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By: Jeffrey M. Haber It is well settled that the parties to an agreement may freely select any forum to resolve any disputes regarding the interpretation or performance of the agreement. A forum selection clause is prima facie valid “unless-it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court.” In Pearl Beta Funding, LLC v. Elegant Trio Colors Corp. , 2025 N.Y. Slip Op. 02217 (2d Dept. Apr. 16, 2025) (here), the agreement at issue (a revenue repurchase agreement) contained a forum selection clause that designated New York as the forum in which disputes would be heard. The case is of note, and the reason why we are examining the case, because the agreement at issue involved parties that were not resident or domiciled in New York. Under circumstances as those present in Pear Beta Funding ( i.e. , non-resident or domiciled corporate parties), questions concerning the court’s ability to hear the case ( i.e. , the court’s subject matter jurisdiction) must be resolved under Business Corporation Law (“BCL”) § 1314. Under BCL § 1314, a New York court has subject matter jurisdiction over actions brought by foreign corporations or non-residents against other foreign corporations only if (a) they fall into one of five specified categories ( see  BCL § 1314 (b)); or (ii) they fall within an exception to BCL § 1314’s limits that itself has been created by statute ( see e.g.  General Obligations Law (GOL) § 5-1402 (1)). Under BCL § 1314(b), New York State courts have subject matter jurisdiction over actions brought by foreign corporations or non-residents against other foreign corporations: (1) “ here is brought to recover damages for the breach of a contract made or to be performed within this state, or relating to property situated within this state at the time of the making of the contract;” (2) “ here the subject matter of the litigation is situated within this state;” (3) “ here the cause of action arose within this state, except where the object of the action or special proceeding is to affect the title of real property situated outside this state;” (4) here, in any case not included in the preceding subparagraphs, a non-domiciliary would be subject to the personal jurisdiction of the courts of this state under section 302 of the civil practice law and rules;” and (5) “ here the Defendant is a foreign corporation doing business or authorized to do business in this state”. Pearl Beta Funding, LLC v. Elegant Trio Colors Corp. In Pearl Beta Funding , plaintiff relied on BCL §§ 1314(b)(1) and (4) as the basis for subject jurisdiction over defendants. Plaintiff is a Delaware entity authorized to do business in New York State. Defendant Leila Tolentino Cristobal (“Cristobal”) is an individual residing in California. Defendant Elegant Trio Colors Corp d/b/a Jazzy France (“Elegant”) is a California entity. In December 2021, the parties entered into an agreement, whereby plaintiff agreed to purchase the rights to an agreed upon value for Elegant’s future receivables in exchange for a certain purchase price and that Elegant breached the agreement by failing to make required payments due thereunder. As noted above, the revenue purchase agreement contained a forum selection clause that made New York the agreed upon forum for the resolution of all disputes arising from, or out of, the agreement. Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(2), contending that, under BCL § 1314, the motion court lacked subject matter jurisdiction over the dispute. In an order entered on June 9, 2023, the motion court granted the motion. The motion court held that “ ased on a careful review of the parties’ contentions and the evidence in the record, BCL § 1314(b)(1) not afford subject matter jurisdiction to this Court” over the dispute between the parties. The motion court explained that, due to conflicting affidavits submitted by the parties, there was insufficient evidence upon which to find that the Court had jurisdiction over the matter. For instance, pointing to the affidavit submitted by Cristobal, the owner and operator of Elegant, the motion court observed that “the subject contract was not made, signed, or to be performed within New York State, and that the agreement was signed in West Covina, California and transmitted by internet.” By contrast, said the motion court, Adnan Arbar, Plaintiff’s funding manager, averred in his affidavit that “he countersigned the subject agreement via DocuSign at his office located in Queens, New York on December 29, 2021” and that “some of the funds at issue were subsequently transferred through a New York bank.” Given the discrepancies between the parties, the motion court concluded that “there insufficient evidence demonstrating that the contract between the parties was made or intended to be performed within New York State.” The motion court also held that it “lack subject matter jurisdiction over action under BCL § 1314(b)(4).” As noted, BCL § 1314 (b)(4) provides for subject matter jurisdiction in cases against a non-domiciliary where such foreign defendant would be subject to personal jurisdiction under New York’s long arm statute, CPLR 302. The motion court rejected plaintiff’s argument that long arm jurisdiction existed over defendants pursuant to CPLR 302(a)(1) because defendants transacted business in New York and/or had a contract to supply goods or services to plaintiff in New York. In so doing, the motion court found that, as discussed above, plaintiff’s submissions did not establish that a sufficient nexus exist between New York and defendants or the transaction at issue in the litigation. Moreover, the motion court held that “contrary to plaintiff’s contention, the forum selection clause contained in the parties’ contract indicating that the parties agreed to bring any actions arising out of the agreement in New York insufficient to confer jurisdiction over efendants.” Therefore, concluded the motion court, “absent personal jurisdiction under CPLR 302, Court lack subject matter jurisdiction over Defendants under BCL § 1314(b)(4).” On June 14, 2023, pursuant to the motion court’s order granting the motion, the motion court entered judgment dismissing plaintiff’s complaint. Plaintiff appealed. The Appellate Division, Second Department unanimously reversed, holding that the motion court “erred in granting the defendants’ motion pursuant to CPLR 3211(a)(2) to dismiss the complaint.” The Court found that the Abrar affidavit was sufficient to satisfy plaintiff’s burden to show that the motion court had jurisdiction over the defendants: In opposition to the defendants’ motion, the plaintiff submitted an affidavit of Adnan Abrar, its funding manager. In his affidavit, Abrar averred, among other things, that he reviewed and countersigned the underlying agreement in New York, that the plaintiff performed under the agreement by delivering the purchase price and making payment from its account at BankUnited located in Melville, and that the defendants remitted purchased receivables under the agreement to the plaintiff, which were accepted by the plaintiff at its account located in New York. These averments, viewed in the light most favorable to the plaintiff, were sufficient, at this early stage of the litigation, to establish that the Supreme Court could exercise subject matter jurisdiction over this action …. Accordingly, the Court ordered “that the judgment is reversed, on the law, the defendants’ motion pursuant to CPLR 3211(a)(2) to dismiss the complaint is denied, the complaint is reinstated.…” _________________________________ 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. Brooke Group v. JCH Syndicate 488 , 87 N.Y.2d 530 (1996). Stravalle v. Land Cargo Inc. , 39 A.D.3d 735 (2d Dept. 2007). Under the General Obligations Law, New York courts will exercise subject matter jurisdiction over claims brought by a foreign corporation against a foreign corporation when the claim is worth in excess of one million dollars and the subject agreement contains a New York choice-of-law clause. See GOL § 5-1402; DDR Real Estate Servs., Inc. v. Burnham Pacific Props., Inc. , 1 Misc. 3d 802, 804–05 (Sup. Ct., Monroe County Aug. 28, 2003), aff’d , 12 A.D.3d 1182 (4th Dept. 2004). Under CPLR 302(a)(1), “a court may exercise personal jurisdiction over any non-domiciliary” who “transacts any business within th state or contracts anywhere to supply goods or services in the state.” BCL § 1314 (b)(1)-(5). See n.3, supra . Citing Techo-TM, LLC v Fireaway, Inc. , 123 A.D.3d 610 (1st Dept. 2014). Slip Op. at *2. Id. (citing BCL § 1314(b)(1), (4); cf. Techo-TM , 123 A.D.3d at 610). Id. at *1.

By: Jeffrey M. Haber On April 16, 2025, the Securities and Exchange Commission (“SEC” or Commission”) announced ( here ) that its Office of Investor Education and Advocacy (“OIEA”) had unveiled an anti-fraud public service campaign to warn investors about the impact relationship investment scams can have on their financial future. As explained in the release, “ elationship investment scams typically involve a ‘long con’ in which scammers reach out online or through text messages, attempting to build trust through friendship or a romantic connection to convince someone to put money into phony investments.” Relationship investment scams are often referred to romance scams, financial grooming scams, and the distasteful description, “pig butchering”, scams. These scams also sometimes involve “catfishing,” where fraudsters might set up fake online identities to carry out crimes. The SEC’s public service campaign features two animated videos ‒ “ Don’t Open the Door to Scammers ” and “ Let’s Talk About Relationship Investment Scams ” ‒ and a  resource page  about how relationship investment scams work, what investors should look out for, and how investors can protect themselves and others. In the release, the SEC pointed to a few “ ey takeaways for investors”. These include: Ignore messages from anyone they don’t know and consider blocking or deleting them. Be wary of unsolicited investment opportunities, no matter how much they trust the person. If they suspect they may be caught up in a scam, stop communication with the individuals immediately, and do not give them any more money. Report the scam  to the SEC. “Investor protection is a vital part of the SEC’s mission. These kinds of frauds can be devastating and cause investors to lose billions of dollars every year,” said Acting Chairman Mark Uyeda. “I encourage investors to utilize the resources on our investor education website,  Investor.gov , to learn how to spot and avoid fraud to help protect their hard-earned money and life savings.” “If you receive an email or text message from a person, number, or email address you don’t know or recognize, it’s a red flag of fraud — especially if the message is vaguely worded or appears aimed at someone else,” said Lori Schock, Director of the SEC’s OIEA. “Don’t respond. Instead, ignore, block or delete these senders from your phone or messaging app.” In addition to the public service campaign videos and resources, the SEC also suggested that investors read an article by Lori Schock, Director of the OIEA, entitled “ Relationship Investment Scams – Starts With ‘Hello,’ But Could End With Saying ‘Goodbye’ to Your Money . The CFTC’s Office of Customer Education and Outreach (“OCEO”) also issued an investor alert about relationship investment scams ( here ). In the CFTC’s alert, the OCEO explained in more detail how the scams work: Criminals and other fraudsters seek their targets in many different ways. They often initiate contact online or on  social media  platforms —including professional networking, dating, and messaging websites/apps. They might run advertisements or add targets to a group chat that the target didn’t seek to join. Fraudsters might text a target pretending to be an old friend or claiming to have contacted the target accidentally. They might even use an auto dialer to blast out unsolicited text messages to thousands of people—these messages are designed to mimic ones intended for some other personal or business acquaintance, seeking to prompt a response from potential targets. They might offer financial advice or express romantic interest. Sometimes, these fraudsters quickly move communications away from the initial platform to a different, sometimes unmonitored space.  Concerning the “long con”, the OCEO explained that once the fraudster finds a target, the fraudster will “begin the long process of building their trust, be it through friendship, romance, or an offer to help achieve financial goals.” The OCEO said that the fraudster “might even suggest meeting in person but then come up with excuses so that this never happens.” In romance scams, the fraudster often pledges their love very quickly. Sometimes, the fraudster creates a fake identity as a financial professional with a prominent online presence, or they might  impersonate —or “spoof”—legitimate investment professionals or brokerage firms. They sometimes use altered images or videos to lead their targets to believe that others have made money on their platform. The OCEO noted that “ ew artificial intelligence (“AI”) technologies can make these images and videos convincingly realistic.”  Once fraudsters have established a relationship or friendship with their target, said the OCEO, they might offer their advice on trading or claim to know about profitable opportunities. “They might even indicate that they or someone they know is a financial advisor or is an ‘insider’ and is able to provide valuable trading recommendations.” These fraudsters often lead their targets to believe “they are doing well trading by sending fake screenshots, showing fake trading information, or manipulating the target’s online account to make it appear that the ‘investments’ and ‘earnings’ are ‘legitimate,’ all of which is intended to build trust.” Relevant to commodities, the OCEO noted that “ raudsters might also steer their targets towards investments involving  crypto assets .” “For example, the target might think they’re buying into a crypto asset investment like an  ‘Initial Coin Offering’ (“ICO”)  when the target is actually sending money directly to  the fraudster’s crypto asset wallets or accounts.”  In addition, noted the OCEO, “ raudsters might direct their targets to a legitimate looking (but fake) website or to a widely used app that can be downloaded from a well-known app store.” However, said the OCEO, “just because an app is available on a well-known app store doesn’t mean that the app itself, or the activities conducted within it, are legitimate.” The OCEO also noted that “ raudsters might tell their targets to wire cash or obtain crypto assets—such as bitcoin, ether, or tether—at a bitcoin ATM (or kiosk) or through a crypto asset platform in order to make investment deposits.” The OCEO warned that “ n investment might not be legitimate if the investor is required to pay for it with crypto assets.” Like the SEC, the OCEO advised investors that if they are directed to pay for an investment by wire transfer or check, they should be suspicious if: You’re asked to pay an individual, a firm that is different than the one with which you thought you’re investing, or a business that appears unrelated to your investment (for example, a nail salon or foot massage business);  The address is suspicious (for example, an online search for the address suggests it’s not an office building where the firm operates); or  You’re told to note that the payment is for a purpose unrelated to the investment (for example, luxury watches, goods, or furniture).  The OCEO explained (in bold and italicized writing): “If you wire money outside of the United States or use crypto assets for an investment that turns out to be a scam, you likely will never see your money again.”  In the release, the OCEO noted that Fraudsters sometimes deliberately falsify information to make their targets believe they’ve profited from whatever investment “opportunity” the fraudsters presented.  They might even allow a target to withdraw a portion of their “profits” to further gain their trust and falsely reassure them that the investment is legitimate.  The fraudsters might provide what they claim is “real time” trading information that is, in fact, fake. They often lead targets to believe that other investors are making enormous profits too. Fraudsters might then ask their targets to invest larger sums of money. “But,” warned the OCEO, “when the target wishes to withdraw their funds, the fraudsters often come up with an excuse why that isn’t possible, say more money is required, or tell the target for the first time that they must pay more to cover fees or taxes.” In fact, said the OCEO, “the target will never recover their investment or any ‘profits,’ so paying additional funds only causes the target to lose more money.” Similarly, said the OCEO, “fraudsters might pretend to loan their targets funds for trading but require these ‘loans’ to be repaid before any purported profits or principal can be withdrawn. This, too, is a further attempt to steal more money.”  The OCEO also warned that investors should beware of fake testimonials. In this regard, the OCEO explained that “ raudsters often use fake testimonials to convince targets that others have invested and made money. Never rely solely on testimonials in making an investment decision.” The OCEO further warned about relying on celebrity and influencer testimonials: Fraudsters sometimes pay others—for example, actors to pose as ordinary people turned millionaires, social media influencers, and  celebrities —to tout an investment on social media or in a video. If you’re in a group chat, others in the group who claim to have made huge profits might be in on the fraud . Finally, the OCEO discussed how AI could be used to alter or generate photos or videos “to make it falsely look like others have profited.” “Promises of high investment returns, with little or no risk, are classic warning signs of fraud,” said the OCEO. ______________________________ 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. In a parallel alert issued by the Commodities Futures Trading Commission (“CFTC”) ( here ), the CFTC described the scam as situations in which “fraudsters—including criminals and other bad actors—often hide their true identities, reach out to unsuspecting targets (often online or through text messages), gain their trust over time, and then defraud them through fake investments.” Pig butchering is the English translation for the Chinese term  sha zhu pan  (杀猪盘).

