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By: Jeffrey M. Haber On numerous occasions, this Blog has examined the attorney-client privilege, the common interest doctrine, and the attorney work product doctrine. Today, we take another opportunity to explore the contours of these privileges. The Tension Between Disclosure and The Attorney-Client Privilege The Civil Practice Law and Rules (“CPLR”) directs that there shall be “full disclosure of all matter material and necessary in the prosecution or defense of an action.” Notwithstanding, the CPLR establishes three categories of materials protected from disclosure: privileged matter, which is afforded absolute immunity from discovery ; attorney work product, which is also afforded absolute immunity ; and trial preparation material, which is subject to disclosure only on a showing of substantial need and undue hardship in obtaining substantially equivalent material by other means. As the New York Court of Appeals noted, there exists an obvious tension between the policy favoring full disclosure and the policy permitting parties to withhold relevant information. Consequently, the burden of establishing any right to protection is on the party asserting it; the protection claimed must be narrowly construed; and its application must be consistent with the purposes underlying immunity. The burden cannot be satisfied by conclusory assertions of privilege. Rather, the proponent of the privilege must set forth competent evidence establishing the elements of the privilege. The attorney-client privilege is the oldest among common-law evidentiary privileges. It is intended to foster open and candid dialog between lawyer and client and is deemed essential to effective representation. In order for the privilege to apply, the communication from attorney to client must be made for “the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship.” The communication itself must be primarily or predominately of legal character. Communications Protected From Disclosure The attorney-client privilege insulates from disclosure a discreet category of communications between attorney, client, and, in some instances, third parties that assist the attorney to formulate and render legal advice. The privilege does not apply merely because a statement was uttered by or to an attorney (or an attorney’s agent). Nor does it attach simply because a statement conveys advice that is legal in nature. The privilege is not limited, however, to communications directly between the client and counsel. It also encompasses communications between an attorney and a client’s agent or representative provided that the communications are intended to facilitate the provision of legal services by the attorney to the client. It does not, however, protect communications between a nonlawyer and a client that involve the conveyance of legal advice offered by the nonlawyer, except when the nonlawyer is acting under the supervision or the direction of an attorney. Moreover, the privilege protects from disclosure communications among corporate employees that reflect advice rendered by counsel to the corporation. “A privileged communication should not lose its protection if an executive relays legal advice to another who shares responsibility for the subject matter underlying the consultation.” This follows from the recognition that since the decision-making power of the corporate client may be diffused among several employees, the dissemination of confidential information to such persons does not defeat the privilege. The Common Interest Protection Under the common interest doctrine, the presence of a third party will not destroy a claim of privilege where two or more clients separately retain counsel to advise them on matters of common legal interest. The doctrine originated in the context of criminal cases, where the courts “allowed the attorneys of criminal co-defendants to share confidential information about defense strategies without waiving the privilege as against third parties.”  The first known case to apply the exception came from Virginia. In  Chahoon v. Commonwealth , 62 Va. 822, 839-840 (1871), the court allowed criminal attorneys to coordinate the strategies of their clients, who were under joint indictment for conspiracy to defraud an estate and retain the privileged nature of their communications. The court reasoned that the parties “had the same defen e to make” and therefore “the counsel of each was in effect the counsel of all.” In  Schmitt v. Emery , 211 Minn. 547, 2 N.W.2d 413 (1942), the court extended the doctrine to civil litigation. There, a privileged document was exchanged among counsel for several co-defendants in a civil action, to prepare objections to the document’s admission into evidence . The court held that “ here an attorney furnishes a copy of a document entrusted to him by his client to an attorney who is engaged in maintaining substantially the same cause on behalf of other parties in the same litigation,” the communication is protected from disclosure by the attorney-client privilege because it was “made not for the purpose of allowing unlimited publication and use, but in confidence, for the limited and restricted purpose to assist in asserting their common claims.”   The Uniform Rules of Evidence adopted this formulation of the doctrine, protecting attorney-client communications “by the client or a representative of the client or the client’s lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another party in a pending action and concerning a matter of common interest therein.” Uniform Rules Evid. 502(b)(3). In New York, the Court of Appeals first recognized the common interest doctrine in  People v Osorio , 75 N.Y.2d 80 (1989). In  Osorio , the Court considered whether a defendant who communicated with counsel in the presence of a separately represented co-defendant in a pending criminal prosecution could prevent the co-defendant from testifying as to what he heard. The co-defendant was at the time acting as an interpreter between the defendant and his attorney. Although the Court acknowledged that the attorney-client privilege would, ordinarily, protect communications between co-defendants that are shared for the purpose of “mounting a common defense,” the Court ultimately held that it did not apply in that case because the defendant “was not planning a common defense” and, therefore, did not share a common legal interest with him. After  Osorio , courts in New York applied the common interest doctrine to both criminal and civil matters, to communications of both co-plaintiffs and co-defendants, but always in the context of pending or reasonably anticipated litigation. Although federal courts have extended the exception regardless of whether litigation is pending or threatened, the Court of Appeals has declined to do so. In declining to extend the doctrine, the Court noted that limiting the doctrine “to situations where the benefit and the necessity of shared communications are at their highest” –  i.e. , during litigation or when there is the threat of litigation – reduces the risk of misuse.   The Court reasoned that “the common interest doctrine promotes candor that may otherwise have been inhibited” between co-litigants. Otherwise, “the threat of mandatory disclosure may chill the parties’ exchange of privileged information and therefore thwart any desire to coordinate legal strategy.” The Court rejected the notion that there is a shared common legal interest in a commercial transaction or other common situation “outside the context of litigation” or the threat of litigation. The Court further rejected the argument that limiting the exception to litigation “will create an anomalous result: clients who retain separate attorneys … cannot protect their shared communications absent pending litigation but the same communications made in the absence of litigation would be privileged if had simply hired a single attorney to represent them” in a non-litigation context.  The Court reasoned that “ n the joint client or co-client setting … the clients indisputably share a complete alignment of interests in order for the attorney, ethically, to represent both parties. Accordingly, there is no question that the clients share a common identity and all joint communications will be in furtherance of that joint representation.”   But, when clients retain separate attorneys to represent them on a matter of common legal interest, that is not so. “It is less likely that the positions of separately-represented clients will be aligned such that the attorney for one acts as the attorney for all, and the difficulty of determining whether separately-represented clients share a sufficiently common legal interest becomes even more obtuse outside the context of pending or anticipated litigation.” “Consequently,” held the Court, “although a litigation limitation may not be necessary in a co-client setting where the fact of joint representation alone is often enough to establish a congruity of interests, it serves as a valuable safeguard against separately-represented parties who seek to shield exchanged communications from disclosure based on an alleged commonality of legal interests but who have only commercial or business interests to protect.” The Attorney Work Product Doctrine The attorney work product doctrine protects those materials prepared by an attorney, acting as an attorney and which contain the attorney’s analysis and trial strategy. The work product of an attorney consists of interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and other tangible and intangible things. As with the attorney-client privilege, the burden of showing that material is protected under the doctrine is on the party asserting the protection. Conclusory assertions that documents constitute attorney work product or material prepared for litigation will not suffice. In Matter of TGT, LLC v. Meli , 2025 N.Y. Slip Op. 00180 (1st Dept. Jan. 9, 2025) ( here ), the foregoing principles were considered by the Appellate Division, First Department in a case involving a judgment enforcement subpoena. Matter of TGT, LLC v. Meli TGT arose from the motion court’s decision and order compelling Respondent-Appellant (the “law firm”) to produce documents in response to a judgment enforcement subpoena served by Petitioner-Respondent TGT, LLC (“TGT”). By its subpoena, TGT sought documents and communications relating to the law firm’s engagement by Joseph Meli (“Joseph”) to assist in the liquidation and transfer of Joseph’s assets to a trust. At the time of the law firm’s engagement, Joseph was a judgment debtor of TGT. In 2017, TGT commenced a civil action against Joseph and Advance Entertainment LLC (“Advance”), a company that was in the business of purchasing and reselling tickets to concerts and other live events, claiming fraudulent activities for which Joseph previously pled guilty. On October 25, 2019, the motion court issued a judgment in favor of TGT and against Advance and Joseph on TGT’s fraud claim . TGT filed a turnover petition on April 21, 2023, asserting that Joseph and his father, Richard, unlawfully transferred and/or dissipated Joseph’s assets through fraudulent trusts. The motion court determined that the transfers of Joseph assets constituted voidable transfers under New York law. As part of its effort to collect documents regarding Joseph’s assets, TGT served a subpoena duces tecum upon the law firm on August 11, 2023. The subpoena contained four (4) document requests, each seeking non-privileged documents and communications concerning the law firm’s representation of Joseph. The law firm served objections and responses to the subpoena on September 14, 2023. TGT moved to compel. After the motion was fully briefed, and on the eve of the argument on the motion, the law firm served TGT with a privilege log (the “Privilege Log”). The law firm asserted protection from disclosure pursuant to the attorney-client privilege, the common interest doctrine, and the attorney work product doctrine as to various materials sought—notably, communications between Richard and the law firm. At the hearing on the motion, the motion court ordered the law firm to produce a disclosure statement listing Joseph’s assets, its engagement letters, and any common interest agreements. The law firm contended that TGT was seeking the production of communications and documents that were protected from disclosure as: (1) attorney-client communications with Richard as Joseph’s agent; (2) attorney-client communications with Joseph and Richard, who shared a common legal interest in reasonably anticipated litigation; and (3) the law firm’s work product. In response, TGT argued, among other things, that the law firm could not meet its burden of demonstrating that any of those communications were privileged because: (1) there was no evidence in the record that Richard was acting as agent for Joseph or that Richard’s participation was necessary to facilitate attorney-client communications; (2) Richard and Joseph shared a common personal and/or business interest in seeking to transfer assets into a trust for the benefit of Joseph’s children, not a common legal interest in connection with any pending or reasonably anticipated litigation; and (3) the work product privilege did not attach to documents that could have been created by a layperson. The motion court agreed with TGT, holding that the law firm failed to carry its burden. First, the motion court found that the law firm did not provide any evidence that Joseph had a reasonable expectation that communications between the law firm and Richard, in his capacities as Joseph’s attorney-in-fact or trustee of a trust for which he was a trustee, would be confidential. In reaching this finding, the motion court cited cases in which there were specific writings evidencing an intent to keep the communications confidential. Moreover, said the motion court, the law firm failed to explain, “much less offer any evidence of”, how Richard’s participation was necessary to facilitate attorney-client communication.   