Search Results

By Jonathan H. Freiberger In today’s BLOG we discuss AMK Capital Corp. v. Plotch . , a case decided on June 18, 2024, by the Appellate Division, First Department, that involves, inter alia , an interesting service of process issue. The Court in AMK Capital recognized that the appeal it was deciding is “an issue of apparent first impression – whether CPLR 308(2)’s restrictions prohibiting the inclusion of information indicating that a communication ‘is from an attorney or concerns an action against the person to be served’ on an envelope in which the process is mailed to a place of business apply when the mailing address serves both as a defendant’s residence and place of business.” In deciding the action, the First Department held that “where a defendant’s address serves a dual purpose, a mailing in conformity with CPLR 308(2)’s residential requirement is proper and that the restrictions concerning litigation-related information do not apply.” Legal Issues This Blog has previously addressed issues involving service of process. See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . As explained in prior articles, there are two “components and constitutional predicates of personal jurisdiction.” Keane v. Kamin , 94 N.Y.2d 263, 265 (1999). “One component involves service of process, which implicates due process requirements of notice and opportunity to be heard.” Id. (citations omitted). Even though a defendant may be subject to the jurisdiction of the Court, dismissal may be sought “based on the claim that service was not properly effectuated.” Id. (citations omitted). “The other component of personal jurisdiction involves the power, or reach, of a court over a party, so as to enforce judicial decrees.” Id. (citations omitted). This requires a “constitutionally adequate connection between the defendant, the State and the action” and is beyond the scope of today’s article. Id. (citations omitted). In order for a court to exercise personal jurisdiction over a defendant in a litigation, among other things, defendant must be served with process (typically a summons). The failure to serve process in “strict compliance” with the “statutory methods,” “leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void.”  Nationstar Mortgage, LLC v. Gayle , 191 A.D.3d 1002 (2 nd Dep’t 2021) (citations omitted). The CPLR provides numerous methods for service of process on individuals or different types of entities. See CPLR 307 (State), 308 (natural person), 309 (infant, incompetent or conservatee), 310 (partnership), 310-a (limited partnership), 311 (corporation or governmental subdivision), 311-a (limited liability company) and 312 (court, board or commission). Today’s article focusses on service of process on an individual pursuant to CPLR 308(2), which permits service on a natural person to be made by: by delivering the summons within the state to a person of suitable age and discretion at the actual place of business, dwelling place or usual place of abode of the person to be served and by either mailing the summons to the person to be served at his or her last known residence or by mailing the summons by first class mail to the person to be served at his or her actual place of business in an envelope bearing the legend “personal and confidential” and not indicating on the outside thereof, by return address or otherwise, that the communication is from an attorney or concerns an action against the person to be served , such delivery and mailing to be effected within twenty days of each other;  proof of such service shall be filed with the clerk of the court designated in the summons within twenty days of either such delivery or mailing, whichever is effected later;  service shall be complete ten days after such filing;  proof of service shall identify such person of suitable age and discretion and state the date, time and place of service…. When service is made pursuant to CPLR 308(2), jurisdiction “is not acquired…unless both the delivery and mailing requirements have been strictly complied with.” Jordan-covert v. Petroleum Kings, LLC , 199 A.D.3d 666 (2 nd Dep’t 2021) (citations and internal quotation marks omitted). The Facts of AMK Capital as Related to Today’s Article Defendant borrowed money and pledged its interest in a condominium as security for the repayment of the loan (the “Mortgage”). The Board of Managers of the Condominium Association commenced an action to foreclose its lien on the subject property due to unpaid common charges due to it from the borrower. The resulting judgment of foreclosure and sale provided that the property was being sold subject to the Mortgage. The condominium lien was sold to Plotch, who received a referee’s deed indicating that the deed was subject to the Mortgage. Plotch’s action to quiet title was dismissed due to the clear “subject to” language on, inter alia , the referee’s deed. Subsequently, upon the borrower’s loan default, AMK Capital commenced a commercial foreclosure action to foreclose its interest in the Mortgage. Plotch was served with process pursuant to CPLR 308(2). The process server’s affidavit indicated that the mailing envelope was not marked “personal and confidential” and did not have any markings on it indicating that the mailing was from an attorney or otherwise related to a legal action. However, in actuality, the envelope was not marked “personal and confidential,” but did have some markings indicating the mailing was litigation related. Plotch defaulted in answering the loan foreclosure complaint. The Property was sold pursuant to a judgment of foreclosure and sale and was subsequently resold. Plotch moved to vacate the judgment of foreclosure and sale and the related sales of the property. Plotch argued that the address at which