation and quotation omitted).  “While the duties of good faith and fair dealing do not imply obligations inconsistent with other terms of the contractual relationship, they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included.” 511 W 232nd Owners Corp. v. Jennifer Realty Co. , 98 N.Y.2d 144, 153 (2002). This Blog previously wrote about the covenant here and here . On August 23, 2017, the Supreme Court, Appellate Division, Second Department, considered these principles in affirming the dismissal of a claim alleging a breach of the implied covenant of good faith and fair dealing. Rayham v. Multiplan, Inc. , 2017 NY Slip Op 06306 (2d Dept. Aug. 23, 2017). Rayham v. Multiplan, Inc. Background Roman Rayham (“Rayham”), a plastic surgeon, and his private practice, RR Plastic Surgery P.C. (“RR Office”), commenced the action on June 17, 2013 against one the defendants, Multiplan, Inc. (“Multiplan”), a preferred provider organization, alleging causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and quantum meruit. In 2009, in connection with his practice at New York Methodist Hospital (“Methodist”), Rayham executed a limited power of attorney authorizing Allegiance Billing & Consulting, LLC (“Allegiance”) to contract on his behalf with network providers and health insurance companies for services performed at Methodist. In 2010, Allegiance executed an agreement (the “Beech Street Agreement”) on Rayham’s behalf with one of the defendants, Beech Street Corporation (“Beech Street”), a preferred provider organization. The Beech Street Agreement provided that its terms could be amended upon “30 days prior written notice from Beech to ” and that the “amendment shall be effective at the conclusion of such 30 day notice period unless objects to the amendment and notifies Beech in writing of intent to terminate prior to the conclusion of such notice period.” The address to which the Beech Street Agreement required the written notice to be sent was the address for the office of Park Slope Physician Services P.C. (“PSPS”), which handled all of Methodist’s billing, including the billing for services Rayham provided at Methodist. The Beech Street Agreement further provided that Beech Street could assign its rights under the contract to a “Beech Affiliate,” which was defined as any “entity” that is “controlled by or is under common control of Beech .” In 2010, Multiplan acquired Beech Street’s parent company. In March 2011, Multiplan sent two letters to Rayham at PSPS’s address. Both letters advised that Multiplan had acquired Beech Street and that, effective July 15, 2011, the Beech Street and Multiplan networks would integrate and claims would be processed under Multiplan’s fee schedule. The second letter, dated March 28, 2011, advised that the Beech Street Agreement would be amended so as to include the claims for services Rayham provided at Methodist in the Multiplan network. Rayham claimed he never received these letters. In November 2011, the Plaintiffs faxed Beech Street a letter requesting that the RR Office be added “to our profile,” with a retroactive date of July 1, 2011. The letter provided the RR Office’s address and tax-identification number, and a W-9 form was attached. Upon receiving the fax, the Defendants retroactively enrolled the RR Office in their networks and processed the RR Office’s claims according to Multiplan’s fee schedule. A few months later, after realizing that the RR Office was receiving lower reimbursements than were once provided by Beech Street, Rayham learned that Multiplan had acquired Beech Street and that claims were being processed pursuant to Multiplan’s fee schedule. Rayham requested the RR Office’s removal from the Defendants’ networks. This request was granted, but the request for the reprocessing of the RR Office’s claims was denied. In their complaint, the Plaintiffs alleged that the Defendants unilaterally altered the terms of the Beech Street Agreement by placing the RR Office in the Multiplan network and repricing its claims under the Multiplan fee schedule without affording the Plaintiffs notice or an opportunity to object as required under the Beech Street Agreement. Following joinder of issue and the completion of discovery, the Plaintiffs moved for summary judgment on the complaint, and the Defendants cross-moved for summary judgment dismissing the complaint. The motion court denied the Plaintiffs’ motion and granted the Defendants’ cross motion. The Plaintiffs appealed. The Court’s Ruling On the breach of contract claim, the Court held that the motion court “properly granted that branch of the defendants’ motion….” The Court found that the Defendants “complied with the Beech Street Agreement by sending the March 2011 letters, which advised Rayham that Multiplan had acquired Beech Street and that claims would be processed under the Multiplan fee schedule, to the address expressly required by the contract for such written notices.” The Court rejected the Plaintiff’s argument that Beech Street should have sent the notice, as opposed to Multiplan, because Multiplan “met the definition of a ‘Beech affiliate’ under the Beech Street Agreement.” Consequently, there could be no breach of contract “since the defendants provided Rayham with proper notice that the Beech Street Agreement would be amended so as to subject claims to the Multiplan fee schedule, and Rayham failed to object in writing within the 30-day notice period.” Having disposed of the contract claim, the Court turned its attention to the breach of the implied covenant of good faith and fair dealing. Noting that “ he covenant is breached where one party to a contract seeks to prevent its performance by, or to withhold its benefits from, the other,” the Court found that the Defendants’ “submissions established, prima facie, that they did not withhold the benefits of, or seek to prevent the performance of, the Beech Street Agreement either in its original form, or as amended.” Consequently, the motion court “properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging a breach of the implied covenant of good faith and fair dealing.” Takeaway Rayham teaches that in order to breach the implied covenant of good faith and fair dealing, one party must act in way that denies the fruits of the contract for the other. Rayham learned this lesson the hard way – the Defendants acted consistent with the terms of the Beech Street Agreement.