Second, the motion court found that the law firm failed to demonstrate that the common legal interest exception applied to its communications with Richard. The motion court rejected the law firm’s argument that Joseph and Richard shared a common legal interest in seeking a legal defense as to assets that were not subject to the forfeiture orders and judgments issued in the criminal case against Joseph, because they reasonably anticipated follow-on criminal court litigations to enforce those forfeiture orders and judgments. The motion court held that simply because Richard and Joseph sought to fund the trust without violating the forfeiture and restitution orders and judgments against Joseph, did not mean that they reasonably anticipated litigation. The motion court found that the law firm did not provide a basis for why Joseph and Richard anticipated enforcement litigation. Finally, with regard to the law firm’s work product, the motion court found that the entries on the Privilege Log improperly asserted the protection. For example, the entries cited by the motion court described such tasks as, among other things, scheduling calls and discussing fees. Such tasks, said the motion court, did not describe activities that are “uniquely the product of a lawyer’s learning and professional skills” or “communication of a legal character”. On appeal, the First Department unanimously affirmed. The Court held that the motion court “providently exercised its discretion in compelling production of communications involving Richard … and the entries identified on the ‘Entries Not Legal Advice’ privilege log.” Regarding the agency argument advanced by the law firm, the Court “declined to substitute own discretion for that of the motion court based on the new necessity argument that was never presented to the motion court.” On appeal, the law firm “abandon its prior incorrect argument that a showing of necessity was not required” to demonstrate “that Richard was necessary to Joseph’s attorney-client relationship with .” The Court also held that the motion court “properly found that no sufficient common legal interest was shown.” The Court found that the law firm’s “engagement and associated communications in furtherance of effecting transfers of Joseph’s assets to irrevocable trusts outside his control did not relate to litigation in which Richard reasonably anticipated he would become a colitigant with Joseph.” Finally, the Court “reject the claim that the court failed to address the work product privilege for most of the entries on the privilege log.” “By requiring production of the items on the narrowed log,” said the Court, “the court based the required production on its finding that those entries pertained to nonlegal tasks.” _______________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. We examined these privileges, for example, here , here , here , here , here , and here . CPLR 3101(a). CPLR 3101(b). CPLR 3101(c). CPLR 3101(d)(2); see also Spectrum Sys. Intl. Corp. v. Chemical Bank , 78 N.Y.2d 371 (1991). Spectrum Sys. , 78 N.Y.2d at 377. Id. ; Matter of Priest v. Hennessy , 51 N.Y.2d 62, 69 (1980); Matter of Jacqueline F. , 47 N.Y.2d 215 (1979). Delta Fin. Corp. v. Morrison , 15 Misc. 3d 308, 316-17 (Sup. Ct., Nassau County 2007); see also Martino v. Kalbacher , 225 A.D.2d 862 (3d Dept. 1996). 8 Wigmore, Evidence § 2290 (McNaughton rev. 1961). See Matter of Vanderbilt (Rosner—Hickey) , 57 N.Y.2d 66 (1982). Rossi v. Blue Cross & Blue Shield of Greater N.Y. , 73 N.Y.2d 588, 593 (1989). Id. at 594. See United States v. Kovel , 296 F.2d 918, 922 (2d Cir. 1961); see also Westinghouse Elec. Corp. v. Republic of Philippines , 951 F.2d 1414, 1424 (3d Cir. 1991). See HPD Labs., Inc. v. Clorox Co. , 202 F.R.D 410 (D.N.J. 2001). Delta Fin. , 15 Misc. 3d at 316-17 (citations omitted). Id. (citations omitted). Id. (citations omitted). See SCM Corp. v. Xerox Corp. , 70 F.R.D 508, 518 (D. Conn. 1976). Id. (citation omitted). In re Teleglobe Communications Corp ., 493 F.3d 345, 364 (3d Cir. 2007). Id . at 841-42. Id. at 554, 2 N.W.2d at 417. Id . at 85 (relying on  United States v McPartlin , 595 F.2d 1321, 1336 (7th Cir 1979), and  Hunydee v. United States , 355 F.2d 183, 185 (9th Cir 1965)). See, e.g., Hyatt v. State of Cal. Franchise Tax Bd.,  105 A.D.3d 186 (2d Dept. 2013). E.g., Teleglobe , 493 F.3d at 364;  United States v. BDO Seidman, LLP , 492 F.3d 806, 816 (7th Cir 2007);  In re Regents of Univ. of Cal ., 101 F.3d 1386, 1390-1391 (Fed. Cir. 1996)) Ambac Assur. Corp. v. Countrywide Home Loans, Inc. , 27 N.Y.3d 616, 628 (2016). Id. at 628. Id . Id . Id. at 629-30. Id . at 630-31. Id.  at 631(citation omitted).  Id.  Id.  (citations omitted). See Weinstein-Korn-Miller, N.Y. Civ. Prac. ¶ 3101.44 (2d ed.); see also Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s , 263 A.D.2d 367 (1st Dept. 1999). Hickman v. Taylor , 329 U.S. 495 (1947). See generally Koump v. Smith , 25 N.Y.2d 287 (1969). See Salzer v. Farm Family Life Ins. Co. , 280 A.D.2d 844 (3d Dept. 2001); Zimmerman v. Nassau Hosp. , 76 A.D.2d 921 (2d Dept. 1980). Homapour v. Harounian , 211 A.D.3d 508, 509 (1st Dept. 2022) (finding privilege was maintained where, among other things, there was an agency agreement specifying that the agent’s “activities were undertaken at counsel’s direction and were intended to maintain and preserve privilege”); Spicer v. GardaWorld Consulting (UK) Ltd. , 181 A.D.3d 413, 414 (1st Dept 2020) (finding that the plaintiffs had “a reasonable expectation that the confidentiality of communications between their counsel and (their financial adviser) would be maintained” where “(p)laintiffs’ counsel attested that (the financial adviser) promised to keep all such communications confidential” and the relevant transaction document “specified that all privileged documents related to the transaction would remain protected from disclosure to defendant even after closing.”), lv. dismissed , 37 N.Y.3d 1084 (2021). Matter of New York Counsel for State of California Franchise Tax Bd. , 33 Misc. 3d 500, 516 (Sup. Ct., Westchester County 2011) (“ here must be a substantial showing by the party attempting to invoke the protections of the privilege of the need for a common defense as opposed to the mere existence of a common problem.”), aff’d sub nom. , Hyatt v. State of Cal. Franchise Tax Bd.,  105 A.D.3d 186 (2d Dept. 2013) (internal citation omitted) (explaining that the common interest exception “does not protect business or personal communications”); Ambac , 27 N.Y.3d at 629 (refusing to “to extend the common interest doctrine to communications made in the absence of pending or anticipated litigation”). Brooklyn Union Gas Co. v. American Home Assur. Co. , 23 A.D.3d 190, 190-191 (1st Dept. 2005). Slip Op. at *1. Id. Id. Id. Id. (citing Ambac , 27 N.Y.3d at 627). Id. Id. (citing Brooklyn Union Gas , 23 A.D.3d at 190-191).

By: Jonathan H. Freiberger As readers of this BLOG know, we frequently address issues involved with mortgage foreclosure. Because of, inter alia , the frequency with which mortgages are bought, sold, assigned and otherwise transferred, one issue that frequently arises in mortgage foreclosure actions is whether the plaintiff has standing to commence its action. Briefly stated, “ tanding involves a determination of whether the party seeking relief has a sufficiently cognizable stake in the outcome so as to cast the dispute in a form traditionally capable of judicial resolution. Graziano,v. County of Albany , 3 N.Y.3d 475, 479 (2004) (citations, internal quotation marks and brackets omitted). Put another way, “ tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.” Caprer v. Nussbaum , 36 A.D.3d 176, 182 (2 nd Dep’t 2006). Accordingly, the question of whether a plaintiff has standing is “is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute that satisfies the other justiciability criteria.” Caprer , 36 A.D.3d at 182 (citations omitted). “A plaintiff has standing in a mortgage foreclosure action when it is the holder or assignee of the underlying note at the time the action is commenced.” Bayview Loan Servicing, LLC v. Ashkenazi , 2024 WL 5205093 (2 nd Dep’t December 24, 2024). When standing is raised as a defense in a foreclosure action, the lender must prove, inter alia , its standing to obtain relief from the court. Nationstar Mortgage, LLC v. LaPorte , 162 A.D.3d 784, 785 (2 nd Dep’t 2018); see also Fed. Nat. Mort Ass’n v. Krell , 231 A.D.3d 1334, 1335 (3 rd Dep’t 2024); Citimortgage, Inc. v. Sultan , 230 A.D.3d 1292, 1293 (2 nd Dep’t 2024). Standing is established by the plaintiff by demonstrating that it “is the holder or assignee of the underlying note at the time the action is commenced.” LaPorte , 162 A.D.3d at 785; see also Sultan , 230 A.D.3d at 1293-94. A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” N.Y.U.C.C 1-201 <21> . Where a note is indorsed in blank, the holder establishes standing to maintain an action by demonstrating that it “was in physical possession of the note endorsed in blank prior to commencement of the action.” Deutsche Bank Nat. Trust Co. v. Brewton , 142 A.D.3d 683, 685 (2 nd Dep’t 2016); see also U.S. Bank N.A. v. Romano , 231 A.D.3d 1079, 1080 (2 nd Dep’t 2024). In order for the rules previously discussed to apply, the “note” must be a negotiable instrument as defined by the UCC. Pursuant to N.Y.U.C.C. 3-104 , in order for a writing to be a negotiable instrument, it must “be signed by the maker or drawer,” “contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article,” “be payable on demand or at a definite time,” and “be payable to order or to bearer.” In OneWest Bank, N.A. v. FMCDH Realty, Inc. , 165 A.D.3d 128 (2018) , the Second Department determined, for a variety of reasons, that a reverse mortgage “Cash Account Agreement” was not a negotiable instrument and, therefore, “the plaintiff cannot establish its standing merely by showing that it possessed the original Cash Account Agreement, indorsed in blank, on the date this action was commenced”. OneWest , 165 A.D.3d at 135. On December 23, 2024, the Supreme Court of the State of New York, Kings County, decided Wilmington Savings Fund Society v. Green , in which the court, relying on, inter alia , OneWest , determined that a lender failed to prove standing under the traditional holder in due course analysis because the subject “Bank of America Equity Maximizer Agreement and Disclosure Statement” for a line of credit was not a negotiable instrument  under the UCC. Among other things, the subject agreement required the repayment of not a sum certain, but “the total of all credit advances and FINANCE CHARGES, together with all costs and expenses for which you are responsible under this Agreement….” Id . (emphasis in original). Accordingly, the lender was “not a valid ‘holder in due course’” and could not “establish its standing merely by showing that it possessed the original agreement, indorsed in blank, on the date action was commenced. Id . Because the lender failed to “provide a proper note” it “failed to establish a prima facie case” for foreclosure, which requires the “production of the mortgage, the unpaid note, and evidence of default.” (Citation and internal quotation marks omitted.) Further, the Green court, relying on Urban Equity Partners, LLC v. Aribisala , 143 A.D.3d 887 (2 nd Dep’t 2016), also found that the lender “cannot make a prima facie case based solely on the line of credit agreement because, unlike a promissory note containing an unequivocal promise to pay a sum certain, the subject agreement merely shows that had a line of credit from which she could obtain cash advances and, thus, does not constitute proof of an obligation that can be foreclosed upon. Rather, must also submit evidence that actually received cash advances from under the agreement.” (Citation omitted.) In this regard, the Green court noted that because the lender proceeded as if the matter was governed by a promissory note “containing an unequivocal promise to pay a sum certain” no evidence of actual cash advances was submitted because proof of an outstanding balance “would be superfluous.” Because the lender failed to meet its prima facie burden on its foreclosure cause of action, summary judgment was denied. 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. To find BLOG articles related to mortgage foreclosure, visit the “ Blog ” tile on our website and enter “mortgage foreclosure” (or any related topic of interest) in the “search” box. To find one of our numerous BLOG articles related to standing, visit the “ Blog ” tile on our website and enter “standing foreclosure” in the “search” box. However, < here =">here"> is one of our more recent and fulsome discussion of standing This BLOG has written about One West < here =">here"> .