he was served was both a residence and a business address. To the extent that the service address was a business address, Plotch argued that, inter alia , “to the extent the address was his business address, the envelope’s extensive litigation-related information markings violated CPLR 308(2)’s prohibition; and that the violation mandates vacatur of the foreclosure judgment and dismissal of the foreclosure complaint for lack of personal jurisdiction as a matter of law.” The motion court, inter alia , “rejected defendant’s argument that the presence of the litigation-related information on the envelope mandated vacatur and dismissal because the address was his residence….” The First Department affirmed the motion court as to the “mailing” issue, but on different grounds. The First Department’s Decision The Court rejected Blotch’s position that “the business purpose overrides the residential purpose compliance with CPLR 308(2)’s business mailing restrictions is not excused ‘just because the defendant’s place of business happens to be furnished with a bed.’” The Court noted that the “failure to comply with CPLR 308(2)’s mailing requirement is a jurisdictional defect warranting a finding as a matter of law that service thereunder was invalid” (citation omitted) and, therefore, if Plotch’s argument was successful, the action would be dismissed, and the judgment of foreclosure and sale vacated. However, the Court rejected Plotch’s position as “untenable” and stated: This position would improperly render meaningless one provision in favor of the other for no apparent reason other than to benefit one side over the other. That said, a close reading of CPLR 308(2)’s mailing requirements reveals an alternative construction that would resolve this interesting dilemma. The placement of the phrase “last known residence” before the phrase “actual place of business” signals the Legislature’s clear intent to deem mailing to a defendant’s residence to be primary over a place of business. Indeed, the legislative history for the 1987 amendment to CPLR 308(2) strongly supports this reasoning. The amendment providing for mailing to a place of business was to ameliorate the inability to locate a defendant’s residence. Thus, mailing to a residential address is primary over a mailing to a place of business, an option that was intended to be secondary in effectuating service of process. Based on the foregoing, where a defendant’s address is both residential and a place of business, the address may be deemed as a residential one in the affidavit of service, permitting a mailing in accordance with CPLR 308(2)’s residential mailing requirements. Under these circumstances, the mailing at issue herein did not violate CPLR 308(2)’s mailing requirements. Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be, and should not be taken as, legal advice.

By: Jeffrey M. Haber In Noto v. Planck, LLC , 2024 N.Y. Slip Op. 03340 (1st Dept. June 18, 2024) ( here ), the Appellate Division, First Department examined an at-will employee’s decision to refrain from leaving his employment with the company that employed him and whether that decision constituted consideration sufficient to support the formation of a contract. As discussed, the First Department held that such action sufficed. Noto arose from an alleged agreement whereby defendants agreed, but failed, to pay plaintiff commissions and additional equity in the company for his expertise in the media industry. In 2014, plaintiff began working for Planck, LLC (d/b/a Patch Media) (“Patch”) in accordance with an employment agreement signed by plaintiff and Patch’s then-CEO and managing partner. The agreement provided for a base salary, a guaranteed bonus determined as a fixed percentage of said salary, and “10 fully vested Class C Unit(s) of equity in .” The agreement further described plaintiff’s employment as “at-will.” According to plaintiff, after he began working for Patch, Patch’s CEO agreed to provide plaintiff with an additional 75 units of equity in the company but did not reduce this promise to a written document. In 2016, a new CEO took over the reins of the company. Shortly thereafter, the new CEO sought plaintiff’s expertise in increasing Patch’s advertising revenue and agreed to pay plaintiff a ten-percent commission on the gross revenue that Patch received from his “then existing and future sales and revenue partnerships he personally generated.” Plaintiff alleged that he accepted this proposal, but the new CEO and Patch refused to provide written confirmation of the oral agreement for the commissions and later failed to tender the commissions owed. Later in 2016, the former CEO and his partner, who together own DMEP Corporation (d/b/a Hale Global) (“Hale Global”), approached plaintiff to “assist them in their efforts to turn around the financial performance of one of their operating companies” known as Hawking LLC (d/b/a Market News International (“MNI”). They promised that in return for his work, plaintiff would receive a three percent equity interest in MNI. Plaintiff accepted the offer, however, plaintiff did not receive written confirmation of the agreement. According to plaintiff, when pressed for a writing, plaintiff was told “we will get you the agreement, but don’t worry about it, even if I have to pay you out of my own pocket you will receive your equity in Market News.” Despite these assurances, plaintiff alleged that he never received the equity interest in MNI. In June 2022, plaintiff brought suit against defendants, asserting six causes of action over defendants’ failure to, among other things: (1) provide the 75 units of equity in Patch that was promised to plaintiff; (2) pay commissions owed as part of plaintiff’s agreement to increase the company’s advertising