Previously, this Blog considered the rules for judicial dissolution of a limited liability company (“LLC”). Here . A brief reminder follows below. Under Section 702 of New York’s Limited Liability Company Law (“LLCL”), a court sitting in the judicial district in which the office of the company is located may dissolve the company “whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” LLCL § 702. To successfully petition for the dissolution of a limited liability company under LLCL § 702, the petitioning member must demonstrate the following: 1) the management of the company is unable or unwilling to reasonably permit or promote the stated purpose of the company to be realized or achieved; or 2) continuing the company is financially unfeasible. Matter of 1545 Ocean Avenue, LLC v. Crown Royal Ventures, LLC , 72 A.D.3d 121 (2d Dept. 2010); Doyle v. Icon, LLC , 103 A.D.3d 440 (1st Dept. 2013). Therefore, where the purposes for which the LLC was formed are being achieved and its finances remain feasible, dissolution pursuant to LLCL § 702 will be denied. Matter of Eight of Swords, LLC , 96 A.D. 3d 839, 840 (2d Dept. 2012). Disputes between members, by themselves, are generally insufficient to dissolve an LLC that operates in a manner within the contemplation of its purposes and objectives as defined in its articles of organization and/or operating agreement. See e.g. , Matter of Natanel v. Cohen , 43 Misc.3d 1217(A) (Sup. Ct. Kings Co. 2014). It is only where discord and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution be considered an available remedy to the petitioner. Matter of 1545 Ocean , 72 A.D.3d at 130-132. (This Blog wrote about a case, In the Matter of The Dissolution of 47th Road LLC, a New York Limited Liability Company , 2017 NY Slip Op. 50196(U), (Sup. Ct. Queens Co. Feb. 16, 2016), in which the discord between the partners was so severe, it became violent, thereby persuading the court that dissolution was appropriate < here =">here"> ). Today, this Blog revisits judicial dissolution under LLCL § 702 by discussing a decision coming out of the Supreme Court, Appellate Division, Second Department, wherein the Court held that questions of fact precluded the dismissal of an application to dissolve an LLC. Mace v. Tunick , 2017 NY Slip Op. 06170 (Aug. 17, 2017). Mace v. Tunick Background In July 2007, the plaintiff, David Mace (“Mace”), the defendant Nicholas Tunick (“Tunick”), and Tunick’s father, Peter Tunick (collectively” the “Owners”), formed Pedani Realty Services, LLC (“Pedani”). Mace and Tunick each owned 20% interests in the company, while Peter Tunick owned a 60% interest. In addition, each owned Ceres Chemical Co., Inc. (“Ceres”), in the same percentages as their ownership interests in Pedani. According to Mace’s complaint, the Owners formed Pedani for the sole purpose of purchasing and holding real property in Pound Ridge, New York (the “Property”) to serve as the headquarters for Ceres. Pedani took title to the Property in September 2007. Each of the Owners funded the purchase of the Property in same percentages as their ownership interests in Ceres. With the exception of a small amount of cash, the Property was the sole asset of Pedani. From approximately October 2007 through December 2013, Ceres occupied the Property under a lease with Pedani and paid monthly rent to Pedani. In or about 2012, Peter Tunick retired from Ceres and transferred his remaining stock in Ceres to his son, Nicholas Tunick. Additionally, Peter Tunick assigned his ownership in Pedani to his son with the consent of all members of Pedani. In October 2013, Mace retired from Ceres and sold his interest to Tunick, with the understanding that Ceres would remain at the Property and continue to pay rent to Pedani. However, subsequent to Mace’s retirement from (and sale of his interest in) Ceres, Tunick moved Ceres’ headquarters to South Carolina and vacated the Property. In October 2015, Mace commenced the action, inter alia , for the judicial dissolution of Pedani. Mace claimed, among other things, that the relocation deprived Pedani of the monthly income generated from the lease with Ceres, and was inimical to the purpose for which Pedani was formed. The defendants moved to dismiss, inter alia , the first cause of action, seeking judicial dissolution. The motion Court granted that portion of the motion. Mace then moved, inter alia , for leave to renew his opposition to the motion seeking dismissal of the first cause of action. That motion was also denied. Mace appealed. The Court’s Ruling The Second Department reversed. Applying the principles discussed above, the Court found that the operating agreement at issue did not did not set forth any particular purpose to warrant dismissal of the petition for dissolution: Here, the plaintiff alleged in the complaint that Pedani was formed for the purpose of acquiring title to and managing property to serve as Ceres’ headquarters, and that it became impossible to fulfill that purpose once Ceres relocated to a different property, not owned by Pedani. Contrary to the defendants’ contention and the Supreme Court’s conclusion, the defendants did not show, through the operating agreement or any other evidence, that the material fact alleged by the plaintiff regarding Pedani’s purpose “is not a fact at all” and that “no significant dispute exists regarding it.” In this respect, the operating agreement did not set forth any particular purpose for Pedani. The court’s determination that Pedani’s