By: Jeffrey M. Haber CPLR 3025(b) provides, in pertinent part, that “ party may amend his or her pleading … at any time by leave of court or by stipulation of all parties.” Importantly, CPLR 3025(b) provides that “ eave shall be freely given.…” Thus, “unless the proposed amendment would unfairly prejudice or surprise the opposing party, or is palpably insufficient or patently devoid of merit,” the motion for leave to amend should be granted. Prejudice may be found where “the nonmoving party has been hindered in the preparation of its case or has been prevented from taking some measure in support of its position.” “Prejudice is more than the mere exposure of the party to greater liability” as “there must be some indication that the party has been hindered in the preparation of the party’s case or has been prevented from taking some measure in support of its position.” Conclusory statements of prejudice cannot defeat a motion to amend a pleading. The burden of demonstrating prejudice or surprise “falls upon the party opposing the motion.” In opposing the motion, the nonmovant may not dispute the factual allegations in the proposed amended pleading. Contesting the merits of the amendment is improper on a motion for leave to amend. An amendment will not cause surprise when the causes of action alleged in the amended pleading are based on the facts and circumstances already pleaded or already known by the non-moving party. For this reason, new theories of liability pertaining to the facts and circumstances already in controversy will not bar a motion to amend. Further, delay in and of itself is not enough to defeat a motion for leave to amend. For this reason, “ ere lateness is not a barrier” to amendment, absent prejudice. “It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine.” As the New York Court of Appeals recognized, “absent prejudice, courts are free to permit amendment even after trial.” “The determination whether to grant leave to amend a pleading is within the court’s discretion, and the exercise of that discretion will not lightly be disturbed.” Thus, “ party opposing leave to amend ‘must overcome a heavy presumption of validity in favor of .’” In Breton v. Dishi , 2025 N.Y. Slip Op. 00039 (1 st Dept. Jan. 7, 2025) ( here ), the issue of prejudice was considered by the Appellate Division, First Department in the context of a motion to amend an answer. In Breton , defendant moved to amend his answer to interpose a counterclaim for fraud. As discussed below, the Court held that the proposed counterclaim was patently devoid of merit. Breton v. Dishi Breton is an action to recover for personal injuries that plaintiff allegedly suffered on property that was owned by defendant. Plaintiff alleged that she was struck by a falling ceiling in an apartment located at a building owned by defendant. Defendant moved to amend his answer to interpose a counterclaim alleging fraud by plaintiff. Defendant alleged that: (1) the accident did not occur as plaintiff alleged; (2) even if the accident occurred as alleged, plaintiff did not suffer the injuries alleged in the action; (3) knowing that the accident did not occur as alleged and that plaintiff did not suffer the injuries she claimed, plaintiff nevertheless commenced the action seeking to recover damages from defendant; and (4) plaintiff knowingly brought the action based on facts, claims, and statements that she knew were false with the intention of inducing defendant to settle the action. Plaintiff opposed the motion, claiming the proposed counterclaim was prejudicial. Plaintiff contended that defendant presented an improper malicious prosecution counterclaim in the guise of a fraud counterclaim. Plaintiff reasoned that there had been no termination of the civil proceeding in favor of defendant, nor had there been a trial and that by allowing the amendment of defendant’s answer to include the proposed counterclaim would have a chilling effect on litigation . Plaintiff further argued that defendant had not alleged fraud with sufficient particularity such as defendant’s failure to allege how he relied on any purported misrepresentations or omissions to his detriment and damages. Finally, plaintiff maintained that allowing the amendment was prejudicial because, among other things: (1) defendant’s proposed amendment was post note of issue and post-appeal; and (2) defendant failed to provide a reasonable excuse for the late amendment. The motion court denied the motion. Addressing the question of prejudice by the proposed counterclaim, the motion court held that “defendant ha established that the amendment to answer ha merit and that plaintiff not be prejudiced by relief requested.” The motion court explained that “ oth plaintiff and defendant were aware of the factual allegations upon which th motion was predicated in or about April 2021,” when “defendant submitted summary judgment motion” and when the motion court issued its “Amended Decision in September 2021<,> which dismissed plaintiff’s complaint.” The motion court noted that for various intervening procedural reasons, “defendant did not submit the instant application until August 2023.” Though defendant did not have an excuse for the delay, the motion court rejected plaintiff’s timeliness objection, stating that defendant’s allegations about how the accident occurred and whether plaintiff sustained the injuries she alleged had “not changed since the summary judgment motion.” Moreover, said the motion court, the proposed counterclaim would not “require discovery as plaintiff was aware of defendant’s position and the plaintiff ha not shown how would be prejudiced or surprised or what discovery if any would need from defendant.” The motion court further held that “the amendment not hinder plaintiff’s preparation for trial or change her position because she will not be surprised as she is already aware of defendant’s allegations.” Finally, the motion court “rejected outright” “plaintiff’s conclusory statement that defendant’s fraud claim merely one for malicious prosecution.” Plaintiff appealed. The First Department unanimously reversed. The Court held that “Supreme Court should have denied the motion to amend.” The Court explained that “the counterclaim fail to plead the essential element of justifiable reliance with sufficient particularity.” “To show reliance, a party must demonstrate that was induced to act or refrain from acting to detriment by virtue of the alleged misrepresentation or omission.” In that regard, “ he must show a belief in the truth of the representation and a change of position in reliance on that belief.” Looking at the record, the Court found that it was “clear that defendant ha not, in fact, relied on plaintiff’s alleged misrepresentations, but instead ha denied them in his answer and throughout the litigation.” Finally, the Court held that defendant did not “plead damages with sufficient particularity.” Defendant “alleg only that he ha incurred significant sums in defending the action.” The Court noted that “ o the extent defendant claiming that he ha been damaged by having incurred litigation costs as a result of plaintiff’s pursuing a fraudulent or frivolous claim, his remedy would be to seek sanctions under CPLR 8303-a.” However, said the Court, “that provision not support an independent cause of action.” Takeaway As readers of this Blog know, most of the cases we examine concerning the justifiable reliance element of a fraud claim involve whether the aggrieved party had the means to discover “the true nature of the transaction by the exercise of ordinary intelligence” and whether the aggrieved party “fail to make use of those means.” Breton is different from those cases because the issue before the Court was whether defendant could demonstrate that he was induced to act or refrain from acting to his detriment by virtue of the alleged misrepresentation or omission. As discussed, defendant could not do so because his own pleading and litigation position demonstrated that he did not hold “a belief in the truth of the representation ” claimed to be false and did not “change position in reliance on that belief.” Breton also underscores the importance of pleading every element of a fraud claim with particularity. The requirement that a fraud claim be pleaded with particularity can be found in CPLR 3016(b). Under CPLR 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”  To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. The plaintiff must also identify his/her damages with particularity. As explained by the Court in Breton , damages in the form of litigation costs do not meet this requirement. ___________________________________ 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. Cirillo v. Lang , 206 A.D.3d 611, 612 (2d Dept. 2022) (citations omitted).  See also Greene v. Esplanade Venture P’ship , 36 N.Y.3d 513, 526 (2021); Matter of Chustckie , 203 A.D.3d 820, 822 (2d Dept. 2022); Toiny, LLC v. Rahim , 214 A.D.3d 1023, 1024 (2d Dept. 2023) (citations omitted). Cirillo , 206 A.D.3d at 612 (citation, internal quotation marks, and brackets omitted). Kimso Apartments, LLC v. Gandhi , 24 N.Y.3d 403, 411 (2014) (citations, internal quotation marks and brackets omitted). See Petion v. New York City Health & Hosps. Corp . , 175 A.D.3d 519, 520 (2d Dept. 2019). Toiny , 214 A.D.3d at 1024 (citation and internal quotation marks omitted); see also , Kimso , 24 N.Y.3d at 411 (citations). See Lucido v. Mancuso , 49 A.D.3d 220, 227 (2d Dept. 2008) (“ plaintiff seeking leave to amend the complaint is not required to establish the merit of the proposed amendment in the first instance”); Sample v. Levada , 8 A.D.3d 465, 467–468 (2d Dept. 2004) (“ he legal sufficiency or merits of a proposed amendment to a pleading will not be examined unless the insufficiency or lack of merit is clear and free from doubt”). See , e.g. , Bamira v. Greenberg , 256 A.D.2d 237, 239 (1st Dept. 1998). See , e.g. , Harding v. Filancia , 144 A.D.2d 538, 540 (2d Dept. 1988); Matter of Smith , 104 A.D.2d 445, 448 (2d Dept. 1984). Edenwald Contr. Co. v. City of New York , 60 N.Y.2d 957, 959 (1983); see also Granieri v. Ryder Truck Rental, Inc. , 112 A.D.2d 189, 190 (2d Dept. 1985); Matter of Chustckie , 203 A.D.3d at 822. Shields v. Darpoh , 207 A.D.3d 586, 587 (2d Dept. 2022) (internal quotation marks and citations omitted). Kimso , 24 N.Y.3d at 411 (citations omitted). AFBT-II, LLC v. Country Vill. on Mooney Pond, Inc. , 21 A.D.3d 972, 972 (2d Dept. 2005) (citations omitted). McGhee v. Odell , 96 A.D.3d 449, 450 (1st Dept. 2012) (quoting Otis Elevator Co. v. 1166 Ave. of Americas Condo. , 166 A.D.2d 307, 307 (1st Dept. 1990)) Slip Op. at *1. Id. (citing CPLR 3016(b);  Eurycleia Partners, LP v . Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)). Ginsburg Dev. Cos., LLC v. Carbone , 134 A.D.3d 890, 892 (2d Dept. 2015) (internal quotation marks omitted). Nabatkhorian v. Nabatkhorian , 127 A.D.3d 1043, 1044 (2d Dept. 2015). Slip Op. at *1 (citing Republic of Kazakhstan v. Chapman , 217 A.D.3d 515, 517 (1st Dept. 2023); Dashdevs LLC v. Capital Mkts. Placement, Inc. , 210 A.D.3d 525, 526 (1st Dept. 2022)). Id. Id. (citing Makhnevich v. Board of Mgrs. of 2900 Ocean Condominium , 217 A.D.3d 630, 632 (1st Dept. 2023)). Id. Id. (citing Calastri v. Overlock , 125 A.D.3d 554, 555 (1st Dept. 2015)). Rosenblum v. Glogoff , 96 A.D.3d 514, 515 (1st Dept. 2012). Ginsburg Dev. Cos. , 134 A.D.3d at 892. Nabatkhorian , 127 A.D.3d at 1044. As noted, defendant controverted the truthfulness of the statements that he claimed were false. Thus, by denying the falsity of the statement he could claim to have relied on the statement to his detriment. E.g. , Republic of Kazakhstan , 217 A.D.3d at 517. Pludeman v. Northern Leasing Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (citation omitted).