revenue; and (3) give the three-percent equity interest in MNI. These causes of action included, among others, breach of contract. Defendants moved to dismiss each cause of action under CPLR 3211, which plaintiff opposed. The motion court granted the motion with regard to the breach of contract claims. As an initial matter, the motion court dismissed plaintiff’s breach of contract cause of action based on the alleged agreements for commissions and for 75 units of equity as against Hale Global and MNI, as they were not parties to the agreements about which plaintiff complained. Additionally, the motion court dismissed plaintiff’s breach of contract cause of action based on the three-percent equity agreement against Patch and MNI, as they were not parties to an agreement about which plaintiff complained. Regarding Patch, the motion court found that there was no exchange of consideration to support plaintiff’s breach of contract claim. Consideration consists of either a benefit to the promisor or a detriment to the promisee. In an “at-will” employment context, consideration may consist of an at-will employee’s decision to continue his employment or to refrain from doing an act that the employee has a legal right to do. In the complaint, plaintiff alleged that he was hired in late January 2014, and that soon thereafter, the CEO “agreed to grant Mr. Noto an additional 75 units of , though Patch never provided any documents or other written acknowledgement.” In the supplemental affidavit submitted in connection with the motion, plaintiff added, “My two equity claims … were intended as further compensation to me for my continued, additional efforts on behalf of Patch, as well as my added responsibilities for MNI.” Defendants contended that these allegations did not indicate a promise from plaintiff to (a) do something which he was not already obligated to do, or (b) forgo certain rights to his legal detriment and, therefore, plaintiff did not allege the existence of a valid agreement for the equity units. More specifically, while acknowledging that an at-will employee's decision to “continue employment” or “refrain from leaving” may constitute valid consideration, defendants argued that plaintiff never offered consideration of that type. Rather, since he had just been hired by Patch, plaintiff was never considering leaving when he was offered the additional 75 units, meaning the “continued, additional efforts” amount to obligations that plaintiff already committed to performing in his employment contract. The motion court agreed with defendants. The motion court explained that “ n the absence of allegations as to how plaintiff’s employment changed—for example, that defendants required plaintiff to take on new responsibilities or a new position, that the work was somehow more demanding or his performance expectations changed—the Court cannot find that, in exchange for the 75 units, plaintiff promised anything other than to perform obligations already expected of him.” The motion court found plaintiff’s argument in opposition—that plaintiff “refrained from resigning,” thereby creating consideration—to be “unpersuasive.” There were no allegations that plaintiff contemplated resigning or believed it to be an option at that time because plaintiff had just begun working for Patch, said the motion court. “Since contracts must be supported by valid consideration to be enforceable, and plaintiff has not sufficiently pled this element of a contract,” concluded the motion court, “defendants have demonstrated entitlement to dismissal of plaintiff’s breach of contract claim based on this alleged agreement.” On appeal, the First Department modified the order against Patch and otherwise affirmed. The Court held that the “motion court should have denied defendants’ motion to dismiss plaintiff’s claim for 75 equity units in Planck, LLC d/b/a Patch Media (Patch) as against Patch.” The Court found that the “complaint, supported by plaintiff’s affidavit, allege that plaintiff was promised 75 equity units in Patch by Patch’s CEO, in part, as consideration to refrain from leaving his employment with the company.” As such, the Court held that plaintiff had “sufficiently pled a cause of action against Patch for breach of contract with respect to the 75 equity units in Patch.” With respect to plaintiff’s claim for 75 equity units in Patch as against MNI and Hale Global and his claim for 3% of MNI as against Patch and MNI, the Court held that the motion court properly dismissed the claims. Like the motion court, the Court found that “plaintiff did not allege that MNI and Hale Global were parties to the oral agreement for 75 equity units in Patch, and did not allege that Patch and MNI were parties to the oral agreement for 3% of MNI.” Accordingly, dismissal of those claims was appropriate. ____________________________ 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. The elements of a cause of action for breach of contract are “the existence of a contract, the plaintiff’s performance thereunder, the defendant’s breach thereof, and resulting damages.” Harris v. Seward Park Hous. Corp. , 79 A.D.3d 425, 426 (1st Dept. 2010). Lebedev v. Blavatnik , 193 A.D.3d 175, 183 (1st Dept. 2021). See Halliwell v. Gordon , 61 A.D.3d 932, 933-934 (2d Dept. 2009); cf Tierney v. Capricorn Investors, LP , 189 A.D.2d 629 (1st Dept. 1993) (no consideration for alleged promise to pay employee compensation greater than that set forth in the employment agreement as plaintiff already obliged to continue employment under written employment contract). Halliwell , 61 A.D.3d at 933. Slip Op. at *1. Id. Id. Id. at *1-*2 (citing Chestnut Holdings of N.Y., Inc., v. LNR Partners, LLC , 106 A.D.3d 575 (1st Dept. 2013), lv. denied , 21 N.Y.3d 866 (2013)). Id. at *1.