By: Jeffrey M. Haber It has long been the law that the business judgment rule applies to the decisions made by boards of directors of residential cooperatives and condominiums. “The business judgment rule ‘bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.’” “ ourts must defer to a board’s determination if it was taken in furtherance of the corporation’s purposes, was within the scope of the board’s authority and was taken in good faith.” Stated differently, and in the context of a cooperative and condominium, judicial scrutiny into the board’s actions may only be triggered if “an aggrieved shareholder-tenant make a showing that the board acted (1) outside the scope of its authority, (2) in a way that did not legitimately further the corporate purpose or (3) in bad faith.” In Avrahami v. 235 W. 108th St. Owners Corp. , 2025 N.Y. Slip Op. 02126 (1st Dept. Apr. 10, 2025) ( here ), the Appellate Division, First Department examined the business judgment in connection with the cooperative board’s decision to bar plaintiffs from reinstalling their jacuzzi in their unit. Avrahami arose out of claims asserted by plaintiffs who are the lessees and stock owners of the shares allocated to an apartment located within 235 West 108th Street, New York, N.Y. (the “building”). Plaintiffs signed a proprietary lease associated with the apartment on July 25, 2007. According to plaintiffs, at the time the lease was executed, the apartment’s master bedroom included a jacuzzi. Plaintiffs alleged that prior to purchasing the shares and signing the lease, there was no documentation that addressed the use of whirlpool style tubs in the building. Plaintiffs claimed that their decision to enter the lease for the apartment was partly based on the existence of the jacuzzi within the unit. Plaintiffs alleged that they used the jacuzzi for years without any problem, complaint, or objection from anyone in the building. However, at some point in 2017, the building’s superintendent, who lived below plaintiffs, noticed that the gap between the bathtub and the wall titles above it seemed wider than usual, indicating that the jacuzzi within plaintiffs’ unit sank. Sometime in April of 2017, the superintendent notified plaintiffs that the toilet in plaintiffs’ master bedroom began to leak into her apartment. To resolve the issue, plaintiffs considered numerous contractors for the repair work. After selecting a contractor, plaintiffs notified the superintendent, who emailed the building’s board of directors (the “board”) to inform them of the repair work that was going to take place, and that the superintendent would oversee the work as she did other projects in the building. According to plaintiffs, the repair work started on April 29, 2017, and included the temporary removal of the jacuzzi, which was expected to be reinstalled after other work was completed. However, on May 3, 2017, during a monthly meeting with the board, plaintiffs received an email from the superintendent, who was informed by the board that the building’s rules prohibited whirlpool tubs, and that plaintiffs were to replace their jacuzzi with a standard tub. Plaintiffs commenced the action against defendant asserting claims for declaratory relief, breach of contract, negligent misrepresentation, breach of fiduciary duty , and unjust enrichment. Defendant denied plaintiffs’ material allegations, asserted affirmative defenses, including one based on the business judgment rule, and asserted counterclaims for declaratory judgment and attorneys’ fees . Defendant moved pursuant to CPLR 3212 for summary judgment dismissing plaintiffs’ complaint in its entirety, CPLR 3001 for a declaration that plaintiffs were not entitled to install or re-install a jacuzzi-like whirlpool tub in their unit, and for attorneys’ fees. Plaintiffs also moved for summary judgment as to liability pursuant to CPLR 3212. Defendant argued that its decision to stop plaintiffs from re-installing the jacuzzi in their unit was a good faith decision, made in the interest of the co-op, thereby entitling it to summary judgment because their decision was protected by the business judgment rule . Defendant argued that its decision to deny plaintiffs the ability to reinstall the jacuzzi was based on past practices of the board, which prohibited whirlpool tubs due to concerns regarding noise and/or vibration from the pump, which could transfer to neighboring apartments. Defendant also contended that by signing the lease and buying shares in the co-op, plaintiffs agreed to be bound by the governing powers of the board, which notified plaintiffs that whirlpools were forbidden in the building. Defendant further argued that plaintiffs entered into an alteration agreement with the co-op concerning an air conditioning unit in June of 2010, well before the renovation of plaintiffs’ bathroom and the removal of the whirlpool tub occurred, and in said alteration agreement, plaintiffs acknowledged that the board did not allow the installation of whirlpools and agreed to such via signature. Plaintiffs argued in opposition that defendant’s decision was not protected by the business judgment rule because the rule does not protect bad faith, arbitrary conduct, or capricious decisions. In particular, plaintiffs argued that the board did not have any documents that supported its decision to prevent the reinstallation of the whirlpool. Additionally, plaintiffs argued that the board was not acting for the good of the co-op when it made such a decision, that the board refused to consult with an expert to determine if the board’s concerns for damage to the property and neighboring properties within the co-op were legitimate, and that the board never considered if the tub was grandfathered in under the lease, since it was present when plaintiffs moved in the unit. The motion court held that plaintiffs failed to rebut the standard of review imposed by the business judgment rule, and the lawful and legitimate corporate purpose the board had established in support of its decision. The motion court found that the proprietary lease gave the board the power to stop conduct that was, or could be, damaging to the building: If, in the Lessor’s sole judgment, any of the Lessee’s equipment or appliances shall result in damage to the Building ... the Lessee, on notice from the Lessor, shall immediately cease using any such appliance or equipment which may be creating the objectionable condition and shall take all other steps promptly to remedy such condition. The motion court rejected plaintiffs’ argument that they used the jacuzzi for years without any problem, complaint, or objection from anyone in the building, stating that such facts were irrelevant and did not preclude the board from enforcing a specific house rule addressed to the subject of the dispute. The motion court also noted that plaintiffs could not point to any writing in which the use of the jacuzzi was permitted. The absence of such a writing was significant, noted the motion court, because the proprietary lease specifically provided that the “ irectors may alter, amend or repeal such House Rules and adopt new House Rules” at any time. Therefore, concluded the motion court, “it cannot be reasonably argued that had somehow acquired vested rights in the continued maintenance of ,” or that the whirlpool was grandfathered under their lease. Finally, the motion court rejected plaintiffs’ argument that defendant singled them out or selectively enforced the rules against them because another shareholder allegedly had a jacuzzi in their unit. The motion court held that the existence of another jacuzzi in the building was insufficient by itself to raise a triable issue of fact as to the allegation that the board deliberately singled them out for harmful treatment or selective enforcement. The motion court noted that 15 years before the dispute between the parties, the board denied permission for jacuzzi like whirlpool tubs to building tenants. Accordingly, the motion court dismissed plaintiffs’ breach of fiduciary duty claim. On appeal, the First Department affirmed the motion’s court order regarding application of the business judgment rule. The Court held that the “breach of fiduciary duty claim was properly dismissed under the business judgment rule.” The Court found “Plaintiffs’ arguments — that they were treated differently than other shareholders who were permitted to install hot tubs in their apartments and that the board acted arbitrarily and capriciously in refusing to allow plaintiffs to reinstall theirs — unavailing.” The Court explained that the “undisputed facts show that plaintiffs’ tub was damaging the building, there was no evidence that the other tubs were causing damage, and the board was acting for a business-related purpose under the terms of the proprietary lease in requiring plaintiffs to install a standard tub.” Under such circumstances, concluded the Court, plaintiffs could not “overcome the cooperative’s express right under paragraphs 16(d) and 19(b) of the proprietary lease to manage the installation and removal of appliances and fixtures that are damaging the building.” In addition, the Court noted that even if the business judgment rule did not apply, plaintiffs’ breach of fiduciary duty claim would still be dismissed because a cooperative corporation, which plaintiff sued, does not owe its shareholders a fiduciary duty. ______________________________ 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. Levandusky v. One Fifth Avenue Apartment Corp. , 75 N.Y.2d 530 (1990). Ull v. Royal Car Parle LLC , 179 A.D.3d 469, 470 (1st Dept. 2020) (quoting, Auerbach v. Bennett , 47 N.Y.2d 619, 629 (1979)). Barbour v. Knecht , 296 A.D.2d 218, 224 (1st Dept. 2002). 40 W. 67th St. v. Pullman , 100 N.Y.2d 147, 155 (2003). Plaintiffs conceded that the original whirlpool tub had been sinking and separating from the bathroom wall at the same time that there was a water leak from plaintiffs’ unit into the unit below. Cannon Point N., Inc, v. Abeles , 160 Misc. 2d 30, 32 (1st App. Term 1993). Skouras v. Victoria Hall Condo. , 73 A.D.3d 902, 904 (2d Dept. 2010). Slip Op. at *2 (citing Goldstone v. Gracie Terrace Apt. Corp. , 110 A.D.3d 101, 106 (1st Dept. 2013)). Id. Id. (citing Konrad v. 136 E. 64th St. Corp. , 254 A.D.2d 110 (1st Dept. 1998),  lv. dismissed , 92 N.Y.2d 1042 (1999)). Id. at *1 (citations omitted). Id. at *2 (citing Kleinerman v. 245 E. 87 Tenants Corp. , 105 A.D.3d 492, 493 (1st Dept. 2013)).