By: Jeffrey M. Haber 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 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.” Further, in interpreting a contract, a court should favor an interpretation that gives effect to all the terms of an agreement rather than ignoring terms or interpreting them unreasonably. Therefore, “where two seemingly conflicting contract provisions reasonably can be reconciled, a court is required to do so and to give both effect.” Finally, “agreements executed at substantially the same time and related to the same subject matter are regarded as contemporaneous writings and must be read together as one.” The foregoing rules of contract interpretation were recently examined in A-US GAL1, L.P. v. National Air Cargo Group, Inc. , 2024 N.Y. Slip Op. 06648 (1st Dept. Dec. 31, 2024) ( here ). A-US GAL1 involved an alleged breach of an assigned aircraft engine leasing agreement. Defendant National Air Cargo Group, Inc. (“National”) is an airline carrier operating cargo and passenger services. Plaintiff A-US GAL1, L.P. (“AUSG1”) is the succeeding lessor who assumed an aircraft engine lease between Fortress Transportation and Infrastructure Investors, LLC (“Fortress”) and National through a series of assignment and amendment agreements. After the leased engines at issue allegedly failed to satisfy the redelivery requirements set forth in the lease, AUSG1 initiated the action against National, and National asserted a counterclaim for breach of contract against AUSG1, alleging AUSG1 failed to follow the past course of dealing between Fortress and National with respect to the engine redelivery requirements under the assignment. The motion court denied AUSG1’s motion to dismiss, holding that although paragraph 7.3 of the assignment failed to identify the provisions it sought to amend in accordance with Section 19(b) of the lease, it should not be rendered meaningless simply because of a technical error. The motion court found that the assignment and the lease did not provide enough information on what “course of dealing” meant on its face and that, therefore, dismissal of the motion was premature. On appeal, the Appellate Division, First Department reversed, holding that the motion court should have granted AUSG1’s motion. The Court held that “ o give meaning to the provisions of the lease and assignment, the only meaningful interpretation of paragraph 7.3 of the assignment would be that it is limited to terms not expressly stated in the lease. The Court pointed to Section 19(b) of the lease, which “states that any amendment to the lease shall ‘specifically identif the provision … that it purports to amend,’ and that ‘ o provision of this Agreement shall be varied or contradicted by … course of dealing or performance.’” It also pointed to paragraph 7.3 of the assignment, which, it said, “appears to be a catch-all provision dealing with National’s rights and obligations under the assigned lease,” and which “requires AUSG1 to ‘follow the same course of dealing and return procedures … with respect to other engines previously returned by to …’ but does not specifically identify the lease provisions it seeks to amend.” Reading to the two provisions, the Court held that “ ven if, as National argues, it did not have to enumerate the provisions it sought to amend by page or paragraph number under § 19(b) of the lease, the course of dealing provision signals no intention to supersede the redelivery provisions of the lease, unlike § 3.1 of the assignment, which explicitly states that ‘the Lease shall hereby be amended as set forth in Schedule 3,’ which contains no amendments to the redelivery provisions of the engines.” In addition, said the Court, “since paragraph 7.3 of the assignment appears to be a catch-all provision, and § 9 of the lease specifically sets forth the engine return and redelivery procedures, … § 9 of the lease, which contains specific provisions governing the return of engines, would have control over paragraph 7.3 of the assignment as a general provision.” The Court explained that “ o reasonably reconcile the provisions of both the lease and the assignment, without rendering any provision meaningless, we agree with AUSG1 that paragraph 7.3 merely serves as a gap-filler that incorporates the past course of dealing as to terms not explicitly expressed under the lease.” Therefore, concluded the Court, “ ince National’s counterclaim against AUSG1 was premised on paragraph 7.3 of the assignment in the sense that it amends the return and redelivery provisions of the lease, National’s counterclaim for breach of contract is refuted by section 19(b) of the lease and should be dismissed under CPLR 3211(a)(1).” ___________________________ 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). See , e.g. , Perlbinder v. Board of Mgrs. of 411 E. 53rd St. Condominium , 65 A.D.3d 985, 986-987 (1st Dept. 2009). Id. at 987; s ee also Lenart Realty Corp. v. Petroleum Tank Cleaners, Ltd. , 116 A.D.3d 536, 537 (1st Dept. 2014). Perlbinder , 65 A.D.3d at 987 (internal quotation marks omitted). Slip Op. at *1 (citing U.S. Bank N.A. v. GreenPoint Mtge. Funding, Inc. , 157 A.D.3d 93, 100 (1st Dept. 2017)). Id. Id. Id. at *1-*2 (citing Kasowitz, Benson, Torres & Friedman, LLP v. Duane Reade , 98 A.D.3d 403, 405-406 (1st Dept. 2012), aff’d , 20 N.Y.3d 1082 (2013) (the contract language itself is the best evidence to manifest the parties’ intent)). Id. at *2 (citing Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 61 (1st Dept. 2017) (“Where there is an inconsistency between a specific provision and a general provision of a contract , the specific provision controls”)). Id. (citing Matter of Trump (Refco Props.) , 194 A.D.2d 70, 74-75 (1st Dept. 1993), lv. denied , 83 N.Y.2d 754 (1994)). Id. (citing M & E 73-75, LLC v. 57 Fusion LLC , 189 A.D.3d 1, 6 (1st Dept. 2020)).

Melville, NY January 3, 2025 – On January 3, 2025, Freiberger Haber LLP partner Jonathan H. Freiberger was interviewed by Pat Kiernan, on NY1’s Mornings on 1 news broadcast. Mr. Kiernan and Jonathan discussed preliminary injunctions, temporary restraining orders, both in general and as they relate to the action pending in the New Jersey Federal District Court commenced by The State of New Jersey in an effort to stop the implementation of New York’s Central Business District Tolling Program (more commonly known as “Congestion Pricing”). Freiberger Haber LLP does not represent any parties to the action and its experience was sought to explain relevant procedural issues. The segment can be found here . About Freiberger Haber LLP Located in New York City and Melville, Long Island, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals in a broad range of complex business, securities, construction, real estate, and commercial litigation matters. Founded by Jonathan H. Freiberger and Jeffrey M. Haber, Freiberger Haber applies more than 60 years of combined experience to deliver sophisticated and creative representation to its clients. The firm’s approach is results-oriented and client-centric, providing clients with the sophisticated counsel expected from larger firms with the flexibility and agility of a small firm. ATTORNEY ADVERTISING. © 2025 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 425 Broadhollow Road, Suite 416, Melville, New York 11747, (631) 282-8985. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact Jonathan H. Freiberger or Jeffrey M. Haber Freiberger Haber LLP

By:  Jeffrey M. Haber The justifiable reliance element has been described as a “fundamental precept” and a “venerable rule”. The requirement is one of the five elements of a fraud cause of action: (1) a misrepresentation or a material omission of fact; (2) which was false and known to be false by the defendant(s); (3) made for the purpose of inducing another person to rely upon it; (4) justifiable reliance of the other party on the misrepresentation or material omission; and (5) damages. Because the determination of whether a plaintiff justifiably relied on a misrepresentation or omission is a factually “nettlesome” one, “ o two cases are alike ….”   For this reason, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.”   If the plaintiff fails to make use of the means available to discover the truth, his/her claim will be dismissed. Similar to the scienter element, the justifiable reliance element is one of the more difficult elements of the cause of action to satisfy. Thus, for example, “when the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy.” Sophisticated parties also have a heightened responsibility to inquire of the truth. They must use due diligence and take affirmative steps to protect themselves from misrepresentations by employing whatever means of verification are available at the time. If they fail to do so, their complaint will be dismissed. With the foregoing principles in mind, we examine Davidoff v. Hershfield , 2024 N.Y. Slip Op. 06560 (2d Dept. Dec. 24, 2024) ( here ). Davidoff involved alleged misrepresentations and omissions by defendants to deprive plaintiff of his claimed beneficial interest in, and to, his former marital residence, and other assets, including, but not limited to, funds in a fidelity account (“Fidelity Account”). Defendants are the parents of plaintiff’s spouse (the “daughter”). According to defendants, prior to plaintiff’s marriage to their daughter, defendants funded an account at Merrill Lynch by depositing $1 million therein. The account was later transferred to Fidelity. The Fidelity Account was held by defendants and their daughter as joint tenants with the right of survivorship. Defendants maintained that plaintiff did not contribute any money to the Fidelity Account. In 2009, defendants and their daughter purchased property in Armonk, New York (the “marital residence”). The funds used to purchase the marital residence allegedly came from three sources: a mortgage, the Fidelity Account, and defendants’ personal accounts, as well as a non-collateralized loan from their accounts. According to defendants, plaintiff did not contribute any funds toward the purchase of the marital residence and was not named on the title. On November 7, 2019, plaintiff commenced the action by filing a summons and complaint. Plaintiff asserted causes of action for, among other things, fraudulent misrepresentation against defendants for allegedly promising plaintiff an ownership interest in the marital residence (third cause of action), and fraud against defendants for not giving plaintiff an ownership interest in the marital residence. Defendants later moved for summary judgment , seeking dismissal of, inter alia , the fraud causes of action asserted against them. Defendants argued that plaintiff failed to marshal evidence demonstrating that his reliance on the alleged misrepresentations and omissions was justifiable . The motion court granted the motion. Plaintiff appealed. The Appellate Division, Second Department affirmed. The Court held that the motion court “properly granted those branches of the defendants’ motion which were for summary judgment dismissing the third and fourth causes of action, alleging, respectively, fraudulent misrepresentation and fraud.” The Court found that “defendants demonstrated that the plaintiff did not allege facts sufficient to plead the element of justifiable reliance on an alleged misrepresentation by the defendants.” The Court explained, “that at the time the residence was purchased, the plaintiff knew that he did not have an ownership interest in the residence.” “Further,” said the Court, “to the extent that the plaintiff contended that the alleged misrepresentation by the defendants was that he would be entitled to a share in the proceeds of a future sale of the residence, the plaintiff did not allege nor does the record show that the residence was sold and the proceeds from the sale were withheld from the plaintiff.” Takeaway In Davidoff , the Second Department affirmed the grant of summary judgment on the strength of a truism about the justifiable reliance element: a plaintiff cannot claim justifiable reliance on a misrepresentation if he/she already has knowledge of the truth. As noted by the Court, “ t undisputed that at the time the residence was purchased, the plaintiff knew that he did not have an ownership interest in the residence.” Thus, plaintiff could not have relied on the alleged misrepresentations since, at the time, he was aware of the falsity of the alleged misrepresentations or omissions. ________________________________________ 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. Ambac Assur. v. Countrywide , 31 N.Y.3d 569, 579 (2018). ACA Fin. Guar. Corp. v. Goldman, Sachs & Co. , 25 N.Y.3d 1043, 1051 (2015) (Read, J., dissenting on other grounds) (describing the justifiable reliance requirement as “our venerable rule”). Pasternack v. Laboratory Corp. of Am. Holdings , 27 N.Y.3d 817, 827 (2016) (citation omitted). DDJ Mgt., LLC v. Rhone Group L.L.C. , 15 NY3d 147, 155 (2010). Id . Curran, Cooney, Penney v. Young & Koomans , 183 A.D.2d 742, 743) (2d Dept. 1992). ACA Fin. Guar. , 25 N.Y.3d at 1044. Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V. , 17 N.Y.3d 269, 279 (2011) (quoting  Global Mins. & Metals Corp. v. Holme , 35 A.D.3d 93, 100 (1st Dept. 2006),  lv. denied , 8 N.Y.3d 804 (2007)). See ,  e.g. ,  HSH Nordbank AG v. UBS AG , 95 A.D.3d 185, 194-95 (1st Dept. 2012).  Accord ,  Ashland Inc. v. Morgan Stanley & Co. , 652 F.3d 333, 337-38 (2d Cir. 2011) (“An investor may not justifiably rely on a misrepresentation if, through minimal diligence, the investor should have discovered the truth.”) (internal quotation marks and citation omitted). Plaintiff and the daughter are engaged in divorce proceedings. Slip Op. at *2. Id. Id. Id. Slip Op. at *2.