By: Jeffrey M. Haber Section 3101 of the Civil Practice Law and Rules (“CPLR”) provides that, in general, “there should be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof” by, among others, a party and its representatives.  The phrase “material and necessary” is “interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity.”   As recognized by the Court of Appeals, the exchange of “material and necessary” information is an important part of litigation. Thus, in order for the disclosure process to be meaningful, and for the purposes of disclosure to be furthered, individuals or entities that are involved, or anticipate being involved, in litigation have a duty to preserve “material and necessary” information. When information is not preserved when it should have been, it is known as “spoliation”.  here,=">here," >here.=">here."> Spoliation “refers to evidence which is destroyed or substantially altered.” “Under the common-law doctrine of spoliation, when a party negligently loses or intentionally destroys key evidence, the responsible party may be sanctioned.” When sanctions are sought for spoliation, a party “must show that the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, that the evidence was destroyed with a culpable state of mind, and that the destroyed evidence was relevant to the party’s claim or defense such that a trier of fact could find that the evidence would support that claim or defense.” “A culpable state of mind for purposes of a spoliation sanction includes ordinary negligence.”  However, when spoliation is based on negligence the party seeking a spoliation sanction is required to “establish that the destroyed evidence was relevant to the party’s claim or defense.” “The nature and severity of the sanction depends upon a number of factors, including … the knowledge and intent of the spoliator, the existence of proof of an explanation for the loss of the evidence, and the degree of prejudice to the opposing party.” The court has broad discretion in determining what, if any, sanction is warranted for spoliation of evidence, including “an order striking out pleadings or parts thereof.” While the striking of a pleading is generally limited to “instances of willful or contumacious conduct,” it may also be warranted where the negligent destruction of relevant evidence leaves a party prejudicially bereft “of the means of proving claim or defense.” The Appellate Division, Fourth Department, addressed the foregoing issues in Buffalo Biodiesel, Inc. v. Blue Bridge Fin., LLC , 2024 N.Y. Slip Op. 03259 (4th Dept. June 14, 2024) ( here ). Plaintiff commenced the action asserting four causes of action arising from allegations that defendant sent an email to a financial services company in which defendant falsely characterized an ongoing legal dispute between the parties. Two of the causes of action were previously dismissed, leaving only plaintiff’s causes of action for libel and tortious interference with business relations. Thereafter, defendant served discovery demands in which it sought, inter alia , copies of all communications between plaintiff and the financial services company. In response, plaintiff advised that it no longer had any such documents in its possession. Plaintiff later revealed that it had failed to issue a litigation hold and that all of its emails were deleted during the pendency of the action, either by plaintiff itself or, upon plaintiff’s approval, by the company hosting its server. Plaintiff attempted to subpoena the deleted emails directly from the financial services company, but that company was no longer operating, and the emails could not be recovered. Defendant moved for sanctions due to the spoliation of evidence. The motion court granted the motion pursuant to CPLR 3126, striking the complaint and dismissing plaintiff’s remaining causes of action with prejudice. Plaintiff appealed. The Fourth Department affirmed. In affirming the motion court’s decision and order, the Court “reject plaintiff’s contention that the court abused its discretion in striking plaintiff’s pleading as a sanction for spoliation of evidence.” The Court found that plaintiff failed “to suspend the routine deletion of its emails during the course of litigation.” Plaintiff’s deletion of the emails, said the Court, “constituted the grossly negligent spoliation of evidence. The Court explained that because the emails had been deleted, whether intentionally of through gross negligence, it could draw an inference that the emails were