purpose was simply to acquire and manage property constituted an impermissible factual finding. Moreover, the defendants were not entitled to dismissal of the first cause of action under CPLR 3211(a)(1). Neither the operating agreement nor the leases of the property to Ceres and, upon Ceres’ relocation, a third party, utterly refuted the plaintiff’s allegation as to Pedani’s purpose so as to conclusively establish a defense as a matter of law to the plaintiff’s dissolution cause of action. Citations omitted. Takeaway Mace is instructive for two reasons. First, it underscores the importance of negotiating and drafting an operating agreement that includes a provision governing how members can exit the LLC. While not every situation demands consideration of exit provisions at the outset of the company, the parties to the operating agreement should understand the consequences of that decision and the risk that they may not be able to agree on dissolution terms at a later date. Mace learned this lesson the hard way. Second, it underscores the importance of identifying with specificity the purpose of the LLC at the time of formation. While many states permit general-purpose clauses in the operating agreements, indicating that the LLC is formed to engage in “all lawful business,” other states require a more specific explanation of the products and/or services the LLC will provide. Maces shows that even where a general-purpose clause is all that is required, the better practice is to provide specificity in describing the business purpose of the company.

Melville, NY ( Law Firm Newswire ) August 31, 2017 -  Freiberger Haber LLP to leverage more than 50 years of combined experience in delivering results oriented, client-centric representation to corporations, small businesses, partnerships and individuals. Jonathan Freiberger and Jeffrey Haber, former partners at prominent New York law firms, have come together to launch  Freiberger Haber LLP . The new law firm will represent businesses and individuals involved in a broad range of complex business and commercial litigation matters. “Forming the firm gives us an opportunity to marshal our diverse and extensive experience,” Freiberger said. “Through litigation and counsel, we have helped guide our clients through all types of litigation, legal and business challenges. Together, we offer our clients the sophistication and counsel of a large national law firm with the economy, flexibility, and personal attention of a small firm,” Haber added. Both Freiberger and Haber bring broad experience to their new enterprise. Freiberger is a dedicated and experienced litigator with more than 27 years’ experience, first with a large multi-national law firm with an office in New York City, and for the past seventeen years as a member of a Long Island, New York law firm. Throughout his career, he has successfully represented clients in construction, banking and real estate related litigation, as well as other types of commercial litigation and corporate counseling. “Jonathan is a smart and creative lawyer who has provided insightful guidance and forceful advocacy to his clients,” said Haber. “Over the years, he has produced extraordinary results for his clients. I am excited to start this venture with him.” Haber is an effective litigator with more than 28 years’ experience, having been a member of two New York City-based, national plaintiffs’ law firms (the second of which was for 16 years), where he concentrated his practice in complex class action litigation involving securities fraud and shareholders’ rights, as well as whistleblower litigation, complex commercial litigation and corporate counseling. Prior to forming the new firm, he was the principal of his own business and commercial litigation law firm. Mr. Haber has been recognized as a leading lawyer in securities and business litigation by Super Lawyers Magazine (2008–2010; 2012–2016) and by Super Lawyers Business Edition (2011, 2013, and 2016), has been repeatedly “recommended” in the Legal 500 (2011–2012; 2014–2016) and was recognized as a “local litigation star” for his securities work in the 2013–2015 editions of Benchmark Plaintiff. He also has published articles on topics involving securities and whistleblower litigation. “Jeff is an effective and tenacious litigator who combines an analytical approach with outstanding instincts to deliver results for his clients,” said Freiberger. “Just as importantly, he understands the need to align his strategy with his clients’ objectives. I look forward to growing our firm with Jeff.” The firm is located in New York City and Melville, New York (the firm’s primary office location). “It is important to us to have offices that are conveniently located and easily accessible to our clients,” Haber said. “This is especially so for our clients who travel from out of state,” added Freiberger. About Freiberger Haber LLP Located in New York City and Melville, Long Island, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals involved in a broad range of complex business, construction and commercial litigation matters. Founded by Jonathan Freiberger and Jeffrey Haber, Freiberger Haber leverages more than 50 years of combined experience to deliver sophisticated and creative representation to their clients. The firm’s approach is results oriented and client-centric, providing clients with the sophisticated counsel expected from larger firms with the flexibility and agility of a small firm. ATTORNEY ADVERTISING. © 2017 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 105 Maxess Rd., Suite 124, Melville, NY 11747, (631) 574-4454; 708 Third Avenue, 5th Floor, New York, New York 10017, (212) 209-1005. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact: Freiberger Haber LLP Melville Office: 105 Maxess Rd., Suite 124 Melville, New York 11747 Tel: (631) 574-4454 New York Office: 708 Third Avenue, 5th Floor New York, N.Y. 10017 Tel: (212) 209-1005 Fax: (212) 209-7101 Email: info@fhnylaw.com