By: Jonathan H. Freiberger Many times, remedies for the breach of a contract other than monetary damages are necessary to make a plaintiff whole. One such remedy is specific performance. The remedy of specific performance “will not be ordered where money damages would be adequate to protect the expectation interests of the injured party.” Sokoloff v. Harriman Estates Development Corp. , 96 N.Y.2d 409, 415 (2001) (citations and internal quotation marks omitted). Specific performance is an equitable remedy that, instead of awarding money damages to the prevailing party, requires the breaching party to perform under the contract. “Specific performance is appropriate … when ‘the subject matter of the particular contract is unique and has no established market value.’” BT Triple Crown Merger Co., Inc. v. Citigroup Global Markets Inc. , 19 Misc. 3d 1129, *8 (NOR) (Sup. Ct. N.Y. Co. 2008) (quoting Van Wagner Advert. Corp. v. S&M Enters. , 67 N.Y.2d 186, 193 (1986)). “The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead the uncertainty of valuing it….” Van Wagner , 67 N.Y.2d at 193.  The Sokoloff Court also stated that: The decision whether or not to award specific performance is one that rests in the sound discretion of the trial court. In determining whether money damages would be an adequate remedy, a trial court must consider, among other factors, the difficulty of proving damages with reasonable certainty and of procuring a suitable substitute performance with a damages award ( see, Restatement of Contracts § 360). Specific performance is an appropriate remedy for a breach of contract concerning goods that “are unique in kind, quality or personal association” where suitable substitutes are unobtainable or unreasonably difficult or inconvenient to procure ( see, id., comment c ). Sokoloff , 96 N.Y.2d at 415. It is generally accepted that “the equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique.” Alba v. Kaufman , 27 A.D.3d 816, 818 (3 rd Dep’t 2006) (citations and internal quotation marks omitted); EMF General Contracting Corp. v. Bisbee , 6 A.D.3d 45, 52 (1 st Dep’t 2004) (same). In order to be valid, certain contracts for the sale of real property must be in writing to comply with the statute of frauds, New York General Obligations Law 5-703 . As we have previously noted in this BLOG , the statute of frauds provides that “ contract for the ... the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.”New York General Obligations Law 5-703(2). “To satisfy the statute of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.” Nesbitt v. Penalver , 40 A.D.3d 596, 598 (2 nd Dep’t 2007) (citation and quotation omitted). The memorandum may be informal – it can be a series of emails – and therefore in compliance with the statute of frauds “where it identifies the parties, describes the subject property, recites all essential terms of a complete agreement.” O’Brien v. West , 199 A.D.2d 369, 370 (2 nd Dep’t 1993). “If the contract does not contain all the necessary terms, the law presumes that the parties have not reached an agreement as to such terms and, therefore the agreement is fatally flawed and unenforceable.” 3-32 Warren’s Weed New York Property § 32.10. In that instance, or if “it is necessary to resort to parol evidence to ascertain what was agreed to, the remedy of specific performance is not available.” Nesbitt , 40 A.D.3d at 598 (some citation and internal quotation marks omitted). In Madison Trust Co. v. Starwood I, LLC , which was decided on December 18, 2024, the Appellate Division, Second Department, affirmed the dismissal of the plaintiff’s specific performance action due to the insufficiency of the property description. In so doing, the Court stated: To be enforceable, a contract for the sale of real property must be evidenced by a writing sufficient to satisfy the statute of frauds. A writing satisfies the statute of frauds if it identifies the parties to the transaction, describes the properties to be sold with sufficient particularity, states the purchase price and the down payment required, and is subscribed by the party to be charged. While the description of real property in a contract of sale need not be as detailed and exact as the description in a deed, the property must be described with such definiteness and exactness as will permit it to be identified with reasonable certainty. Where the property is described with such definiteness and exactness as will permit it to be identified with reasonable certainty, parol evidence would then be admissible to enable the court to identify precisely the property to which the contract relates. Here, the defendants demonstrated their prima facie entitlement to judgment as a matter of law dismissing the cause of action, in effect, for specific performance of the agreement. The agreement specified that the defendants would convey "part of" the 61.40-acre parcel they owned, without any further description of either the amount or location of the land intended to be conveyed. This vague description did not permit the property to be identified with reasonable certainty, such that the defendants demonstrated, prima facie, that the agreement failed to satisfy the statute of frauds . The strict writing requirement imposed by the statute of frauds for the conveyance of real property can sometimes be overcome when there is partial performance of an oral agreement. See, e.g., S&S Golden Estates, LLC v. New York Golf Enterprises, Inc. , 216 A.D.3d 831, 832 (2 nd Dep’t 2023); Pinkava v. Yurwin , 64 A.D.3d 690, 692 (2 nd Dep’t 2009). Indeed, “ odified in New York’s General Obligations Law, section 5-703(4), the doctrine of part performance is based on principles of equity, and, specifically, recognition of the fact that it would be a fraud to allow one party to a real estate transaction to escape performance after permitting the other party to perform in reliance on the agreement.” Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc. v. Aegis Group PLC , 93 N.Y.2d 229, 235 (1999) (citations and footnote omitted). In order for one to avail itself of the doctrine, the partial performance relied upon must be “unequivocally referable” to the purported oral agreement . Id ; see also Pinkava , 64 A.D.3d at 692, S&S Golden , 216 A.D.3d at 832. “‘Unequivocally referable’ conduct is conduct which is inconsistent with any other explanation.” 745 Nostrand Retail Ltd. v. 745 Jeffco Corp. , 50 A.D.3d 768, 769 (2 nd Dep’t 2008) (citation and some internal quotation marks omitted). The Madison Trust Court rejected the plaintiff’s partial performance argument because “ n light of all of the surrounding circumstances testified to by the parties, the plaintiffs’ $220,000 payment to the defendants was not explainable only with reference to the alleged agreement.” 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. Eds. Note: this BLOG has written numerous articles addressing specific performance of, inter alia , real estate contracts. To find BLOG articles related to specific performance, visit the “ Blog ” tile on our website and enter “specific performance” (or any related topic of interest) in the “search” box. Moreover, the definiteness doctrine requires that promises must be “sufficiently certain and specific” before “the power of the law can be invoked to enforce” same. Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher , 52 N.Y.2d 105, 109 (1981). This BLOG has previously discussed the definiteness doctrine < here =">here"> .