relevant: Although plaintiff contends that defendant failed to establish the relevance of the deleted emails, “it is the peculiarity of many spoliation cases that the very destruction of the evidence diminishes the ability of the deprived party to prove relevance directly” and, thus, where emails are deleted “either intentionally or as the result of gross negligence, the court properly dr w an inference as to the relevance”. “Thus,” concluded the Court, “on the facts presented in this action, we conclude that the court did not abuse its discretion in striking the complaint.” _____________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. Allen v. Crowell-Collier Publishing Co. , 21 N.Y.2d 403, 406 (1968) (citation omitted). Gilliam v. Uni Holdings , 201 A.D.3d 83, 86 (1st Dept. 2021) (citation omitted). Mahiques v. County of Niagara , 137 A.D.3d 1649, 1650 (4th Dept. 2016) (internal quotation marks omitted)). Phelps-Vachier v. Genovese Drug Stores, Inc. , 207 A.D.3d 582, 583 (2d Dept. 2022) (citations and internal quotation marks omitted);  Teodoro v. C.W Brown, Inc. , 200 A.D.3d 999, 1000 (2d Dept. 2021). Phelps-Vachier , 207 A.D.3d at 583. Id. at 584 (citations and internal quotation marks omitted). Mahiques , 137 A.D.3d at 1651 (internal quotation marks omitted). Miller v. Miller , 189 A.D.3d 2089, 2094 (4th Dept. 2020) (internal quotation marks omitted); see also CPLR 3126(3). Mahiques , 137 A.D.3d at 1651 (internal quotation marks omitted); see Koehler v. Midtown Athletic Club, LLP , 55 A.D.3d 1444, 1445 (4th Dept. 2008); New York Cent. Mut. Fire Ins. Co. v. Turnerson’s Elec. , 280 A.D.2d 652, 653 (2d Dept. 2001). Slip Op. at *1. Id. at *1-*2. Id. at *2 (citing Voom HD Holdings LLC v EchoStar Satellite L.L.C. , 93 A.D.3d 33, 45 (1st Dept. 2012)). Id. (quoting Sage Realty Corp. v. Proskauer Rose , 275 A.D.2d 11, 17 (1st Dept. 2000), lv. dismissed , 96 N.Y.2d 937 (2001)). Id. (quoting Ahroner v. Israel Discount Bank of N.Y. , 79 A.D.3d 481, 482 (1st Dept. 2010)). Id. (citing Sage Realty Corp. , 275 A.D.2d at 18).

By Jonathan H. Freiberger In today’s BLOG we discuss Trento 67, LLC v. One West Bank, N.A. , a case decided on June 12, 2024, by the Appellate Division, Second Department, that involves, inter alia , the statute of limitations/acceleration in mortgage foreclosure actions 1 and Real Property Actions and Proceedings Law (“RPAPL”) 1501(4). 2 The Court in Trento recognized that the appeal it was deciding is “an issue of apparent first impression for an appellate court in this State, namely, whether the statute of limitations for commencing a foreclosure action may be tolled by virtue of the FHA COVID-19 moratorium.” In resolving the issue, the Court held that “the FHA COVID-19 moratorium, which constituted a stay of foreclosures of federally backed mortgages, may indeed toll the statute of limitations for commencing a foreclosure action, and, on the facts of this case, the FHA COVID-19 moratorium did toll the applicable limitations period.”  The Facts of Trento In 2007, non-party Miller borrowed $550,000 from a non-party lender and secured her repayment obligations with a reverse mortgage (the “Mortgage”) on real property in Brooklyn, New York, improved with a two-family dwelling (the “Property”). According to the Mortgage, the lender could accelerate the loan if, inter alia, the borrower died and “the Property is not the principal residence of at least one surviving borrower.” Also, pursuant to the Mortgage, “which bears an FHA case number, the borrower executed a second mortgage on the roperty in favor of the Secretary of HUD.” The borrower died on February 28, 2013. On or before April 4, 2014, the note and Mortgage were assigned to defendant OneWest Bank. OneWest commenced a foreclosure action on April 4, 2014, which was dismissed in April of 2019, because, at the time of commencement, the defendant borrower was deceased. The statute of limitations began to run when the action was commenced. Significantly, the Court noted that “the death of a defendant prior to commencement of a foreclosure action, although rendering such action a legal nullity from its inception, does not revoke or invalidate, or otherwise destroy, the lender’s express invocation of the contractual election to accelerate the debt.” (Citations, internal quotation marks and brackets omitted.) On March 18, 2020, “HUD instituted a 60-day moratorium on the ‘initiation of foreclosures’ and the ‘completion of foreclosures in process’” with respect to FHA insured mortgages. Shortly