By: Jonathan H. Freiberger Today’s article addresses a property owner’s right to cancel a recorded mortgage pursuant to RPAPL 1501(4) and whether a mortgagee is “is entitled to recover sums expended to preserve and maintain an allegedly abandoned property under equitable and quasi-contractual theories.” As discussed in prior articles, mortgages on real property are frequently delivered to lenders to stand as security for the repayment obligations evidenced by a promissory note. A recorded mortgage, however, is an encumbrance on real property. Accordingly, if it is possible to cancel a recorded mortgage it is likely in the interest of the mortgagor and/or property owner to do so. RPAPL 1501(4) provides a mechanism to cancel a mortgage of record in situations where the six-year statute of limitations for the commencement of an action to foreclose such mortgage has expired. On April 9, 2025, the Appellate Division, Second Department, in a lengthy opinion, decided Auquilla v. Villa , a case that addressed some interesting issues related to RPAPL 1501(4) and a mortgagee’s right to collect sums expended to preserve and maintain “an allegedly abandoned property.” The facts of Auqulla, which have been simplified for editorial purposes are set forth herein. In 2005, the borrower delivered a note to the lender and the repayment obligations were secured by a mortgage on real property located in Ossining, New York (the “Property”). “By bargain and sale deed dated March 8, 2006, the borrower retained a one-third interest in the premises for herself and conveyed the remaining interest to the plaintiffs, Miguel Auquilla and Hilda Guzman (hereinafter together the owners), as tenants in common.” In 2010, after the borrower and the owners defaulted in their repayment obligations, the lender commenced a mortgage foreclosure action (the “First Action”). The First Action was dismissed in 2013 pursuant to CPLR 3216 for neglect to prosecute. In 2014, the lender commenced a new foreclosure action against the borrower and the owners (the “Second Action”). The owners answered but the borrower defaulted. Subsequently, the motion court granted the owners’ motion on their cross-claim for a declaration that “the owners had sole title to the roperty” – a holding that was not challenged on appeal. Subsequently, the lender was granted summary judgment by an order that directed it to move for a judgment of foreclosure and sale within three months, but the Second Action was dismissed when the lender failed to comply with the order. The Owners’ Claims Under RPAPL 1501(4) and The Lender’s “Mortgagee in Possession” Claim Thereafter, the owners commenced an action against the borrower and the lender to, inter alia , cancel and discharge the mortgage of record pursuant to RPAPL 1501(4) (the “Third Action”). “The interposed an answer by which it asserted, inter alia, counterclaims alleging unjust enrichment, to recover in quantum meruit, and for the imposition of an equitable lien and an equitable mortgage against the roperty. The claimed, among other things, that the owners abandoned the roperty and, as a result, the was ‘forced to protect its interest in the roperty for the duration of the default.’ The alleged that it advanced funds for the payment of property taxes, property insurance, property preservation fees, and other charges and costs, and sought to recover those funds.” (Internal bracket omitted.) The owners moved for summary judgment on their claims under RPAPL 1501(4) and to dismiss the lender’s counterclaims and the lender cross-moved to dismiss the complaint. The motion court granted the owner’s motion for summary judgment as related to RPAPL 1501(4) and denied the lender’s cross-motion but declined to dismiss the lender’s counterclaims. Both the lender and the owners appealed. The Second Department, after discussing issues related to the applicable statute of limitations , found that the lender’s claim was time-barred, and, thus, the owners’ motion for summary judgment on their RPAPL 1501(4) claim was properly granted, because: the record reveals, and the does not dispute, that an action to foreclose the mortgage was commenced in 2010 by the and the complaint therein was dismissed for neglect to prosecute. The commencement of the ction accelerated the debt and the limitations clock began to run at that time. Although the also commenced an action to foreclose the mortgage in 2014, the ction was also dismissed. As the instant action was commenced more than six years after the acceleration of the debt in the ction, and any new action to foreclose the mortgage is time-barred, the owners are entitled to cancellation of the mortgage. The Court also rejected the Lender’s argument that the statute of limitations failed to run against it because it was a “mortgagee in possession of the roperty.” Quoting LaPlacav. Schell , 68 A.D.3d 1478, 1479 (3 rd Dep’t 2009), the Court noted that the statute of limitations does not run against a mortgagee in possession on the theory that “‘the mortgagor's acquiescence to that possession is a continuing acknowledgment of the debt.’” Whether a mortgagee is a “mortgagee in possession” for statute of limitations tolling purposes “requires an analysis of whether the mortgagee took full possession of the property pursuant to an agreement with the mortgagor.” (Citation and internal quotation marks omitted.) Taking possession “means acquiring the benefits of possession, including the value of use, rents, and profits, as well as assuming all the legal duties and obligations that flow from possession.” (Citation and internal quotation marks omitted.) Here, while the loan documents permitted the lender to enter the Property if abandoned, it was not required to do so. The Court found that the lender did not have full possession of the Property. The Court noted that the lender’s own property inspection reports indicated that the Property was “owner occupied” and that the Property “was in good overall condition”. Further, no evidence was submitted that the lender ever “entered the roperty to maintain it or to make repairs.” The Court also found that paying property taxes and insurance “alone is insufficient to establish the mortgagee’s status as a mortgagee in possession.” The Lender’s Quasi Contract Counterclaims The Court also rejected the Lender’s counterclaims that it was entitled to recoup the funds it expended “to preserve and maintain the roperty after the owners allegedly abandoned it.” The Court recognized that “a quasi-contractual obligation is one imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved. The law creates it, regardless of the intention of the parties, to assure a just and equitable result.” (Citation and internal quotation marks omitted.) The lender argued that because the written agreement is between the lender and the borrower, there is no written agreement with the owners and, accordingly, quasi-contractual theories of recovery are available to it. This argument was rejected by the Court when it found that “the mortgage agreement, which encumbered the property before the owners took possession and included some terms contained in the note for purposes of, inter alia, events of default, governs this dispute.” The finding that the mortgage controls the dispute was “fatal to the counterclaims sounding in quasi contract.” The Court noted that “ ince it is undisputed that the mortgage agreement governed the 's right to pay the costs associated with the maintenance of the property after the owners allegedly abandoned it and failed to keep their promise to pay property taxes, the 's recourse was to proceed pursuant to its rights as contained within the mortgage agreement and, thus, the was precluded from recovering on its unjust enrichment and quantum meruit counterclaims.” (Citations omitted.) In establishing a definitive rule related to this issue in light of the lender’s “novel” theory, the Court stated: The mortgagee's theory that the mortgage agreement does not govern the dispute since it was executed by the borrower and not by the owners is a novel one in this Court, but is ultimately unpersuasive. Although this Court has not explicitly recognized such a rule in this context, we now hold that there can be no quasi contract claim by a mortgagee against a third-party nonsignatory owner of property encumbered by a mortgage, the terms of which covers the subject matter of the dispute. The Court of Appeals has stated that " t is impermissible . . . to seek damages in an action sounding in quasi contract where the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which clearly covers the dispute between the parties" ( Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. , 70 NY2d at 389). Although the Court of Appeals has not considered whether that rule applies to nonsignatories of a mortgage agreement, it is nonetheless well settled that a contract cannot be implied in fact where there is an express contract covering the subject matter involved. The Court went on to fully analyze this issue. 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 written numerous articles addressing RPAPL 1501(4). To find such articles, please see the BLOG tile on our website and type “RPAPL 1501(4)” into the “search” box. This BLOG has written dozens of articles addressing statute of limitations issues in residential mortgage foreclosure actions. To find such articles, To find such articles, please see the BLOG tile on our website and type “statute of limitations mortgage foreclosure” into the “search” box. For a concise explanation of the inter relationship between the statute of limitations, acceleration and the Foreclosure Abuse Prevention Act (“FAPA”) see, e.g., < 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 unjust enrichment, quantum meruit and quasi-contract theories. To find such articles, please see the BLOG tile on our website and type any or all of those terms into the “search” box. The Court also analyzed and rejected the lender’s claim that it was entitled to an equitable mortgage on the Property as well as an equitable lien.

By: Jeffrey M. Haber On July 8, 2019, this Blog wrote an article titled, “First Department Unanimously Affirms Denial of Motion to Compel Arbitration and Motion to Dismiss Fraud Claims” ( here ). The article examined the decision of the Appellate Division, First Department in BML Properties Ltd. v. China Construction America Inc. , 2019 N.Y. Slip Op. 05339 (1st Dept. July 2, 2019), in which the Court (as the title states) affirmed the denial of a motion to compel arbitration and a motion to dismiss ( here ). Today, we examine the case after the non-jury trial of the matter. BML Props. Ltd. v. China Constr. Am., Inc. , 2025 N.Y. Slip Op. 02030 (1st Dept. Apr. 08, 2025) ( here ). In the article, we provided an extensive discussion of the facts of the case, which will not be repeated here. However, we will discuss the facts relevant to the decision examined below. BML Properties arose from the breakdown of a multibillion-dollar project to build a resort complex in the Bahamas. Nonparty Baha Mar Ltd., a Bahamian entity, was the owner and developer of the project. Plaintiff BML Properties Ltd., another Bahamian entity, was the direct parent of Baha Mar, owned 100% of its voting shares, and was responsible for its day-to-day management. Defendant CSCEC Bahamas, Ltd., a Bahamian entity, was the sole minority shareholder of Baha Mar under an investors agreement (“IA”). Defendant CCA Bahamas Ltd., another Bahamian entity, was the construction manager for the project. Defendant CCA Construction , Inc. was an affiliate of the other defendants; it was not a party to any of the project agreements but was nonetheless involved and had overlapping offices and executives, including Taizhong Wu, who was an executive of CCA Construction and CCA Bahamas and was appointed to Baha Mar's board on behalf of CSCEC Bahamas. After a series of delays that ultimately prevented the resort from opening, plaintiff filed for bankruptcy. Plaintiff commenced the action in 2017, asserting causes of action for, among other things, breach of contract and fraud. Regarding the fraud claim , plaintiff alleged that defendants orchestrated a “massive fraudulent scheme” by creating the false and misleading impression that they were meeting on-time and on-budget schedules necessary to open the resort in December 2014, when in fact, defendants were concealing massive delays that, inter alia , increased the costs of construction to the detriment of BML. Plaintiff also sought to pierce the corporate veil , asserting that the defendants were alter egos of one another. In the initial appeal, the First Department affirmed the motion court’s denial of defendants’ motion to dismiss the fraud claim , holding, inter alia , that “Plaintiff adequately stated a claim for fraud, by asserting justifiable reliance upon assurances, alleged to have been false when made, regarding the project’s status, and the workforce and resources available to meet the deadline for completion of the project, which were collateral to, and not duplicative of plaintiff’s claims for breach of contract.”  