By: Jeffrey M. Haber In International Business Machs. Corp. v. GlobalFoundries U.S. Inc. , 2024 N.Y. Slip Op. 06425 (1st Dept. Dec. 19, 2024) ( here ), the Appellate Division, First Department was asked to consider whether a contractual jury waiver provision applied to a claim for fraudulent inducement where the plaintiff did not seek to void or rescind the subject contracts if it prevailed on its fraudulent inducement claim, but instead attempted to enforce the contracts and collect damages. As discussed below, the Court answered the question affirmatively, holding that the jury waiver provision was not vitiated by the fraudulent inducement claim. The Right to A Jury Trial and Fraudulent Inducement The New York Constitution provides for a right of trial by jury. In effect, “a jury trial is guaranteed: ‘(1) in all those cases to which it would have traditionally been afforded under the common law before 1777, and (2) in all cases to which the Legislature by statute extended a right to a jury trial between 1777 and 1894.’” The right is also codified in CPLR 4101, which provides in part that a jury trial is available in actions in which a party demands “a judgment for a sum of money only,” except when a jury trial has been waived. Nevertheless, parties to a contract can agree to waive the right to a jury trial. Such jury waiver provisions are valid and enforceable. This is so because the courts expect the parties who enter into an unambiguous agreement to be bound by the language they have chosen. The party challenging a jury waiver provision must show an “adequate basis to deny enforcement.” The burden on the challenger is significant because “ he right to trial by jury is a fundamental one,” and “courts indulge every reasonable presumption against waiver.” Contractual jury-waiver provisions are, therefore, “always strictly construed and … should not be easily inferred or extended.” However, where a claim of fraudulent inducement challenges the validity of the agreement, a provision waiving the right to a jury trial arising out of the agreement may not apply. The First Department has taken care to distinguish between actions where the primary claim is fraudulent inducement and the validity of the entire contract is being challenged on the basis of fraud, and actions that do not challenge the validity of the contract but rather seek to enforce the underlying contract by obtaining damages for fraudulent inducement . Where fraudulent inducement is the plaintiff’s primary claim, “ t is of no consequence that the complaint does not contain the word ‘recission’ or expressly state that it challenges the validity of the … agreement” if it is otherwise demonstrated that it is the party’s intent. Both Ambac and MBIA involved numerous material misrepresentations allegedly made to insurers concerning the origination and quality of hundreds of millions of dollars of mortgage loans underlying the securitizations they insured. These misrepresentations were the central issue in both actions, and the plaintiffs alleged breach of various representations and warranties only in the alternative to their fraudulent inducement claim. The First Department held that fraudulent inducement was the plaintiffs’ primary claim, and the extent of the fraud pleaded in the complaints allowed the plaintiffs’ challenge to the validity of the insurance agreements to be inferred. Significantly, where fraudulent inducement is asserted as a defense to a breach of contract action, New York courts have been quicker to infer an inherent challenge to the validity of the contract. As discussed below, IBM falls into the category of enforcement and damages – i.e. , actions that do not challenge the validity of the contract but rather seek to enforce the underlying contract by obtaining damages for fraudulent inducement . International Business Machines Corp. v. GlobalFoundries U.S. Inc. IBM concerned a motion to strike a jury demand with regard to IBM’s claims for fraudulent inducement and promissory estoppel. As discussed, the Court held that the motion court properly granted defendant’s motion to strike the jury demand. From 2013 to June 2015, plaintiff, IBM, and defendant, GlobalFoundries U.S. Inc., a manufacturer of semiconductors, engaged in discussions concerning a collaborative venture whereby IBM would transfer its microelectronics business, including technology, engineers and employees, to GlobalFoundries, along with a sum of $1.5 billion, and GlobalFoundries would develop, manufacture and supply next generation 14nm and 10nm high performance semiconductor chips for IBM. On October 18, 2014, the parties signed a Master Transaction Agreement (“MTA”), which provided the framework for their relationship. Between July 2015 and March 2016, the parties entered into and amended several related agreements in connection with the MTA, including the Technology Cooperation Agreement (“TCA”), the Foundry Supply Agreement (“FSA”), the Albany Cooperation Agreement (“ACA”), and the 10HP Statement of Work (“10HPSOW”) (together, the “agreements”). Each agreement contained or was subject to a jury waiver provision. The MTA’s version of the provision read as follows: WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. The FSA and ACA contained nearly identical provisions. The FSA specifically incorporated “any hereunder” into its jury waiver provision, which included the 10HPSOW. The TCA noted that “ ach party hereby waives any right to a jury trial.” According to IBM, by September 2015, just two months after the July 2015 closing of the transaction, GlobalFoundries began to indicate that it did not intend to develop, manufacture or supply the 10nm high performance chip contemplated by the agreements. By December 2015, GlobalFoundries notified IBM that it did not intend to develop, manufacture or supply the 10nm chip and that it wanted to explore the possibility of amending the agreements to replace the 10nm chip promised with a more advanced 7nm chip. IBM refused at that time to release GlobalFoundries from its contractual obligations. In March 2016, the parties amended the TCA, FSA, and 10HPSOW. Notably, those amended agreements, signed after the dispute as to GlobalFoundries’ commitment to the chips envisioned in the 2014 MTA began to emerge, still contained the broad jury waiver language quoted above. Following the execution of the amended agreements in March 2016, GlobalFoundries continued to represent to IBM that instead of developing the 10nm chip, it would develop a 7nm technology that would satisfy IBM’s technical specifications and needs. As alleged in the complaint, in September 2016, IBM notified GlobalFoundries by email that while it would cooperate with GlobalFoundries’ development plans for a 7nm chip, it expressly reserved all of its rights under all the agreements, including, but not limited to, its rights relating to the performance and development milestones under the TCA, the FSA, and the SOWs. IBM paid GlobalFoundries the second ($500 million) and third ($250 million) monetary installments owed under the contracts in December 2016 and December 2017, respectively. By July 2018, GlobalFoundries had begun intimating to IBM that it might abandon development of the 7nm chip as well, and by August 2018 confirmed as much. Nonetheless, GlobalFoundries continued to develop, manufacture and supply the 14nm chip contemplated by the agreements. On June 8, 2021, after receiving the last of the 14nm chips promised under the agreements from GlobalFoundries, IBM commenced the action, alleging claims against GlobalFoundries for fraudulent inducement , breaches of the MTA, TCA, FSA, 10HPSOW and ACA, and promissory estoppel. After the close of discovery on July 6, 2023, IBM filed its note of issue containing a demand for a jury trial. GlobalFoundries moved to strike the jury demand in its entirety. Initially demanding a jury trial on all claims, on appeal, IBM suggested entitlement to a jury trial only on its fraudulent inducement and promissory estoppel claims. GlobalFoundries moved to strike that jury demand. The motion court granted defendant’s motion. The First Department affirmed. As an initial matter, the Court found that the jury waivers “to which these sophisticated parties agreed” were “very broad”. In this regard, said the Court, “ he parties waived a jury ‘to the fullest extent permitted by applicable law’ and not just for claims at law but for all claims ‘now existing or hereafter arising … whether in contract, tort, equity or otherwise.’” “The parties were crystal clear in their intent that there would be no jury in ‘any legal proceeding directly or indirectly arising out of, under or in connection with this agreement or any of the transactions,’” noted the Court. Consequently, held the Court, “the contractual jury waivers here broad enough by their terms to include IBM’s fraud claim.” The Court also found that IBM’s “primary claim not fraudulent inducement but rather breach of the agreements.” The Court explained that IBM’s “single allegation that GlobalFoundries gave a pre-contractual representation and assurance that it had made a long-term strategic and financial commitment to the development of high-performance chips when, ‘upon information and belief, GlobalFoundries had internal deliberations prior to the July 2015 closing about not proceeding with the development of the 10nm chip’” demonstrated that IBM was not challenging the validity of the agreements. This allegation, noted the Court, was “distinguishable from the multiple allegations of fraud in cases such as Ambac and MBIA .” “When alleging fraudulent inducement,” noted the Court, “a party may ‘elect to either disaffirm the contract by a prompt recission or stand on the contract and thereafter maintain an action at law for damages attributable to the fraud.’” The Court found that IBM ha chosen to affirm the agreements and maintain an action at law for compensatory and consequential damages “on the theory that the defendant’ fraud resulted in a subsisting contract which, on account of the falsity of the representations, is detrimental to them. Under these circumstances, the plaintiffs are not in a position to contend, as they might perhaps contend in an action for recission, that the stipulation waiving a jury trial perished with all the other rights and obligations under the .” Further noted the Court, “‘ hile a party alleging fraudulent inducement that elects to bring an action for damages, as opposed to opting for recission, may, under certain circumstances, still challenge the validity of the underlying agreement in a way that renders the contractual jury waiver provision in that agreement inapplicable to the fraudulent inducement cause of action’, that simply not the situation present here.” The Court explained that “IBM ha repeatedly elected to affirm or stand on the contract after it knew or should have known of GlobalFoundries’ alleged fraud.” Under such circumstances, concluded the Court, “‘ laintiff[] merely to enforce the underlying agreements by obtaining damages for fraudulent inducement, rather than rescind the agreements, and not challenge the validity of the agreements in any manner other than by making factual allegations of fraud in the inducement.’” By contrast, said the Court, “ n Ambac , MBIA , and Countrywide <,> there was nothing to indicate that the plaintiffs elected to affirm the underlying contracts after discovering defendants’ massive fraud.” _________________________________ 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.  N.Y. Const. Art. I, § 2. State v. Myron P. , 20 N.Y.3d 206, 212 (2012) (quoting In re DES Mkt. Share Litig. , 79 N.Y.2d 299, 304 (1992)). Uribe v. Merchants Bank of N.Y. , 227 A.D.2d 141, 141 (1st Dept. 1996). Matter of Port 60 Put-Back Litig. , 36 N.Y.3d 342, 355 (2020) (holding that “ reedom to contract prevails in an arm’s length contract made between sophisticated parties”); Nomura Home Equity Loan, Inc., Series 2006-FM2, by HSBC Bank USA, Nat. Assoc. v. Nomura Credit & Cap., Inc. , 30 N.Y.3d 572, 581 (2017) (“ hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.”). Fordham Univ. v. Mfrs. Hanover Trust Co. , 145 A.D.2d 332, 333 (1st Dept. 1988). Camilleri v. Pena , 21 Misc. 3d 145(A), at *1 (App. Term 1st Dept. 2008); Waldman v. Cohen , 125 A.D.2d 116, 121 (2d Dept. 1987). Shapiro v. Marstone Distributors, Inc. , 40 A.D.2d 878, 878 (2d Dept. 1972); Levy v. New York Majestic Corp. , 3 A.D.2d 477, 479 (1st Dept. 1957). See , e.g. , China Dev. Indus. Bank v. Morgan Stanley & Co. Inc. , 86 A.D.3d 435, 436-437 (1st Dept. 2011); Wells Fargo Bank, N.A. v. Stargate Films, Inc. , 18 A.D.3d 264, 265 (1st Dept. 2005). See , e.g. , Ambac Assur. Corp. v. Countrywide Home Loans Inc. , 179 A.D.3d 518, 520-521 (1st Dept. 2020); Ambac Assur. Corp. v. DLJ Mtge. Capital, Inc. , 102 A.D.3d 487, 487-488 (1st Dept. 2013); MBIA Ins. Corp. v Credit Suisse Sec. (USA), LLC , 102 A.D.3d 488 (1st Dept 2013). See , e.g. , Zohar CDO 2003-1 Ltd. v. Xinhua Sports & Entertainment Ltd. , 158 A.D.3d 594, 594-595 (1st Dept. 2018); Leav v. Weitzner , 268 App. Div. 466, 468 (1st Dept. 1944). Ambac , 102 A.D.3d at 488; MBIA , 102 A.D.3d at 488. See also Countrywide , 179 A.D.3d 518. Federal Housecraft v. Faria , 28 Misc. 2d 155, 156 (App. Term, 2d Dept. 1961) (where a defense “challenges the validity of the writing wherein the jury waiver clause appears … the party resisting the contract should be afforded the privilege of a preliminary trial by jury on the defense of fraud”); see also J.P. Morgan Sec. Inc. v Ader , 127 A.D.3d 506, 508 (1st Dept. 2015); Bank of N.Y. v. Cheng Yu Corp ., 67 A.D.2d 961, 961 (2d Dept. 1979) (in an action on a promissory note, jury waiver vitiated where defendant signed the guarantee but alleged he did not read or understand English and the contents of the agreement were misrepresented to him by the individual codefendant and a bank officer). Slip Op. at *3. Id. Id. Id. Id. at *4. Id. Id. at *4-*5. Id. at *5 (quoting Big Apple Car v. City of New York , 204 A.D.2d 109, 110-111 (1st Dept. 1994)). Id. (quoting Leav , 268 App. Div. at 468). Id. (quoting Zohar , 158 A.D.3d at 594, and citing Ader , 127 A.D.3d at 507-508). Id. Id. at *5-*6 (quoting Zohar , 158 A.D.3d at 595). Id. at *6.