In July, this Blog wrote about the settlement in connection with Wells Fargo & Co.’s phony accounts scandal that will require the bank to pay millions of dollars to aggrieved customers. Now, Wells Fargo has disclosed in a regulatory filing that the Consumer Finance Protection Bureau ("CFPB") is investigating whether the bank incorrectly closed real accounts and left customers without access to their funds. CFPB Probes Wells Fargo Account Closures The CFPB probe was commenced after the consumer watchdog received numerous complaints from Wells Fargo customers who suffered financial hardship after the bank inexplicably froze or closed their accounts.  In particular, some of the complaints raised the possibility that fraudulent deposits of unknown origin were made. Additionally, customers who said they were victims of identity theft claimed that Wells Fargo closed their accounts and refused to reopen them or open new ones. The complaints noted that there was confusion over why the accounts were frozen or closed. Customers were not only unable to access their money, they did not receive assistance from the bank’s customer service representatives. Although the CFPB does not reveal details of consumer complaints, it does not appear that similar regulatory probes at other money center banks are underway. A spokesman for Wells Fargo said that the company is cooperating with the regulator and that its goal is to protect customers and the bank from fraud while minimizing the risk and impact on customers. Unlike the the phony accounts scandal that appeared to be an effort to drive revenue, some observers believe this matter may have arisen from an abundance of caution to protect customers from suspicious activity. Nonetheless, the probe adds to the bank’s woes. Since Wells Fargo settled with the customers who were swept up in the phony accounts fiasco, the bank has also acknowledged that customers were charged for insurance they did not request and required others to pay unnecessary mortgage fees. The question remains as to whether Wells Fargo was overzealous in closing the accounts to prevent fraud or whether this is part of a larger pattern of its mistreatment of customers.

The hits keep coming for money center banks, such as Goldman Sachs, JP Morgan Chase and others, as three U.S. pension funds have filed a class action lawsuit over alleged stock lending abuses. The suit, brought by the Iowa Public Employees’ Retirement System, Orange County Employees’ Retirement System, and Sonoma County Employees’ Retirement Association, claims the banks’ stock lending practices violate federal antitrust laws. The funds allege that the banks colluded to boycott start-up lending platforms by threatening and intimidating potential clients. An attorney representing the funds said that the banks colluded to corner the lucrative stock lending market for years and harmed investors and retirees by forcing them to pay high fees to conduct transactions that involved stock lending. What is stock lending? Securities lending is generally conducted between broker/dealers and institutional investors, although pension funds and other entities may also lend securities to hedge funds. This essentially involves loaning a stock, derivative or other security to an investor, typically in connection with short selling. In a short sale, an investor looks to sell the borrowed securities at a higher price in anticipation of the price falling, and then buying the securities back at a lower price. The borrower is required to put up collateral in the form of cash, security or a letter of credit, and also pay a fee to the lender. The Pension Funds’ Claims The lawsuit claims that the banks conspired to undermine AQS, a startup lending platform that was developed by Quadriserv Inc. and SL-x. The AQS platform was designed to allow lenders and borrowers to interact directly, with lower fees being charged by AQS compared to traditional stock lending firms. The funds contend that the banks jointly created a securities lending platform, Equilend LLC. in 2009, to prevent access to other marketplaces. One tactic Equilend allegedly employed was buying certain AQS intellectual property and shelving it, effectively keeping the platform off the stock lending market. The lawsuit also contends that in 2012, Goldman Sachs threatened to cut off Bank of New York Mellon if it continued to support the AQS platform and that the bank acquiesced. Takeaway Other banks named in the suit include Bank of America Corp., Credit Suisse AG, Morgan Stanley, UBS AG, and Equilend. The pension funds are seeking unspecified treble damages and an order forcing the banks to stop the alleged collusion. Whether the funds will successfully demonstrate the necessary elements to prevail on their antitrust claims under the Sherman Act remain to be seen. Nonetheless, the resolution of this case, either way, will have far reaching implications for the securities lending market and the development of alternative lending platforms.