Id. Following discovery, the parties brought motions for summary judgment , which resulted in another appeal to the First Department. In that appeal ( here ), the Court modified the motion court’s order denying defendants’ motion for summary judgment dismissing the complaint and granting plaintiff’s motion for summary judgment dismissing defendants’ counterclaims for breach of the IA and the affirmative defenses that plaintiff’s claims were derivative and released, to grant defendants’ motion as to certain claims and requested relief and to deny plaintiff’s motion as to the counterclaims for breach of the IA. Relevant to the Court’s decision examined below, the Court held that the motion court properly denied summary judgment dismissing plaintiff’s fraud claims . The Court noted that “ act development not create[] a basis to modify legal determination.” The Court found that there were " ssues of fact exist with respect to justifiable reliance.” The Court explained that “ vidence was presented that plaintiff, which had day-to-day responsibility for the company, relied on defendants’ misrepresentations by taking reservations, preparing for opening, and refraining from seeking additional financing or labor.” The Court further explained that “ vidence was also presented that, although plaintiff had some sense that defendants were not telling the truth, it lacked the ability to definitively verify their claims—especially in view of defendants' apparent concealment of information.” Such evidence sufficed to create issues of fact for the trier of fact to resolve. As noted by the First Department, the parties proceeded to a nonjury trial. After more than “11 days” of trial, “with 20 witnesses and more than 1000 documentary exhibits”, the lower court entered judgment on October 31, 2024, in favor of plaintiff. Defendants appealed. The First Department unanimously affirmed. Relevant to this article, defendants argued that the trial court applied the wrong standard for scienter, one of the elements of a fraud claim . According to defendants, the trial court applied a scienter standard applicable only to auditors. In that regard, said defendants, the trial court found that defendants acted with “reckless disregard” of the truth by “fail to verify ability to meet the promised deadline.” However, the “reckless disregard” standard, argued defendants, does not apply to future-intention cases, of which BML was, outside the auditor context. Rather, to show fraud based on defendants’ statements, plaintiff had to prove defendants “never intended to honor or act on statement” of future intent. Plaintiff maintained that the trial court properly found that defendants represented that they could meet the represented deadline, but knew they had no internal plans to do so. Plaintiff also maintained that defendants repeatedly “reaffirmed” that commitment while internally acknowledging their representations “were just phony.” Plaintiff argued that the trial court applied the proper scienter standard, stating that the courts of New York routinely apply the “reckless disregard” of the truth standard in non-auditor cases. The First Department held that the trial court applied the proper scienter standard. The Court found that “ nternal company communications introduced at trial showed that although CCA Bahamas told plaintiff that the project was on track for a March 27, 2015 opening date, CCA Bahamas did not, in fact, believe that it would be possible for the resort to open on that date.” “Thus,” concluded the Court, “the evidence established that defendants misrepresented their ability to perform, which sufficient to support a finding of fraud.” [Eds. Note: To allege scienter, a plaintiff must allege with particularity that the defendant had an “actual intent to deceive, manipulate, or defraud.” Scienter must be pleaded with “sufficient detail[]”; “conclusory statement of intent” are insufficient. To succeed, therefore, the plaintiff must allege facts from which there is some “rational basis for inferring that the alleged misrepresentations were knowingly made.” Scienter is a very difficult element to plead. In fact, the scienter element is the hardest to plead because the evidence of intent most often rests solely with the defendant. Because of this difficulty, intent is often inferred from circumstantial evidence. ] Takeaway Of note in BML Properties is the fact that the parties agreed to use the definition of scienter in the New York pattern jury instructions for fraud and deceit. Under the pattern jury instructions, if the jury determines that the challenged statement was false, it “must next decide whether either knew it was false or made the statement recklessly without regard to whether it was true or false.” Notably, according to the pattern jury instructions, “ statement is made recklessly if it is made when the person making it does not have an honest and reasonable belief in its truth.” In Shear Enterprises , to which the First Department cited in BML Properties , the Court found (for purposes of the motion) that the plaintiff alleged a non-duplicative fraud, stating that “defendants misrepresented their very ‘ability to perform”. In making this finding, the Court rejected the defendants argument that the plaintiff’s allegation was that the defendants “made a promise while harboring the concealed intent not to perform it.” Thus, the alleged fraud in Shear Enterprises was analogous to one of the alleged frauds in BML Properties ( e.g. , defendants “defendants misrepresented their ability to perform”). As such, the scienter consideration was the same: whether the defendants had an honest and reasonable belief in the truth of their statements. ________________________________ 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. 226 A.D.3d at 583. Id. Id. at 583-84. Id. at 584. Slip Op. at *1. The discussion of the parties’ arguments can be found in their briefs on appeal. Slip Op. at *2. Id. Id. (citing Shear Enters., LLC v. Cohen , 189 A.D.3d 423, 424 (1st Dept. 2020)). To find articles related to the scienter element of a fraud claim, visit the “ Blog ” tile on our  website  and enter “scienter” or any other related search term in the “search” box. Zutty v. Rye (NOR) , 33 Misc. 3d1226(A), 2011 WL 5962804 at *11 (Sup. Ct., N.Y. Co. Apr. 15, 2011). Zanett Lombardier, Ltd. v. Maslow , 29 A.D.3d 495 (1st Dept. 2006) (citation omitted). Houbigant, Inc. v. Deloitte & Touche LLP , 303 A.D.2d 92, 93 (1st Dept. 2003). Pludeman v. N. Leasing Sys., Inc. , 10 N.Y.3d 486, 488 (2008). See N.Y. Pattern Jury Instr. – Civil 3:20 In the comments section, the authors of the pattern jury instructions cite to the following authorities: State Street Trust Co. v. Ernst , 278 N.Y. 104 (1938); Hadcock v. Osmer , 153 N.Y. 604 (1897); Curiale v. Peat, Marwick, Mitchell & Co. , 214 A.D.2d 16 (1st Dept. 1995); and Terris v. Cummiskey , 11 A.D.2d 259 (3d Dept. 1960). 189 A.D.3d at 424.

By: Jeffrey M. Haber On April 3, 2025, the Appellate Division, First Department considered an appeal of the dismissal of a complaint involving the disputed authenticity of a painting (the “Work”) by the deceased artist Cy Twombly (“Twombly”). In Grosso v. Cy Twombly Found. , 2025 N.Y. Slip Op. 02007 (Apr. 03, 2025) ( here ), the Court unanimously affirmed the motion court’s dismissal of a complaint brought by the child of a parent who purchased works of art, including the Work, from Twombly in the 1960s. As discussed below, the Court held that, among other things, the motion court did not have personal jurisdiction over defendant and that plaintiff could not assert his fraud and negligent misrepresentation claims against defendant because they were time-barred. The Rules Governing the Exercise of Personal Jurisdiction New York courts may exercise general jurisdiction over a defendant under the United States Constitution or under CPLR 301 if the defendant is domiciled in the state or has “continuous and systematic” contacts with New York which are substantial enough to render the defendant at home in New York. Activities undertaken by an individual defendant in the state on behalf of a corporate entity do not confer personal jurisdiction over the individual defendant. A court may exercise general jurisdiction over a defendant under an alter ego theory, where there is complete domination to commit fraud or a wrong against plaintiff. “Factors to be considered” in making the determination include: the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the allegedly dominated corporation; whether dealings between the entities are at arm’s length; whether the corporations are treated as independent profit centers; and the payment or guaranty of the corporation's debts by the dominating entity. “No one factor is dispositive.” Courts may also exercise jurisdiction over a non-domiciliary if it has long-arm jurisdiction over the defendant under CPLR 302 ( i.e. , specific jurisdiction) and the exercise of such jurisdiction comports with due process. For a court to exercise jurisdiction under CPLR 302 (a) (1), the “attachment to New York must be (1) purposeful; and (2) there must be a substantial relationship between the New York transaction of business and the claim asserted.” “Purposeful activities are defined as those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” A court can exercise jurisdiction even in the absence of physical presence if “the defendant on his own initiative ... project himself into this state to engage in a sustained and substantial transaction of business.” Where the defendant acts through an agent, the “plaintiff must convince the court that engaged in purposeful activities in th State in relation to transaction for the benefit of and with the knowledge and consent of and that exercised some control over .” A court may exercise personal jurisdiction if a defendant commits a tortious act outside the state which causes injury to person or property in the state, other than a cause of action for defamation of character arising from the act, if he “(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” To challenge the court’s jurisdiction over the person, the defendant must make a motion pursuant to CPLR 3211(a)(8 ). CPLR 3211(a)(8) authorizes dismissal of “one or more causes of action asserted ... on the ground that ... the court has not jurisdiction of the person of the defendant.” “On a motion pursuant to CPLR 3211 (a) (8) to dismiss for lack of personal jurisdiction, the party asserting jurisdiction has the burden of demonstrating satisfaction of statutory and due process prerequisites.” A plaintiff meets this burden by presenting affidavits and relevant documents. Rules Governing the Statute of Limitations for Fraud and Fraud-Based Claims A party seeking dismissal of a pleading on statute of limitations grounds must make a motion pursuant to CPLR 3211(a)(5). Under this provision of the CPLR, “a defendant must establish, prima facie, that the time within which to sue has expired.” “Once that showing has been made, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations has been tolled, an exception to the limitations period is applicable, or the plaintiff actually commenced the action within the applicable limitations period.” Under New York law, an action based upon fraud must be commenced within six years of the date the cause of action accrued, or within two years of the time the plaintiff discovered or could have discovered the fraud with reasonable diligence, whichever is greater. The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged”, “even though the injured party may be ignorant of the existence of the wrong or injury.” Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud. In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.” “ ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. “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.” Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that s/he has been defrauded, a duty of inquiry arises, and if s/he fails to undertake that inquiry when it would have developed the truth and shuts his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her. The test as to when fraud should with reasonable diligence have been discovered is an objective one. Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued. “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.” Grosso v. Cy Twombly Foundation In 2011, defendant, a private foundation formed in 2005 with the aim of fostering the study and preservation of Twombly’s works, confirmed in writing (signed by the Foundation’s President, defendant Nicola Del Roscio (“Del Roscio”)) “that the Work would be included in a publication intended to be part of a comprehensive catalogue of Twombly’s works of art (the “Catalogue RaisonnÉ”). The Catalogue RaisonnÉ was published in 2013 without including the Work. Plaintiff consigned the Work to Phillips Auctioneers LLC (“Phillips”) and received a $1.5 million advance against proceeds from Phillips pursuant to written agreements. In January 2019, Phillips and plaintiff signed an addendum to the Agreement reaffirming the terms of the sale and recording the accrual of interest as of January 2019. Phillips scheduled the Work for sale at an auction in 2019 and contacted the Foundation about the Work prior to the sale. Plaintiff alleged that defendants made false statements to Phillips about the Work and plaintiff. Plaintiff eventually discovered that defendants communicated to Phillips through defendant David Baum (“Baum”) that “there was no doubt” that the Work was a fake and was aware of this fact when he consigned the Work to Phillips.” Baum also informed Phillips that “the Foundation had been shown this work before, and that there is a specific reason why the work is not in the catalogue RaisonnÉ.” In an action involving plaintiff and Phillips, Baum testified that “Cy Twombly himself declared the work to be fake.” Plaintiff alleged that the Foundation claimed that the Work was a fake because a “Gian Piero Grosso” believed to be plaintiff’s father, submitted the Work for authentication (“Submission”) through a Vienna gallery and Twombly reviewed the Work and declared it to be inauthentic. The Foundation also had in its possession an envelope (in which the Submission was kept) which had the handwritten inscription “falso dice Cy” which translates in English to “false says Cy”. The Foundation believed this to be proof that Twombly himself reviewed the Submission and declared the Work to be inauthentic. Plaintiff challenged these claims and alleged that the Foundation’s statements to Phillips were demonstrably false because ‘Gian Piero Grosso’ was not plaintiff’s father, the handwriting on the envelope is of an unknown person and not Twombly and Twombly saw the Work in-person at Grosso’s residence and never communicated that the Work was a fake or in any way indicated that he was not the creator of the Work. Plaintiff alleged that through their actions and false statements , defendants “intended to convince Phillips that the Work was not authentic, sought to impermissibly interfere with Mr. Grosso’s business relationship and Agreement with Phillips and induced Phillips into withdrawing the Work from sale.” Plaintiff further alleged that defendants procured a criminal record evidencing a conviction of a ‘Pier Franco Grosso’ in Italy and shared it with Phillips claiming it to be a criminal record for Grosso. Plaintiff claimed that due to defendants’ false statements and actions, the Work was not sold and plaintiff in March 2020 was publicly branded as having owned and fraudulently consigned a fake artwork to Phillips. Plaintiff filed the action against defendants on July 11, 2022, alleging the following causes of action: (i) tortious interference with business relationships (Count I); (ii) defamation (Count II); (iii) prima facie tort (Count III); (iv) fraud (Count IV); (v) injurious falsehood (Count V); (vi) product disparagement (Count VI); and (vii) negligent misrepresentation (against the Foundation in the alternative) (Count