By: Jonathan H. Freiberger This BLOG has previously addressed issues related to proper licensure for contractors and the problems that arise for them if they perform work without a license. See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . As previously noted in prior articles, contractors are frequently required by municipalities to be licensed. Unlicensed home improvement contractors are precluded from collecting payments due from homeowners. Brightside Home Improvements, Inc. v. Northeast Home Improvement Services , 208 A.D.3d 446, 449 (2 nd Dep’t 2022). Indeed, with respect to “consumers,” CPLR § 3015(e) requires that if a business must be licensed by virtue of state or local law, a plaintiff must allege in its complaint “as part of the cause of action, that plaintiff was duly licensed at the time of services rendered” and must contain specific information about the license. See, e.g., Thomas Lavin Construction, LLC v. Epstein , 226 A.D.3d 1059 (2 nd Dep’t 2024); Cunningham v. Nolte , 188 A.D.3d 806 (2 nd Dep’t 2020). The purpose of such licensing legislation was previously described in this BLOG < here =">here"> when we noted that in Millington v. Rapoport , 98 A.D.2d 765 (2 nd Dep’t 1983), in reversing the court below and dismissing plaintiff’s complaint which sought to foreclose a mechanic’s lien, the Court stated: Since the purpose of is to protect the homeowner against abuses and fraudulent practices by persons engaged in the home improvement business, it is well established that the lack of a license bars recovery in either contract or quantum meruit . Since strict compliance with the licensing statute is required, recovery is barred regardless of whether the work was performed satisfactorily or whether the failure to obtain a license was willful. The fact that the homeowner was aware of the absence of a license or even that the homeowner planned to take advantage of its absence creates no exception to the statutory requirement . Millington , 98 A.D. at 766 (citations omitted); see also Callos, Inc. v. Julianelli , 300 A.D.2d 612, 2013 (2nd Dep’t 2002) (“It is well settled that licensing statutes are to be strictly construed and that an unlicensed contractor forfeits the right to recover damages based either on breach of contract or on quantum meruit.”) Section 27-3017(a) of the New York City Administrative Code (Electrical Code), which is not limited to “consumers” or homeowners, prohibits the performance of electrical work in New York City without a license. This furthers the purpose of the Electrical Code, which provides that “ ince there is danger to life and property inherent in the use of electrical energy, the electrical code is enacted to regulate the business of installing, altering or repairing wiring and appliances for electrical light, heat, power, signaling, communication, alarm or data transmission in the city of New York and the licensing of all persons who engage in such business.” New York City Administrative Code § 27-3002 . The significance of the Electrical Code and the strictness with which compliance will be construed was addressed in Electrical Contracting Solutions Corp. v. Trump Village Section 4, Inc. , the subject of a recent BLOG article < here =">here"> . The plaintiff in Electrical Contracting entered into contracts with the defendant to perform electrical work. The plaintiff’s vice president, who held a master electrician’s license, pulled the permits under the name of his own (but different from the Plaintiff) company. The plaintiff’s vice president supervised the electrical work that was performed by the Plaintiff’s own employees. The Second Department dismissed the plaintiff’s contract claim because it was unlicensed and the relationship between the plaintiff and the licensed entity that actually obtained the permit was insufficient to satisfy the requirements of the NYC Administrative Code. On December 18, 2024, the Appellate Division, Second Department, decided Mikoma Electric, LLC v. Otek Builders, Inc. , a case similar to Electrical Contracting . Defendant in Mikoma was a general contractor (“GC”) on numerous projects. GC hired plaintiff Mikoma Technology of Power and Lights Wiring and Control Limited Liability Partnership (“Mikoma Tech”) to perform electrical work on some of the projects and plaintiff Mikoma Electric, LLC (“Mikoma Electric”) to perform electrical work on the remainder of the projects. Mikoma Electric was properly licensed under § 27-3017 of NYC’s Administrative Code and Mikoma Tech was not. “Mikoma Electric obtained the electrical work permits for the projects subcontracted to Mikoma Tech, and the work on those was allegedly performed by Mikoma Electric's employees and supervised by the treasurer of Mikoma Electric … who is a licensed master electrician and works as an electrician for Mikoma Tech.” Mikoma Tech filed a mechanic’s lien and both Mikoma Tech and Mikoma Electrical brought breach of contract claims for, inter alia , failure to pay for the work. The motion court denied GC’s motion to dismiss Mikoma Tech’s claims and to discharge its lien. On appeal, the Second Department found that GC’s motion to dismiss pursuant to CPLR 3211(a)(1) was properly denied “because the printouts from the New York City Department of Buildings's webpage, submitted by the defendants to prove that Mikoma Tech was not a licensed electrical business, do not constitute documentary evidence within the meaning of CPLR 3211(a)(1).” (Citations omitted.) However, the Second Department held that Mikoma Tech’s claims should have been dismissed pursuant to CPLR 3211(a)(7). The Court first noted that licensing statutes should be “strictly construed” and, therefore, cannot “be satisfied by employing or subletting the work to an appropriately licensed person.” (Internal quotation marks omitted.) Thereafter, the Court stated: Here, the complaint, even as supplemented by affidavits from Mikoma Tech's president and , failed to allege that Mikoma Tech was licensed to perform electrical work in New York City. As Mikoma Tech was not licensed to perform electrical work in the City, it may not recover against the defendants under a breach of contract or quantum meruit theory and has forfeited the right to foreclose on mechanic's liens. Mikoma Tech's contention that recovery should not be denied because Mikoma Electric was a duly licensed subcontractor that performed the electrical work is without merit. This Court has previously held that such a relationship is insufficient to permit an unlicensed contractor to recover for work performed in the City. Moreover, that the permits were obtained in Mikoma Electric's and 's names and that may have known that the electrical work permits were issued to an entity other than Mikoma Tech does not bar application of the above rule. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber Two weeks ago, this Blog wrote about an enforcement action involving an investment adviser's former co-chief investment officer who had been charged with running a more than $600 million cherry-picking scheme ( here ). Today, this Blog examines another enforcement action involving a former investment adviser representative, charged with engaging in a fraudulent trade allocation scheme – i.e. , cherry-picking scheme – wherein he benefitted himself in the amount of approximately $170,000.00 in net profits while causing his advisory clients to lose in the aggregate approximately $188,000.00. According to the SEC, from at least June 2019 to mid-April 2022, defendant allegedly allocated profitable trades to his personal and wife’s accounts (together, the “Favored Accounts”), and unprofitable trades to the accounts of his other clients (the “Disfavored Accounts”). To carry out this scheme, defendant engaged in frequent “block trading” – a form of trading in which securities trade orders are placed in one aggregated account ( e.g. , an omnibus or master account), rather than directly in specific client accounts – and then waited at least one day after the trades were executed before allocating them between his client accounts on the one hand, and accounts held by him and his wife on the other hand. By waiting to allocate, said the SEC, defendant could see whether the price of the securities he traded rose or fell after the trades were executed before deciding whether he would assign them to his accounts or to his clients’ accounts. At that point, noted the SEC, defendant disproportionately assigned the profitable trades to his account, and disproportionately allocated unprofitable trades to his clients’ accounts. Specifically, defendant allocated block trades for particular securities to the Favored Accounts on 286 occasions, with a dollar-weighted win rate of approximately 75%.   But during that same period, defendant allocated block trades for particular securities to the Disfavored Accounts on 742 occasions, with a dollar-weighted win rate of approximately only 47%. Prior to receiving a warning from his advisory firm in May 2020, nearly all of defendant’s block trades—well over 90%—were allocated the following day. After receiving the warning, defendant continued to allocate some of his block trades the following day, although more allocations were done on the same day as the trades were executed. The SEC alleged that the disproportionate allocations were not random, but rather reflected defendant’s knowing or reckless favoritism: the average return measured at the time of allocation for the Favored Accounts based on the foregoing was approximately 4.7%. In comparison, the average return at the time of allocation for the Disfavored Accounts was approximately 0.1%. Thus, alleged the SEC, the likelihood that defendant would have earned these returns for the Favored Accounts without cherry-picking, with trade allocations determined by chance, was less than 1%. The SEC alleged that defendant chose to concentrate his trading for his and his clients’ accounts in securities that maximized his opportunity to profit from his cherry-picking scheme: risky, volatile securities, such as leveraged exchange-traded funds (“Leveraged ETFs”) that sought to amplify the returns on underlying indices, as well as volatile, non-leveraged ETFs and other securities based on volatile commodities, such as precious metals and mining. For example, said the SEC, the Leveraged ETFs frequently had rapid and large price movements within a trading day, or from one trading day to the next. By concentrating his trading strategy on those investments, alleged the SEC, defendant was able to take quick profits from large price movements (or avoid large losses) in these securities by waiting a day to allocate them. The SEC maintained that this speculative investment strategy was unsuitable and against the best interests of certain of defendant’s clients, whose financial profile, investment objectives and risk tolerance called for a far more conservative investment strategy. The SEC also brought proceedings against SeaCrest Wealth Management, LLC (“SeaCrest” or “Respondent”), a New York-based investment adviser registered with the Commission, which oversees representatives located in more than two dozen offices around the country. According to the SEC, defendant was a representative of SeaCrest during the period of alleged wrongdoing. The SEC claimed that SeaCrest failed to implement policies and procedures reasonably designed to prevent violations of the federal securities laws, and it failed reasonably to supervise defendant. In addition, the SEC alleged that SeaCrest’s Form ADV brochures negligently included statements about its practices and procedures that were false or misleading in light of SeaCrest’s compliance and supervision failures. Without admitting or denying the SEC’s findings, SeaCrest agreed to settle the charges asserted against it. In that regard, SeaCrest agreed to (a) censure; (b) cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act of 1933, and Sections 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 promulgated thereunder; and (c) pay civil penalties of $375,000.00. A copy of the cease-and-desist order can be found here . The SEC filed the complaint ( here ) against defendant in United States District Court for the Southern District of New York. The SEC charged defendant with violating the antifraud provisions of the federal securities laws and seeks a permanent injunction, a conduct-based injunction, civil monetary penalties, disgorgement, and prejudgment interest. The SEC announced the charges against defendant and the settlement with SeaCrest on December 12, 2024 ( here ). Takeaway It is common for investment managers to use an omnibus account for customer accounts and then purchase or sell for the accounts at the same time in a block trade. After execution, the investment advisor must allocate the block into the constituent client accounts. Because prices fluctuate throughout the day, an investment advisor can determine if the trade is a profit or loss, usually at the end of the day. Armed with such information, an unscrupulous advisor will cherry pick winning or losing trades and allocate them in a preferential manner to favored accounts, such as their own personal accounts, at the expense of disfavored accounts. The enforcement action and settlement discussed above – as well as others ( e.g. , here , here , and here ) – shows the SEC’s continued vigilance in protecting investors from fraudulent allocation schemes. ________________________________ 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. According to the SEC, most of the transactions allocated to Favored Accounts approximated $43 million, while only a fraction of the money (approximately $9 million) was directed into Disfavored Accounts. A dollar-weighted win or loss rate takes into consideration the amount of the investment. The calculation is: total money invested in winning trades/total money invested. Leveraged ETFs are riskier than traditional ETFs in that they seek to deliver multiples of the short-term performance ( e.g. , daily) of the index or benchmark they track. FINRA Regulatory Notice 09-31 ( here ), published in June 2009, warned that leveraged ETFs “are highly complex financial instruments that are typically designed to achieve their stated objectives on a daily basis” and that they “are typically unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” In agreeing to settle, the SEC considered the voluntary remedial acts undertaken by SeaCrest and SeaCrest’s voluntary cooperation with the SEC staff in its investigation of the matter. Trade allocation is commonly performed electronically through order management systems (OMSs), which are designed to make the process more efficient and fair, and prevent errors. The way to prevent cherry-picking is to determine the allocation before the trade is executed and not change it afterward to benefit certain accounts to the detriment of others.