VII). Baum and the Foundation moved pursuant to CPLR 3211(a)(1), (5) and (7) to dismiss the complaint in its entirety. Del Roscio moved pursuant to CPLR 3211(a)(8) to dismiss the complaint against him in its entirety, and in the alternative pursuant to CPLR 3211(a)(1)(5) and (7) if the motion court determined that it had jurisdiction over him. The motion court granted the motions ( here ). Regarding personal jurisdiction , the motion court found that, under CPLR 301, Del Roscio was “not domiciled in New York and not have continuous or systematic contacts with New York which would render him at home in New York.” The motion court explained that “ e does not regularly conduct business on behalf of the Foundation from New York and in any event, activities undertaken on behalf of the Foundation would not confer personal jurisdiction over Del Roscio.” The motion court rejected plaintiff’s contention that the motion court acquired “general jurisdiction over Del Roscio by virtue of the Foundation’s general presence in New York.” The motion court also rejected plaintiff’s alter ego theory for exercising jurisdiction. “None of factors exist here,” said the motion court. The motion court found plaintiff’s assertions that Del Roscio was the “key decision maker”, “an integral part of the day-to-day activities of the Foundation”, “the primary individual associated with the Foundation or who provides information about whether an artwork attributed to will be included in any of catalogues raisonne” to be conclusory and an insufficient basis upon which the motion court could find that Del Roscio was the Foundation’s alter ego. Further, the motion court found that plaintiff “failed to allege much less demonstrate that Del Roscio used the Foundation’s corporate form to perpetuate fraud on plaintiff.” The motion court also held that it did not have jurisdiction over Del Roscio under CPLR 302(a) (1) because the authentication of the Work, which was the only act by Del Roscio that had a substantial relationship with the claims in the action was performed in Italy. The motion court rejected plaintiff’s argument “that Del Roscio projected himself into the State through telephone calls and emails with Baum and other employees of the Foundation.” Finally, the motion court held that plaintiff failed to satisfy the requirements of CPLR 302(a)(3). The motion court found that Del Roscio did not regularly conduct or solicit business (on his account) or derive substantial revenue from goods used or consumed or services rendered in New York. The motion court concluded that “Del Roscio’s business contacts with New York limited to his role as the President of the Foundation.” Turning to the statute of limitations , the motion court held that plaintiff was on notice of the alleged misrepresentations more than two years before he commenced the action: “ also does not contest the fact that it knew that the Catalogue RaisonnÉ was published in 2013 without including the Work.” The motion court rejected plaintiff’s contention that his claims were timely because “he believed that the Catalogue RaisonnÉ could be supplemented in the future.” “Even if believed that the Catalogue RaisonnÉ could be supplemented in due course,” said the motion court, “it was incumbent upon him to exercise reasonable diligence and inquire of the Foundation when the Catalogue RaisonnÉ would be supplemented to include the Work.” “Despite his knowledge of the significance of being included in a Catalogue RaisonnÉ for an artwork’s authenticity and consequent[ ] marketability,” reasoned the motion court, “ made no effort to contact the Foundation and inquire about the inclusion of the Work in any forthcoming … catalogue RaisonnÉs.” Accordingly, the motion court held that plaintiff was inquiry notice of the alleged fraud . On appeal, the First Department affirmed. The Court held that the motion court “properly found that defendant Del Roscio, the president of defendant Cy Twombly Foundation, was not individually subject to either general or specific jurisdiction in New York.” The Court found that the “record indicate that Del Roscio live in Italy, perform his work for the Foundation from Italy, and ha not visited New York since 2020.” The Court found that plaintiff’s allegations were speculative, and affirmed the motion court’s refusal to give “weight to plaintiff’s speculation that Del Roscio must have conducted business in New York and possibly attended Twombly exhibitions in New York.” Moreover, the Court found that plaintiff ignored the rule that “a nondomiciliary ‘does not subject himself, individually, to the CPLR 301 jurisdiction of our courts … unless he is doing business in our State individually,’ as opposed to the business he is conducting on behalf of a corporation.” The Court also found “Plaintiff’s conclusory assertions that Del Roscio subject to general jurisdiction in New York as the Foundation’s alter ego” to be “unavailing”. Further, the Court held that the motion court “properly dismissed the claims against the Foundation and Baum on the basis that each claim was time-barred and/or failed to state a cause of action.” The Court noted that “ oth the fraud and negligent misrepresentation claims were based on defendants’ purported false authentication of the work in 2011 and defendants’ failure to include it in the Catalogue RaisonnÉ in 2013.” The Court further noted that “Plaintiff not dispute that he knew in 2013 —nine years before this case was filed — that the relevant volume of the Catalogue RaisonnÉ was published without including the ork, which was contrary to defendants’ alleged promise.” Thus, concluded the Court, “plaintiff’s claims were untimely when he brought them in 2022 because he was at least on inquiry notice of defendants’ purported fraud and misrepresentations, which is when the statute of limitations began to run.” ________________________________ 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. Daimler AG v. Bauman , 571 U.S. 117, 126, 134, 139; IMAX Corp. v. Essel Group , 154 A.D.3d 464, 465-466 (1st Dept. 2017). IMAX , 154 A.D.3d at 466 (internal citation omitted). Matter of Morris v. New York State Dept. of Taxation and Fin. , 82 N.Y.2d 135 (1993). Fantazia Intern. Corp. v. CPL Furs New York, Inc. , 67 A.D.3d 511, 512 (1st Dept. 2009). Id. D & R Glob. Selections, S.L. v. Bodega Olegario Falcon Pineiro , 29 N.Y.3d 292 (2017). Silverman v. Minify, LLC , 2016 N.Y. Slip Op. 30046 (U) *5 (Sup. Ct., N.Y. County 2016) C. Mahendra (N.Y.), LLC v. Nat’l Gold & Diamond Ctr., Inc. , 125 AD3d 454, 457 (1st Dept. 2015) (internal quotations and citations omitted). Silverman , 2016 N.Y. Slip Op. 30046 (U) *8 (internal quotations and citations omitted). Coast to Coast Energy, Inc. v. Gasarch , 149 A.D.3d 485, 486-487 (1st Dept. 2017) (internal quotation marks and citation omitted). CPLR 302(a)(3). Matter of James v. iFinex Inc. , 185 A.D.3d 22, 28-29 (1st Dept. 2020) (citation omitted). Coast to Coast Energy , 149 A.D.3d at 486. Flintlock Constr. Servs., LLC v. Rubin, Fiorella & Friedman, LLP , 188 A.D.3d 530, 531 (1st Dept. 2020) (citations omitted). Id. CPLR § 213(8). See also Sargiss v. Magarelli , 12 N.Y.3d 527, 532 (2009); Carbon Capital Mgmt., LLC v. Am. Express Co. , 88 A.D.3d 933, 939 (2d Dept. 2011). Carbon Capital Mgmt. , 88 A.D.3d at 939 (citation and alterations omitted). Schmidt v. Merchants Despatch Transp. Co. , 270 N.Y. 287, 300 (1936). Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326 (1957). Id. Trepuk v. Frank , 44 N.Y.2d 723, 725 (1978). Gutkin v. Siegal , 85 A.D.3d 687, 688 (1st Dept. 2011).  Id. (citation and internal quotation marks omitted). See Shalik v. Hewlett Assocs., L.P. , 93 A.D.3d 777, 778 (2d Dept. 2012). Celestin v. Simpson , 153 A.D. 3d 656, 657 (2d Dept. 2017). Phillips filed a complaint against plaintiff, alleging, among other things, breach of contract and fraud arising out of plaintiff’s consignment of the Work to Phillips. Slip Op. at *1 (citations omitted). Id. at *1-*2 (quoting Laufer v. Ostrow , 55 N.Y.2d 305, 313 (1982)). Id. at *2. Id. Id. Id. Id. (citing Aozora Bank, Ltd. v. Credit Suisse Group , 144 A.D.3d 437, 438-439 (1st Dept. 2016), lv. denied , 28 N.Y.3d 914 (2017)).

By: Jonathan H. Freiberger The term “venue” in the context of litigation refers to the location where the trial will take place. In general, and as previously described in prior articles, Venue, which is governed by Article 5 of the CPLR , is initially chosen by the plaintiff at the commencement of the action. Sometimes an improper venue is chosen by the plaintiff. In such circumstances, the defendant can move to change venue to a proper venue. CPLR 510(1) ; see also Kidd v. 22-11 Realty, LLC , 142 A.D.3d 499, 489 (2 nd Dep’t 2016); Beli v. Lacqua , 212 A.D.3d 701 (2 nd Dep’t 2023). Under other circumstances, the venue chosen by the plaintiff may be correct, but a different venue may be more convenient. Today’s article will focus on some issues related to the discretionary change of venue pursuant to CPLR 510(3) , which provides that “ he court, upon motion, may change the place of trial of an action where … the convenience of material witnesses and the ends of justice will be promoted by the change.”  Motions pursuant to CPLR 510(3) “are addressed to the sound discretion of the trial court and, absent an improvident exercise of that discretion, the trial court’s order will not be disturbed on appeal.” Raghavendra v. Stober , 171 A.D.3d 814, 816 (2 nd Dep’t 2018) (citations omitted); see also Aldridge v. Governing Body of Jehovah’s Witnesses , 204 A.D.3d 1469, 1470 (4 th Dep’t 2022). In cases where plaintiff’s initial choice of venue is proper, a discretionary change of venue based on the convenience of witnesses, pursuant to CPLR 510(3), will be granted “only after there has been a detailed evidentiary showing that the convenience of nonparty witnesses would in fact be served by the granting of such relief.”  O’Brien v. Vassar Bros. Hosp. , 207 A.D.2d 169 (2 nd Dep’t 1995); see also Barresi v. Halls Boat, LLC , 217 A.D.3d 437 (1 st Dep’t 2023). The O’Brien Court “review … the caselaw decided with reference to CPLR 510(3) and its antecedents that there is a general consensus among appellate courts as to the existence, if not as to the absolute rigidity and inexorability, of four criteria which should be established by the movant in order to demonstrate his or her entitlement to relief pursuant to CPLR 510(3).” O’Brien , 207 A.D.2d at 172. The O’Brien criteria are as follows: (1) “the affidavit in support of a motion under this section must contain the names, addresses and occupations of the prospective witnesses”; (2) “a party seeking a change of venue for the convenience of witnesses is also required to disclose the facts to which the proposed witnesses will testify at the trial, so that the court may judge whether the proposed evidence of the witnesses is necessary and material”; (3) “the moving party must show that the witnesses for whose convenience a change of venue is sought are in fact willing to testify”; and, (4) “there must be a showing as to how the witnesses in question would in fact be inconvenienced in the event a change of venue were not granted.” O’Brien , 207 A.D.2d at 172–73 (citations, internal quotation marks and ellipses omitted); see also Jacobs v. Banks Shapiro Gettinger Waldinger & Brennan, LLP , 9 A.D.3d 299 (1 st Dep’t 2004); Corner of Walnut LLC v. Tompkins Ins. Agencies, Inc. , 225 A.D.3d 465 (1 st Dep’t 2024). The absence of affidavits, and/or detail in submitted affidavits, satisfying the O’Brien criteria for changing venue is fatal to a discretionary motion under CPLR 501(3). 10 Two Trees Lane LLC v. Mahoney , 192 A.D.3d 468, 469-70 (1 st Dep’t 2021). In Barresi , supra , for example, the Court determined that the defendant failed to meet its burden of demonstrating that a change of venue was warranted because the affidavits of potential witnesses “merely set forth brief and vague descriptions of the witnesses’ proposed testimony were insufficient to show that the testimony would be material and relevant to the issue of defendant's liability and damages. Barresi , 217 A.D.3d at 438 (citations omitted). In Jacobs, supra , the motion was denied because defendants failed to “indicate that they had contacted the nonparty witnesses, much less identify the specific inconveniences which might be incurred by the witnesses, and such inadequacies render defendants' moving papers insufficient as a matter of law.” Jacobs , 9 A.D.3d at 300 (citations omitted). On April 3, 2025, the Appellate Division, First Department, in Nir v. Wakeford , unanimously reversed the grant of defendant’s motion to change venue. Nir , an action based on a sexual assault and brought under the Adult Survivors Act (CPLR 214-j) , was properly brought in New York County, the county of the plaintiff’s residence. CPLR 503(a) . The defendant moved to change venue based on the convenience of witnesses. In support of his motion to change venue, the defendant argued that because the assault occurred in Suffolk County “most material witnesses will be located there.” Four such material witnesses identified by defendant’s counsel allegedly lived and worked in Suffolk County. The Court noted that counsel “contacted only two of those witnesses directly, and he failed to show that the two witnesses who were not contacted would be inconvenienced.” (Citations omitted.) In addressing the proof submitted by the parties in support of, and in opposition too, the motion, the Court stated: As to one of the witnesses whom counsel contacted, he failed to assert that the witness stated he would be inconvenienced by having to testify in New York County. As to the other witness who was contacted, a detective in Suffolk County, defendant’s counsel averred that the witness stated he would be inconvenienced by having to testify in New York County. In opposition, plaintiff’s counsel averred that she spoke to the detective, who denied ever making that statement and, instead, told her that, while it would be easier to testify in Suffolk County, it would not be a burden to testify in New York County. The mere fact that the courthouse is in a different county does not give rise to a presumption that a witness will be inconvenienced. Contrary to defendant’s contention, the fact that the witnesses are police officers does not negate the argument that distance alone is insufficient to justify a change of venue. 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 written several articles about venue. See, e.g., < here =">here"> ,< here =">here"> and < here =">here"> .

By: Jeffrey M. Haber In Idi v. Sela , 2025 N.Y. Slip Op. 01890 (1st Dept. Apr. 1, 2025) ( here ), the Appellate Division, First Department addressed an issue of contract interpretation that this Blog often examines: enforcing written agreements that are complete, clear, and unambiguous on their face. Under New York law, written agreements are construed in accordance with the parties’ intent . “The best evidence of what parties to a written agreement intend is what they say in their writing.” As such, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.” “Courts may not ‘by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.’” “‘Whether an agreement is ambiguous is a question of law for the courts … Ambiguity is determined by looking within the four corners of the document, not to outside sources.’” “The entire contract must be reviewed and ‘ articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.’” “Where the language chosen by the parties has ‘a definite and precise meaning,’ there is no ambiguity.” Evidence outside the four corners of the agreement – parol evidence – is admissible only if a court finds an ambiguity in the contract. As a general rule, extrinsic evidence is inadmissible to alter or add a provision to a written agreement. This rule gives “stability to commercial transactions by safeguarding against fraudulent claims , perjury, death of witnesses … infirmity of memory … the fear that the jury will improperly evaluate the extrinsic evidence.” Idi v. Sela Overview Idi involved a dispute arising from a business partnership and real estate transactions between two close friends. As discussed below, plaintiff accused defendant of financial wrongdoing and other wrongful activities in the conduct of the two businesses and the sale of the subject property. The parties initially agreed to arbitrate their dispute on February 8, 2016, pursuant to a private agreement to arbitrate , and thereafter filed statements of claim with the arbitrators on July 1, 2016. Neither party was given the opportunity to file an answer to the other’s claims or to assert affirmative defenses . During the arbitration, the parties conducted and completed discovery, which included document exchanges, documents subpoenaed from third parties, depositions and the exchange of expert reports. In connection with the exchange of discovery, defendant put plaintiff on notice that he would be relying on a statute of limitations defense . Thereafter, the parties agreed to move the matter to court. Pursuant to the parties’ stipulation, the parties agreed that the court proceeding would be limited in scope by the arbitration agreement , the statements of claim, and any prior rulings of the arbitrators. On October 22, 2022, plaintiff filed a motion for summary judgment seeking judgment on both his claims and defendant’s counterclaims and affirmative defenses. Plaintiff argued that defendant’s counterclaims and affirmative defenses should be summarily dismissed because defendant failed to assert the affirmative defenses in the arbitration. Plaintiff also argued that defendant’s second counterclaim was beyond the scope of the arbitration and the stipulation. Also on February 22, 2023, defendant filed a cross-motion for summary judgment, as well as his opposition to plaintiff’s motion, seeking dismissal of each cause of action in plaintiff’s complaint. Defendant argued that dismissal was warranted because, inter alia , the statute of limitations applicable to plaintiff’s claims had expired, thereby barring all of plaintiff’s claims. The motion court granted defendant’s cross-motion for summary judgment , dismissing plaintiff’s complaint based primarily on statute of limitations grounds. The motion court also denied plaintiff’s summary judgment motion in its entirety. Facts The parties were equal owners in two entities, including 1961 7th Avenue, Inc. (“1961 Inc.”), which acquired a property that it sold in February 2011. Following the February 2011 sale, the parties had a dispute over distribution of the proceeds of the sale, causing plaintiff to allegedly make repeated requests for access to the books and records of their companies. The parties did not speak for the next four years until the Internal Revenue Service contacted plaintiff about an audit of 1961 Inc., which prompted plaintiff to call defendant. In February 2016, the parties agreed to submit their disputes concerning the operation and sale of the property to arbitration before two lawyers. Both parties submitted statements of claim in June 2016. No applicable arbitral rules required the parties to file answers or responses to the statements of claims, which were deemed denied. During discovery, in July and October 2016, defendant objected to document requests to the extent they sought “information relating to claims for which the applicable statute of limitations has expired” and “without waiver” of his objections.  In 2022, the parties moved their dispute to court pursuant to a stipulation in which they agreed that the complaint and answer in the action would be “limited in scope” by the arbitration agreement, the statements of claim, and any prior rulings of the arbitrators. Further, the parties agreed that “the claims and counterclaims interposed shall be deemed filed as of the date they were filed in the arbitration,” except to the extent they exceeded the scope of the claims asserted in the arbitration . Plaintiff filed a complaint asserting claims for an equitable accounting, breach of fiduciary duty , unjust enrichment, fraud (based on misrepresentations concerning use of construction loan proceeds), and constructive trust. Defendant answered, asserting affirmative defenses, including that the claims were barred by the statute of limitations , and counterclaims related to plaintiff’s position that he was not required to pay a proportionate share of any tax liability. After completion of discovery, the parties moved for summary judgment; defendant argued that plaintiff’s claims were barred by the applicable three-year statute of limitations.  The First Department’s Ruling The Court unanimously modified the motion court’s order by denying defendant’s motion for summary judgment and reinstating plaintiff’s complaint, with the exception of plaintiff’s fourth cause of action for fraud . The Court held that “if defendant truly believed plaintiff’s claims were time-barred,” he should have “made an application to the court to determine the threshold statute of limitations issue within 20 days of the commencement of the arbitration,” before participating in the arbitration. The Court found that “ efendant never made such an application.” “Nonetheless,” said the Court, “defendant could have still raised this defense for the arbitrators to decide in their ‘sole discretion’” The Court explained that “ hile defendant had stated in discovery responses during the arbitration that he objected to producing documents related to claims that may be time-barred, he never asserted a statute of limitations defense in his statement of claim or sought any ruling or stipulation from the arbitrators on the issue during the ensuing six years.” “Thus,” concluded the Court, “according to the reasonably plain language of the parties’ agreement, there was no statute of limitations issue within the scope of issues to be litigated in court.” Apart from the plain language of the stipulation, the Court found that defendant waived the statute of limitations defense before the arbitrators. Having done so, the Court held that “defendant should not be able to have it decided by the court now.” Moreover, noted the Court, “it would be unfair to allow defendant to raise the defense at this late date when the parties have spent considerable time and money on discovery, including extensive accountants’ reports, and the case is now trial ready.” Regarding the fourth cause of action for fraud, the Court held that the claim did not fall within the scope of the parties’ agreement for moving the dispute to court: nder the stipulation taking the matter out of arbitration, the parties agreed that the scope of this action would be limited to the statements of claim from arbitration, the arbitration agreement, and any prior rulings or stipulations in the arbitration . Plaintiff’s statement of claim made no independent claim of actual fraud , nor does plaintiff point to language in the statement of claim, the arbitration agreement, or any other ruling or stipulation that would form the basis of an independent fraud cause of action. Thus, plaintiff is precluded from asserting an independent fraud claim in this action. ________________________________ 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. Greenfield v. Philles Records , 98 N.Y2d 562, 569 (2002) (internal quotation marks and citation omitted). Id. This Blog has frequently written about cases in which the courts have underscored the point that words in a contract have meaning. See , e.g. , here , here , here , here , and here . Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 404 (2009) (quoting Reiss v. Financial Performance Corp. , 97 N.Y.2d 195, 199 (2001)). Id. at 404 (quoting Kass v. Kass , 91 N.Y.2d 554, 566 (1998)). Id. at 404 (quoting Atwater & Co. v. Panama R.R. Co. , 246 N.Y. 519, 524 (1927)). Id. at 404 (quoting Greenfield , 98 N.Y.2d at 569). W.W.W. Assoc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990) (internal quotation marks and citation omitted).  Slip Op. at *1-*2 (citing CPLR 7503(b), (c)). Id. at *2. Id. (citing CPLR 7502(b)). Id. Id. Id. Id. (citing Matter of Tilbury Fabrics v. Stillwater, Inc. , 56 N.Y.2d 624, 626 (1982) (statute of limitations defense waived by failure to raise it in a motion to stay arbitration or before the arbitrators); Matter of Jewish Ctr. of Forest Hills W., Inc. v. Goldberg , 160 A.D.3d 644, 645-646 (2d Dept. 2018)). Id. (citing Cseh v. New York City Tr. Auth. , 240 A.D.2d 270, 271-272 (1st Dept. 1997)).  Id.