By:  Jeffrey M. Haber In almost every litigation, the question that clients most often ask is whether they can get back their attorney’s fees. As we have explained in past articles ( e.g. , here , here , and here ), attorney’s fees are not generally recoverable in litigation under the “American Rule”. The American Rule “was originally derived from federal legislation passed in 1853 which recognized that ‘losing litigants were being unfairly saddled with exorbitant fees.’” Under the American rule, “attorney’s fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule.” “The American rule is intended to increase ‘free access to the courts’ for those who would otherwise be discouraged from seeking ‘judicial redress of wrongs’ for fear of having to pay a defendant’s attorney’s fees.” As explained by the Court of Appeals, the American Rule “reflects a fundamental legislative policy decision that, save for particular exceptions or when parties have entered into a special agreement, it is undesirable to discourage submission of grievances to judicial determination and that, in providing freer and more equal access to the courts, the present system promotes democratic and libertarian principles.” “In the context of private agreements to avoid the rule, courts have had to determine the intent of vague fee-shifting language and broad indemnification provisions that do not explicitly allow for the prevailing party in an action between contracting parties to collect attorney’s fees.” The Court of Appeals recently addressed this issue, holding that courts examining “broadly worded indemnification provisions”, which “by their nature are intended to cover attorney’s fees in direct party actions,” must hue to the “Court’s exacting standard that the agreement must contain ‘unmistakably clear’ language of the parties’ intent to encompass such actions.” In Hooper Assoc. v. AGS Computers , the plaintiff successfully sued the defendant for breach of contract and, in the same action, also sought reimbursement for its attorney’s fees. The plaintiff relied on an indemnity clause in the parties’ agreement that the defendant would pay for the plaintiff’s “reasonable attorney’s fees”. In rejecting the plaintiff’s claim, the Court of Appeals explained that the parties “failed to define the scope of defendant’s promise” and thus it was necessary to determine whether the clause was limited to fees incurred in a third-party action or a direct suit against the defendant under the contract. The Court reasoned that because the parties were under no legal duty to indemnify, the indemnity clause must be strictly construed to avoid reading into the contract “a duty which the parties did not intend to be assumed.” The Court further explained that because application of that indemnity agreement to direct actions between contracting parties would be contrary to the American Rule, courts “should not infer a party’s intention to waive the benefit of the rule unless the intention to do so is unmistakably clear from the language of the promise.” The Court concluded that the clause was a typical, broadly worded indemnity provision, which referred to subjects that give rise to third-party claims. “None exclusively or unequivocally referable to claims between the parties themselves or support an inference that defendant promised to indemnify plaintiff for counsel fees in an action on the contract.” Thus, the agreement was devoid of language “clearly permitting plaintiff to recover from defendant the attorney’s fees incurred in a suit against defendant.” In Wolf v. Vestra SPV3, LLC , 2024 N.Y. Slip Op. 06232 (2d Dept. Dec. 11, 2024) ( here ), a case in which the issue of entitlement to attorney’s fees was decided using the principals discussed above, the Appellate Division, Second Department reversed a money judgment that included an award of attorneys’ fees because the contract between the parties did not provide for the recovery of attorneys’ fees that resulted from litigation. Wolf concerned an action to recover damages for breach of contract arising from an agreement providing that, inter alia , defendant would purchase plaintiff’s membership interest in a certain company in the event that plaintiff’s employment with that company was terminated for any reason. Plaintiff commenced the action by motion for summary judgment in lieu of a complaint pursuant to CPLR 3213, alleging that defendant refused to purchase her membership interest after her employment was terminated, and also sought an award of attorneys’ fees. In an order entered October 21, 2022, the motion court, among other things, granted that branch of plaintiff’s motion which was for an award of attorneys’ fees and directed plaintiff to submit a money judgment consistent with the order. Subsequently, a money judgment was entered on February 1, 2023, upon the order, in favor of plaintiff and against defendant, representing the amount sought and attorneys’ fees. Defendant appealed, arguing that the agreement at issue did not contain an attorneys’ fees provision. Relying on, inter alia , Sage Systems and Hooper Associates , Defendant explained that there was nothing in the agreement to indicate that the parties bargained for or intended to permit recovery for attorney’s fees between them in an action related to the agreement. In fact, noted defendants, plaintiff did not argue for a statutory basis or court rule for the award of attorney’s fees. The motion court simply awarded such relief, said the defendant. As noted, the Second Department reversed the judgment . The Court noted that “the contract did not provide for the recovery of attorneys’ fees that resulted from the instant litigation.” The Court further noted that “plaintiff failed to establish that a statute or court rule … entitle her to an award of attorneys’ fees.” “Accordingly,” the Court concluded that “the Supreme Court erred in granting that branch of the plaintiff’s motion which was for an award of attorneys’ fees.” ____________________________________ 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. Sage Sys., Inc. v. Liss , 39 N.Y.3d 27, 30-31 (2022) (quoting Alyeska Pipeline Service Co. v. Wilderness Soc’y , 421 U.S. 240, 251 (1975)). This Blog examined Sage , here . Id. at 30-31(quoting Hooper Assoc. v. AGS Computers , 74 NY2d 487, 491 (1989)). Id. (quoting Matter of A.G. Ship Maintenance Corp. v. Lezak , 69 N.Y.2d 1, 5 (1986)). Mighty Midgets, Inc. v. Centennial Ins. Co. , 47 N.Y.2d 12, 22 (1979) (citations omitted). Sage , 39 N.Y.3d at 31. Id. (citing Hooper , 74 N.Y.2d at 492). Hooper , 74 N.Y.2d at 490. Id. at 491. Id. Id. at 492. Id. Id. Id. Defendant’s argument comes from its brief on appeal. Slip Op. at *2. Id. Id. (citing, among other cases, Hooper , 74 N.Y.2d at 492).

By: Jonathan H. Freiberger Today’s BLOG article is about Thorobird Grand LLC v. M. Melnick & Co. , a case decided by the Appellate Division, First Department, on December 12, 2024, and which involves mechanic’s liens. The Facts of Thorobird Plaintiff, as owner, hired defendant M. Melnick & Co., as contractor, on several projects. Pursuant to the parties’ agreement, contractor was required to procure performance and payment bonds from a surety; in this case, defendant Federal Insurance Co. Ultimately, the owner terminated the contractor from the project and notified the surety of that fact. The owner, contractor and surety then entered into a takeover agreement pursuant to which, inter alia , provided that “ s a completing surety and not as a contractor to the Owner, agrees to arrange for the performance and completion of the Work required of under the contract in accordance with the terms and conditions of the Contract and Performance Bond….” To satisfy its obligations under the performance bond, the surety hired the defendant contractor to complete the work “in spite of termination” from the project by the owner. The Owner commenced action against the contractor and the surety for breach of contract with respect to the various agreements to which, respectively, they were parties. The surety and the contractor also filed mechanic’s liens. In the surety’s answer, it asserted counterclaims against the owner for, inter alia , breach of contract and the foreclosure of its mechanic’s liens. The owner subsequently amended its complaint to assert claims against the surety under Lien Law § 39 , for willful exaggeration of its lien, and under Lien Law § 39-a , for damages related to the willful exaggeration. Thereafter, the owner moved for partial summary judgment on its willful exaggeration claim in which it sought the discharge of the surety’s liens and monetary damages. The motion court granted the owner’s motion to the extent of discharging the liens because they were “invalid” because “based on the clear and unambiguous terms of the takeover agreement, the parties intended to retain its status as a surety and not be considered a contractor.” The First Department’s Decision On the surety’s appeal the First Department affirmed and, in so doing, stated: We agree with Supreme Court that the takeover agreement is clear and unambiguous that the parties intended to remain a surety and not be deemed a contractor. It states, in pertinent part, “ s completing surety and not as a contractor to the Owner, agrees to arrange for the performance and completion of the Work required of ” under the terms of the construction contract and performance bond. It further states, “ has entered into this Agreement in order to discharge obligations to the Owner under the Performance Bond,” so “any Work performed by is, therefore, being performed by as a completing surety and not as a contractor of the Owner.” Our reasoning is underscored by the fact that retained to continue working on the project. The Court also declined to award the owner damages because damages under Lien Law § 39-a “are unavailable where, as here, the lien has been discharged for reasons other than willful exaggeration.” (Citations omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. This BLOG has previously addressed issues involving mechanic’s liens. See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Eds. Note: some of the facts recited herein came from the underlying record available on the Court’s NYSCEF system. Construction contracts frequently require contractors to obtain performance bonds. “The purpose of a performance bond is to insure that a contract will be completed consistent with its terms.” U.W. Marx, Inc. v. Mountbatten Surety Co., Inc. , 3 A.D.3d 688, 691 (3 rd Dep’t 2004) (citations omitted). Accordingly, in “the event of a contractor’s default, the surety’s obligation is to either complete the work or to pay the obligee the amount necessary for it to have the contract completed.” Id . (citations omitted). Construction contracts frequently require contractors to obtain payment bonds. The purpose of a payment bond is to make sure that persons furnishing labor and materials to a contractor receive payment for their efforts. Novak & Co, Inc. v. The Travelers Indemnity Co. , 85 Misc.2d 957 , 959 (Sup. Ct. Kings Co. 1976), aff’d , 56 A.D.2d 418 (2 nd Dep’t 1977). This BLOG has previously addressed issues involving the willful exaggeration of mechanic’s liens. See, e.g., < here =">here"> , < here =">here"> and < here =">here"> .