By: Jeffrey M. Haber Arbitration is an alternative to a court proceeding. It is an adversarial proceeding in which the parties can call witnesses and present evidence to a neutral arbitrator or panel of arbitrators. The rules of discovery and evidence are relaxed to make it a more cost-efficient process. Typically, arbitrations are conducted by a private firm in which an attorney or retired judge, selected by the parties, presides over the proceeding. Arbitration can be binding, in which the arbitrator renders (or the panel of arbitrators render) a decision that can be enforced by the courts, or non-binding, in which the arbitrator renders (or the panel of arbitrators render) an advisory opinion that the parties can accept or reject. In short, arbitration is similar to a trial without the formalities. Generally, whether a claim is subject to arbitration is a decision for the court, not the arbitrator. Thus, in the initial instance, the court will “determine in general terms whether the parties have agreed that the subject matter under dispute should be submitted to arbitration.” Once it appears that there is a “reasonable relationship between the subject matter of the dispute and the general subject matter of the underlying contract, the court’s inquiry is ended.” In making this determination, courts look to the parties’ agreement to arbitrate . Courts will enforce an agreement to arbitrate , and will not take the issue of arbitrability away from the arbitrator when the parties specifically provide as such: hen the parties’ agreement specifically incorporates by reference the AAA rules, which provide that “ he tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement,” and employs language referring “all disputes” to arbitration, courts will “leave the question of arbitrability to the arbitrators.” This approach reflects the “overarching principle of law ‘that arbitration is a matter of contract’” and that “courts must rigorously enforce arbitration agreements according to their terms.” New York “favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties …. Therefore, New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to jurisdiction.” In short, “the first question in any arbitration dispute must be: What have these parties agreed to?” And, the answer to that question is governed by state contract-law principles, provided that those rules do not expressly or covertly discriminate against agreements to arbitrate. Notably, parties may agree to have an arbitrator decide not only the merits of a dispute, but also “‘gateway questions of arbitrability,’ ‘such as whether their agreement to arbitrate covers a particular controversy or whether one party should be relieved from the agreement due to the wrongful conduct of another party.’” The United States Supreme Court has repeatedly “explained that an ‘agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the … court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.’” Thus, before enforcing a provision that delegates arbitrability issues to an arbitrator, the court must first assess whether the delegation provision is itself valid. In undertaking that analysis, the court must be mindful that a delegation provision is severable from the remainder of the arbitration provision and contract in which it appears. Therefore, unless a party “challenge the delegation provision specifically,” the court must enforce it according to its terms, which in the case of a comprehensive delegation provision will mean leaving any challenge to the enforceability of the arbitration agreement or contract more generally for the arbitrator. “One type of direct challenge that must be resolved by a court is a claim that the parties did not in fact agree to delegate arbitrability issues, which may arise from a broader challenge to the formation of the underlying contract.” In contrast, challenges that go solely to the enforceability of other provisions of the contract, and do not relate to the severable delegation provision, such as whether the moving party was fraudulently induced to enter the agreement, cannot be considered by the court. A party trying to avoid an arbitration clause must therefore show that the arbitration clause itself, not the overall agreement, was procured through fraud or is otherwise unenforceable. On March 27, 2025, the Appellate Division , First Department, issued a decision in Mouli v. Stern , 2025 N.Y. Slip Op. 01872 (1st Dept. Mar. 27, 2025 ( here ), in which the Court affirmed the grant of a motion to compel arbitration on the grounds that the parties’ agreement to arbitrate permitted the arbitrator to determine the arbitrability of the matter instead of the court. Mouli involved investments by plaintiff in projects developed by defendant. In particular, in 2015, plaintiff invested $2.9 million in JDS Miami River LLC in support of defendant’s real estate project in Miami, Florida. In 2018, defendant asked plaintiff to convert his “interest in JDS Miami River LLC into an equivalent interest in 340 Flatbush Sponsor Members LLC, another project being developed by defendant, now known as Brooklyn Tower. On November 28, 2018, “ n consideration for continued investment in projects, executed a personal guaranty to benefit ... for the amount of original investment in JDS Miami River LLC.” Plaintiff demanded payment. Defendant allegedly admitted owing plaintiff the money but nonetheless failed to pay him. Plaintiff moved pursuant to CPLR 3213 for summary judgment in lieu of complaint. Relying on an assignment agreement between plaintiff and JDS Principal 9DKB Parent 2 LLC and 340 Flatbush Sponsor Members LLC, dated March 13, 2023, defendant moved to compel arbitration of the dispute based on the arbitration provision in that agreement. Under the Assignment Agreement, plaintiff agreed to transfer his interest in JDS Flatbush to JDS Principal in exchange for payment of $3,300,000.00. Among other things, the Assignment Agreement contained a broad arbitration clause , which required that “ ny dispute, controversy or claim related to this Agreement, , the Operating Agreement, the Project and/or any other property or project to which any Releasor and/or Releasee was involved or associated with including, but not limited to, the parties’ compliance or noncompliance with or the breach of any of the foregoing documents” be settled by Arbitration “administered by the American Arbitration Association under its Commercial Arbitration Rules.” Plaintiff challenged whether the parties intended to arbitrate issues under the guaranty. In addition, plaintiff contended that the assignment agreement was fraudulently induced . The motion court granted defendant’s motion, finding that the “arbitrators must determine the arbitrability of the dispute between and under this broad arbitration provision which may benefit and extend to the guaranty.” On appeal, the First Department unanimously affirmed. The Court held that the motion court “properly granted defendant’s motion to compel arbitration and for a stay of this action, as the parties delegated issues of arbitrability to the arbitrator.” The Court explained that the “parties’ assignment agreement contain a broad arbitration provision incorporating the rules of the American Arbitration Association and expressly provid that the threshold issue of arbitrability with respect to the repayment of funds at issue would be decided by the arbitrator.” Accordingly, because the parties “explicitly incorporate rules that empower the arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator.” The Court rejected plaintiff’s argument that the guaranty and assignment were different agreements. The Court explained that plaintiff “entered the assignment agreement to recover the funds that were owed to him under a separate guaranty. Accordingly, plaintiff’s arguments that the assignment agreement existed entirely independently from the guaranty agreement and that these agreements were not ‘inextricably interwoven’ are unavailing.” The Court also rejected plaintiff’s contention that the motion to compel arbitration should have been denied because plaintiff was fraudulently induced to enter the assignment agreement. The Court held that “ s plaintiff’s assertions of fraudulent inducement relate to the assignment agreement’s other substantive provisions rather than the arbitration clause itself, Supreme Court properly declined to address this issue.” Takeaway Like many jurisdictions, New York “favors and encourages arbitration” because it “conserv the time and resources of the courts and the contracting parties.”   And, because “arbitration is a matter of contract,” the “courts rigorously enforce arbitration agreements according to their terms.” Consequently, the courts will rarely interfere with the parties’ agreement to submit their dispute to arbitration ( i.e. , stay an arbitration), and will enforce their decision to abide by the rules of the governing forum, including having the arbitrator decide issues of arbitrability. Mouli stands as another reminder that the foregoing principles are clear and unambiguous and that the courts will “leave the question of arbitrability to the arbitrators” when the parties agree that the arbitrator or panel of arbitrators will “have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement.” _________________________________ 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. See Primex Int’l Corp. v. Wal-Mart Stores, Inc. , 89 N.Y.2d 594, 598 (1997) (affirming trial court ruling that “whether there is a clear, unequivocal and extant agreement to arbitrate the claims , is for the court and not the arbitrator to determine.”); S mith Barney Shearson Inc. v . Sacharow, 91 N.Y.2d 39, 45-46 (1997) (noting “well-settled proposition that the question of arbitrability is an issue generally for judicial determination in the first instance.”) (citing cases); Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co. of Am. , 37 N.Y.2d 91, 96 (1975). Matter of Nationwide Gen. Ins. Co. , 37 N.Y.2d at 96. Id. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, 66 A.D.3d 495, 495 (1st Dept. 2009) (quoting Smith Barney , 91 N.Y. at 47). Monarch Consulting, Inc. v. National Union Fire Ins. , 26 N.Y.3d 659, 675 (2016) (quoting American Express Co. v. Italian Colors Restaurant , 133 S.Ct. 2304, 2309 (2013)). Life Receivables , 66 A.D.3d at 495. Wu v. Uber Tech., Inc. , — NY3d —, 2024 NY Slip Op 05869, *5 (2024) (citing Coinbase, Inc. v. Suski , 602 U.S. 143, 150-151 (2024)). Id. (citations omitted). Henry Schein, Inc. v. Archer & White Sales, Inc. , 586 U.S. 63, 67-68 (2019) (quoting Rent-A-Center, West, Inc. v. Jackson , 561 U.S. 63, 68-69 (2010)); see also Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 84 (2002); Revis v. Schwartz , 38 N.Y.3d 939, 940 (2022). Henry Schein , 586 U.S. at 68 (quoting Rent-A-Center , 561 U.S. at 70. Wu , 2024 NY Slip Op 05869, *7 (citing Coinbase , 602 U.S. at 149). Id. (citations omitted). Id. (quoting Rent-A-Center , 561 U.S. at 72). Id. (citations omitted). Id. (citing Rent-A-Center , 561 U.S. at 71-72 (instructing that the FAA “operates on the specific ‘written provision’ to ‘settle by arbitration a controversy’ that the party seeks to enforce.”)). Id. Slip Op. at *1. Id. Id. (internal quotation marks and citations omitted). Id. Id. (quoting Rinaolo v. Berke , 188 A.D.2d 297, 297 (1st Dept. 1992)). Id. (citing Matter of Weinrott (Carp) , 32 N.Y.2d 190, 197-199 (1973)). Life Receivables , 66 A.D.3d at 495.  Monarch Consulting , 26 N.Y.3d at 675. Id. Life Receivables , 66 A.D.3d at 495 (citations and internal quotation marks omitted).

By: Jonathan H. Freiberger There are certain categories of individuals and entities that are required to be named as defendants in mortgage foreclosure actions and the failure to name such “necessary defendants” can have serious implications. New York’s Real Property Actions and Proceedings Law § 1311 , which sets forth such “necessary defendants,” provides: Each of the following persons, whose interest is claimed to be subject and subordinate to the plaintiff's lien, shall be made a party defendant to the action : 1. Every person having an estate or interest in possession, or otherwise, in the property as tenant in fee, for life, by the curtesy, or for years, and every person entitled to the reversion, remainder, or inheritance of the real property, or of any interest therein or undivided share thereof, after the determination of a particular estate therein. 2. Every person having a right of dower or an inchoate right of dower in the real property or any part or share thereof. 3. Every person having any lien or incumbrance upon the real property which is claimed to be subject and subordinate to the lien of the plaintiff. 4. Where the mortgage is upon any of the public utilities regulated by the public service law, the public service commission. The Second Department, in Polish Nat. Alliance of Brooklyn, U.S.A. v. White Eagle Hall Co., Inc. , 98 A.D.2d 400 (1983), explained that “RPAPL 1311 codifies the equitable principle that persons holding title to the premises or acquiring any right to or lien on the property subsequent to the mortgage should be made defendants in the foreclosure action.” Id . at 403 (citations omitted). The Polish Nat. Court further noted that the “rationale for joinder of these interests derives from the underlying objective of foreclosure actions — to extinguish the rights of redemption of all those who have a subordinate interest in the property and to vest complete title in the purchaser at the judicial sale. Id . at 404 (citations omitted); see also 71-21 Loubet, LLC v. Bank of America, N.A. , 208 A.D.3d 736, 739 (2 nd Dep’t 2022). When a necessary party is not named as a defendant in a foreclosure action “that party’s rights unaffected by the judgment and sale, and the foreclosure sale may be considered void as to the omitted party.” 71-21 Loubet , 208 A.D.3d at 404 (citations and internal quotation marks omitted). The omission of a necessary party was devastating to the lender in Deutsche Bank Nat. Trust co. v. Ennis , a case decided by the Appellate Division, Second Department, on March 26, 2025. The borrower in Ennis borrowed money from the lender and secured the repayment obligation with a mortgage on real property (the “Property”). The borrower subsequently transferred the ownership of the Property to Bennett. Thereafter, the lender commenced a foreclosure action. While the borrower and others were named as defendants, Bennett was not. In May of 2018, the Property was sold to the lender at public auction pursuant to a judgment of foreclosure and sale and conveyed to the lender by referee’s deed. The lender served Bennett with a copy of the summons and complaint in September of 2018. The plaintiff then moved to “amend the caption to add Bennett as a defendant and CPLR=">CPLR" 306–b="306–b"> to validate the late service upon her nunc pro tunc”, which motion was granted in January of 2019 without opposition. (Hyperlink added.) In October of 2019, the lender conveyed the Property to MHL (a non-party) by “special warranty deed”. In January 2020, Bennett moved to, inter alia , vacate the judgment of foreclosure and sale, set aside the foreclosure sale, vacate the referee’s deed and the special warranty deed, and dismiss the action as abandoned pursuant to CPLR 3215(c) , which requires a court to dismiss the complaint as abandoned, absent good cause shown, when the plaintiff fails to take steps within one year to enter a default against the defendant. Bennett’s motion was granted by the motion court and MHL appealed. Relying on law along the lines set forth herein, the Second Department affirmed and found that “Bennett’s rights were unaffected by the sale of the roperty, that the sale was void and the resulting referee's deed to the plaintiff and the special warranty deed to MHL were invalid. Contrary to MHL's contention, the doctrine of laches cannot be used to defeat an application to vacate a judgment that was issued in the absence of personal jurisdiction.” (Citations omitted.) The Court also rejected MHL’s argument that Bennett’s motion should have been denied because it was a bona fide purchaser for value because such an argument is unavailable where “the purchaser fails to use due diligence in examining the title he or she is chargeable, as a matter of law, with notice of the facts which a proper inquiry would have disclosed.” (Citations and internal quotation marks omitted.) The Court also noted that if a conveyance is void “it conveys nothing, and a subsequent bona fide purchaser or bona fide encumbrancer for value receives nothing.” (Citations and internal quotation marks omitted.) Also unsuccessful were MHL’s arguments in opposition to Bennett’s claim that the action should be dismissed pursuant to CPLR 3215(c). In Ennis , the lender’s motion to amend the caption and serve Bennett nunc pro tunc was granted and Bennett was so served. Bennett never appeared but the lender failed to move for a default judgment against her. Accordingly, the Court found that the action was abandoned as against Bennett. 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 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, issues that may be of interest you. This Blog has written about CPLR 306-b. See, e.g., < here =">here"> ,< here =">here"> , < here =">here"> , and < here =">here"> . This BLOG has written numerous articles about CPLR 3215(c). To find such articles, visit the “ BLOG ” tile on our website and enter “3215(c)” in the “search” box.

By: Jeffrey M. Haber An investment company is a company that issues securities and primarily invests in securities. Among the securities laws applicable to investment companies, is the Investment Company Act (“ICA”). Congress enacted the ICA to provide for the registration and regulation of investment companies to protect investors from purchasing securities without the benefit of certain information about the securities, the investment company, and its management. An investment company registered with the Commission pursuant to the ICA is known as a registered investment company. A mutual fund is a type of registered investment company that pools money from many investors and invests the money in some combination of stocks, bonds, short-term money-market instruments, and/or other assets. The securities and other assets owned by a mutual fund are known collectively as its portfolio. A mutual fund’s portfolio is managed by a Commission-registered investment adviser . A mutual fund’s investment adviser owes a fiduciary duty to its client, the fund. This duty includes an affirmative duty of utmost good faith and a duty to act in the best interest of its client, as well as an obligation to provide full and fair disclosure of all material facts and to employ reasonable care. Each mutual fund share represents an investor’s proportionate ownership of the mutual fund’s portfolio and of the income and capital gains the portfolio generates. Investors in a mutual fund are also referred to as shareholders. Under the ICA, mutual funds must disclose to the investing public information about itself and its objectives. The ICA requires that a mutual fund file with the Commission a registration statement containing information that the Commission “prescribe as necessary or appropriate in the public interest or for the protection of investors.” Such information includes a recital of the mutual fund’s policies, including “a recital of all investment policies of the registrant … which are changeable only if authorized by shareholder vote” and “a recital of all policies of the registrant … in respect of matters which the registrant deems matters of fundamental policy.” Pursuant to Section 5(b) of the ICA, a registered investment company that classifies itself as a management company under Section 4(3) of the ICA, must disclose whether it is a “diversified company” or “non-diversified company.” A “diversified company” must comply with certain specific requirements, including for example that it must maintain 75% of its total assets in cash, Government securities, securities of other investment companies , and securities of other issuers limited in respect to any one issuer to an amount no greater in value than 5% of the value of the total assets of the management company, and not more than 10% of the outstanding voting shares of the issuer. Pursuant to Section 13(a)(c) of the ICA, no mutual fund shall, “unless authorized by the vote of a majority of its outstanding voting securities … deviate from its policy in respect of concentration of investments in any particular industry or group of industries as recited in its registration statement, deviate from any investment policy which is changeable only if authorized by shareholder vote, or deviate from any policy recited in its registration statement” that it deems, under Section 8(b)(3) of the ICA, “matters of fundamental policy.” Registered investment companies are governed by a board of directors , who are also referred to as trustees when the registered investment company is organized as a trust. As in any company, independent directors play a critical role in overseeing a fund’s operations and protecting the interests of a fund’s investors. For this reason, the ICA requires that a mutual fund have a board of directors with no more than 60% of the board being “interested persons” of the fund. In relevant part, Section 2(a)(19)(A)(i) of the ICA, defines an “interested person” as an affiliated person of the registered investment company, which, under Investment Company Act Section 2(a)(3) <15 u.s.c. § 80a-2(a)(3)> , includes any person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities. On March 17, 2025, the Securities and Exchange Commission announced ( here ) that it filed charges ( here ) against an investment adviser and his investment advisory firm, Upright Financial Corp. (“UFC”), for, among other things, allegedly investing more than 25 percent of the Upright Growth Fund’s (”Fund”) assets in a single company over multiple years, causing losses of $1.6 million. We examine the SEC’s allegations below. SEC v. Chiueh and Upright Financial Corp. In the 1990s, defendant founded both UFC, an investment adviser registered with the Commission, and Upright Investments Trust (“Upright Trust”), a registered investment company of which the Fund is a series. Beginning at its inception in 1998, and for more than two decades later, the Fund had a disclosed fundamental policy that it would not invest more than 25% of its total assets in one industry (“Concentration Policy”). In November 2021, the Commission issued a settled order that found that defendants violated the Concentration Policy between July 2017 and June 2020 by concentrating more than 25% of the Fund’s total assets in one industry, including the semiconductor industry (the “2021 Order”). In doing so, the SEC claimed that defendants committed fraud and breached their fiduciary duties to the Fund (among other securities law violations). According to the SEC, despite defendants’ commitment under the settlement to take and adopt corrective measures to cease the conduct that formed the basis of the 2021 Order, defendants allegedly continued their misconduct unabated. From at least November 24, 2021, through September 29, 2023, defendants allegedly continued to invest more than 25% of the Fund’s total assets in a single company. After September 29, 2023, said the SEC, defendants continued to violate the Fund’s Concentration Policy by investing more than 25% of the Fund’s assets in the semiconductor industry through at least June 23, 2024. The SEC alleged that defendants’ conduct harmed the Fund and its investors. According to the SEC, by waiting nearly two years to reduce the Fund’s holdings below the 25% limit and then continuing to over concentrate the Fund in the semiconductor industry, defendants allegedly caused losses of approximately $1.6 million. The SEC alleged that defendants collected advisory fees of approximately $100,000 on the Fund’s assets that exceeded the 25% limit. In addition to the alleged violation of the Concentration Policy, the SEC alleged that defendants engaged in other instances of misconduct with respect to the Upright Trust’s board of trustees (“Board”), in violation of the ICA. First, defendant allegedly operated the Board without the required number of independent trustees and then allegedly misrepresented in the Fund’s filings with the SEC that one trustee was independent when that trustee was not. Second, defendants allegedly failed to provide or withheld key information from the Board, including (i) information reasonably necessary for the Board to evaluate the terms of Upright’s advisory contract, which was not put to a vote as required and which defendant allegedly misrepresented in the Fund’s filings with the SEC, and (ii) allegedly misleading the Board about defendants’ past securities law violations and the 2021 Order. Third, defendants allegedly hired an accountant to audit each series of the Upright Trust, including the Fund, without the required Board vote. Commenting on the filing, Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit, stated: “As alleged, the defendants not only ran the fund contrary to its fundamental investment policies, but they actively misled investors and the fund’s board about their conduct. Undeterred by their prior SEC settlement involving these very same issues, we allege that the defendants repeatedly violated fundamental rules designed to protect investors in mutual funds.” The SEC’s complaint ( here ), filed in the United States District Court for the District of New Jersey, charges defendants with violating antifraud and other provisions of the federal securities laws, including provisions of the ICA and the Investment Advisers Act. The SEC seeks permanent injunctive relief, return of allegedly ill-gotten gains, 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. See Investment Company Act Section 1(b) <15 u.s.c. § 80a-1(b)> . ICA Section 8(a) <15 u.s.c. § 80a-8(a)> . ICA Sections 8(b)(2) and (b)(3) <15 u.s.c. §§ 80a-8(b)(2) and 80a-8(b)(3)> . ICA Section 8(b)(3) <15 u.s.c. § 80a-8(b)(3)> . ICA Section 13(a)(3) <15 u.s.c. § 80a-13(a)(3)> . Section 8(b)(1) of the ICA requires that a registered investment company file a registration statement with the Commission that includes a recital of the company’s policies, including, among other things, whether it is a diversified or non-diversified fund and to the extent it engages in concentrating investments in a particular industry or group of industries. See ICA Section 8(b)(1) <15 u.s.c. § 80a-8(b)(1)> . ICA Section 10(a) <15 u.s.c. § 80a-10(a)> . ICA Section 2(a)(19)(A)(i) <15 u.s.c. § 80a-2(a)(19)(a)(i)> . The Fund is a series of Upright Trust that operates as an open-end, management investment company, otherwise known as a mutual fund. The Fund is and was, listed on NASDAQ under the ticker symbol UPUPX. The Fund’s shares were continuously offered and sold to investors, primarily retail investors. As of December 31, 2024, the Fund held net assets of approximately $22.9 million. See Upright Financial Corp. and David Yow Shang Chiueh , A.P. File No. 3-20664 (Nov. 24, 2021) ( here ).

By: Jonathan H. Freiberger Today’s article relates to CPLR 321(c) , a topic we have addressed before < here =">here"> and < here =">here"> . As previously discussed in this BLOG, once an attorney appears and becomes the attorney of record, the client is free to change counsel by filing with the clerk, a substitution of counsel stipulation, which must also be served on “the attorneys for all parties in the action or, if a party appears without an attorney, to the party.” CPLR 321(b)(1). Additionally, an attorney of record “may withdraw or be changed by order of the court in which the action is pending, upon motion on such notice to the client of the withdrawing attorney, to the attorneys of all other parties in the action or, if a party appears without an attorney, to the party, and to any other person, as the court may direct.” CPLR 321(b)(2).  Sometimes, however, an attorney, after appearing, dies, becomes incapacitated or is suspended. In such circumstances, CPLR 321(c) is applicable and provides: If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs. CPLR 321(c) “protects client by automatically staying action from the date of the disabling event.”  Wells Fargo Bank, N.A. v. Kurian , 197 A.D.3d 173, 176 (2 nd Dep’t 2021) (citations omitted). The provision’s “command … is straightforward” and “automatically stays” a lawsuit upon an occurrence that falls within its purview and until such time as the conditions to the continuation of the lawsuit are satisfied. Moray v. Koven & Krause, Esqs. , 15 N.Y.3d 384, 388-89 (2010) (citations omitted). “The obvious purpose of the stay is to vest the party who has lost counsel with a reasonable opportunity to obtain new counsel before further proceedings are taken and thereby avoid prejudice that might conceivably arise from the absence of counsel in the interim.” Wells Fargo, 197 A.D.3d at 176 . (Citations omitted.); see also Moray 15 N.Y.3d at 389. “During the stay imposed by CPLR 321(c), no proceedings against the party will have any adverse effect” ( JPMorgan Chase Bank, Nat. Ass’n v. Simonsen , 208 A.D.3d 1167, 1169 (2 nd Dep’t 2022) (citations, internal quotation marks and brackets omitted)), and “ rders or judgments that are rendered in violation of the stay provisions of CPLR 321(c) must be vacated” ( Wells Fargo, 197 A.D.3d at 176 (citations omitted)); see also Galletta v. Yip , 271 A.D.2d 486 (2 nd Dep’t 2000). It is up to opposing counsel to “bring the stay to an end by serving a notice on the affected party to appoint new counsel within 30 days.” Simonsen, 208 A.D.3d at 1169. The application of CPLR 321(c) was the issue decided by the Appellate Division, Second Department, on March 19, 2025, in HSBC Bank USA v. McGrath . McGrath was a mortgage foreclosure action commenced in 2014 by the lender upon the borrower’s default. Although the borrower retained counsel to defend the action, shortly after being retained he was suspended from the practice of law for two years commencing on October 28, 2014. Several months later, in February of 2015, the lender “mailed a notice to appoint another attorney.” Thereafter, in March of 2016, the motion court granted the lender’s unopposed motion for summary judgment and the appointment of a referee to compute. When the lender moved in June of 2018 to confirm the referee’s report and for a judgment of foreclosure and sale, the borrower, with new counsel, cross-moved pursuant to CPLR 321(c) to vacate the order granting the lender summary judgment. The motion court granted the lender’s motion, denied the borrower’s cross-motion and issued a judgment of foreclosure and sale directing the sale of the property. On the Borrower’s appeal, the Second Department reversed. In its decision, the Court discussed the law on CPLR 321(c) as articulated herein. Quoting Wells Fargo , supra , the McGrath Court noted that: “There are actually two ways in which a CPLR 321(c) stay may be lifted. One way is if the party that lost its counsel retains new counsel at its own initiative, or otherwise communicates an intention to proceed pro se” ( Wells Fargo Bank, N.A. v Kurian , 197 AD3d at 177). “The second way is by means of the above-described notice procedure pursuant to CPLR 321(c)” ( id. ). The Court then determined that neither method for lifting the stay was employed by the lender before proceeding with the foreclosure. Thus, the Court stated: Here, the did not serve with the notice to appoint either personally or in such manner as the court directed (CPLR 321 ). It is undisputed that no attempt was made to personally serve the required notice, nor is it alleged that the Supreme Court directed that service of the notice be made in some other manner. Moreover, it is undisputed that did not communicate an intention to proceed pro se. Therefore, the automatic stay was not lifted until opposed the plaintiff’s motion to confirm the referee’s report and for a judgment of foreclosure and sale and cross-moved to vacate the summary judgment order in September 2018. (Citations, internal quotation marks and brackets omitted.) The mailing of the 321(c) notice on the borrower was not deemed to be personal “service” as required by 321(c) and, accordingly, the borrower’s cross-motion to vacate should have been granted. 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 addressed formal and informal appearances by counsel. See, e.g., < here =">here"> , < 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, in the “search” box, type any topic related to foreclosure, or other commercial litigation issues, that may be of interest you.