thereafter, the United States Congress passed the CARES Act, which required “certain forbearances” regarding federally backed mortgages and prohibited servicers of federally backed mortgage loans from availing themselves of certain mortgage foreclosure procedures. HUD extended the FHA COVID-19 foreclosure moratorium to July 31, 2021. On January 20, 2021, one of the borrower’s “heirs-at-law,” conveyed the Property to plaintiff, Trento 67, LLC., who commenced an action pursuant to RPAPL 1501(4) to discharge the Mortgage due to the expiration of the state of limitations. On August 1, 2021, a new action was commenced by the lender to foreclose the Mortgage (the “New Foreclosure Action”). The defendants in the RPAPL 1501(4) action moved to dismiss on the ground that the statute of limitations was “tolled by the FHA COVID-19 moratorium in effect from March 18, 2020, through July 31, 2021, and, thus, the was timely commenced….” Trento 67, the plaintiff in the RPAPL 1501(4) action, cross-moved to consolidate the RPAPL 1501(4) action and the New Foreclosure Action and, upon such consolidation, to compel the acceptance of a late answer in the New Foreclosure Action. The motion court granted the lender’s motion to dismiss the RPAPL 1501(4) action, finding that “the statute of limitations was tolled by the FHA COVID-19 moratorium” and, therefore, the lender timely commenced the New Foreclosure Action. Trento 67’s cross-motion was denied as moot.  The Second Department’s Decision On Trento 67’s appeal, the Second Department affirmed. In so doing, the Court rejected the argument that the moratorium did not apply to reverse mortgages. The Court recognized that, according to RPAPL 1501(4), a party with ‘’an estate or interest” in real property can commence an action to discharge a mortgage upon the expiration of the applicable statute of limitations to foreclose same. The Court further noted that the “expiration of the statute of limitations is an essential element of an action pursuant to RPAPL 1501(4).” (Citation omitted.) The six-year statute of limitations began to run on the accelerated balance upon the commencement of the First Foreclosure Action on April 4, 2014. As to tolling, the Court stated that: s a general matter, " here the commencement of an action has been stayed by a court or by statutory prohibition, the duration of the stay is not a part of the time within which the action must be commenced" ( CPLR 204 ). By this language, CPLR 204(a) provides for a "toll" ( Lubonty v U.S. Bank N.A. , 34 NY3d 250 , 255). A toll suspends the running of the applicable statute of limitations for a finite time period, and the period of the toll is excluded from the calculation of the time in which a plaintiff may commence an action ( see Chavez v Occidental Chem. Corp. , 35 NY3d 492 , 505 n 8; Brash v Richards , 195 AD3d 582 , 582). On March 20, 2020, then-Governor Andrew Cuomo issued Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8), which tolled the statute of limitations for many lawsuits and proceedings in New York due to the COVID-19 pandemic. This toll applied to foreclosures and it was extended through November 3, 2020. This Court has held that Executive Order 202.8 and seven subsequent executive orders constituted a "toll" ( Brash v Richards , 195 AD3d <582 > > at 582; see Espinal v Port Auth. of N.Y. & N.J. , 213 AD3d <101 > >, at 102). The other three Departments of the Appellate Division have followed this Court's holding in Brash v Richards ( see Harden v Weinraub , 221 AD3d 1460 , 1462 <4th dept> ; Gabin v Greenwich House, Inc. , 210 AD3d 497 , 498 <1st dept> ; Matter of Roach v Cornell Univ. , 207 AD3d 931 , 933 <3d dept> ). The Court noted that courts “have recognized the FHA COVID-19 moratorium as a moratorium on foreclosures of federally backed, or FHA-insured, mortgages from March 18, 2020, to July 31, 2021” (citations, internal quotation marks and brackets omitted) and that courts have held that “FHA COVID-19 moratorium constituted a stay applicable to foreclosures of federally backed mortgages.” Accordingly, the Second Department stated:  We agree that the FHA COVID-19 moratorium constituted a stay. Further, consistent with the law in this State that Executive Order 202.8 constitutes a toll ( see Brash v Richards , 195 AD3d at 585), we hold that this stay, in effect from March 18, 2020, to July 31, 2021, tolled the statute of limitations for actions to foreclose federally backed mortgages, including the reverse mortgage at issue herein. The Court also found that it was immaterial that the Property is a two-family dwelling or whether the foreclosure defendants “may be borrowers, heirs, or others.” Footnotes This BLOG has frequently addressed issues related to statute of limitations/acceleration in mortgage foreclosure actions. See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . This BLOG has frequently written about RPAPL 1501(4). See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . 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 On June 11, 2024, the Securities and Exchange Commission (“SEC”) announced ( here ) that it charged the Chief Executive Officer and founder of the now-shuttered artificial intelligence recruitment startup Joonko Diversity, Inc. (“Joonko”), 1 with defrauding investors of at least $21 million by making false and misleading statements about the quantity and quality of Joonko’s customers, the number of candidates on its platform, and the company’s revenue. According to the SEC’s complaint ( here ), Joonko claimed to use artificial intelligence to help clients find diverse and underrepresented candidates to fulfill their diversity, equity, and inclusion hiring goals. To raise money for Joonko, the SEC alleged that Defendant falsely told investors that Joonko had more than 100 customers, including Fortune 500 companies, and provided investors with fabricated testimonials from several companies expressing their appreciation for Joonko and praising its effectiveness. Defendant also allegedly falsely told investors that Joonko had earned more than $1 million in revenue and was working with more than 100,000 active job candidates. 2 When an investor grew suspicious of Defendant’s claims, Defendant allegedly provided the investor with falsified bank statements and forged contracts in an effort to conceal the fraud. According to the SEC, the scheme unraveled in mid-2023 when the investor confronted Defendant, who admitted to forging bank statements and contracts and making false statements about Joonko’s revenue and number of customers. “We allege that engaged in an old school fraud using new school buzzwords like ‘artificial intelligence’ and ‘automation,’” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As more and more people seek out AI-related investment opportunities, we will continue to police the markets against AI-washing and the type of misconduct alleged in today’s complaint. But at the same time, it is critical for investors to beware of companies exploiting the fanfare around artificial intelligence to raise funds.” The SEC filed its complaint in the 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. The SEC is seeking a permanent injunction, civil money penalties, disgorgement with prejudgment interest, and an officer-and-director bar against Defendant. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced ( here ) criminal charges against Defendant ( e.g. , one count of securities fraud and one count of wire fraud). 3 Footnotes On May 24, 2024, Joonko filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. After Defendant made the alleged false and misleading statements about Joonko’s customers and revenue, several investors, including investment banks, who received those statements invested in a series of funding rounds with Joonko. The first round of investments occurred on or about June 1, 2021. A second round took place on or about June 2, 2022. It is important to remember that charges contained in an indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By:  Jeffrey M. Haber Over the years, we have examined a motion for summary judgment in lieu of a complaint under CPLR § 3213 ( see ,  e.g. ,  here ,  here ,  here ,  here , and  here ). Sometimes, the case that we examine involves a guaranty and whether it constitutes an instrument for the payment of money only. See , e.g. , here . A guaranty can be tricky for purposes of CPLR § 3213 because the instrument may include provisions that impose other obligations on the guarantor. Today, we examine DB Auraria, LLC v. Nelson , 2024 N.Y. Slip Op. 03079 (1st Dept. June 6, 2024) ( here ), a case in which the guaranty at issue referenced “other obligations” that the guarantor claimed required denial of the motion for summary judgment in lieu of a complaint. DB Auraria involved a loan that was made in connection with a residential high-rise building in Denver, Colorado.  In connection with the Loan, defendants executed a guaranty in November 2019 (the “Guaranty”). 1 Under the Guaranty, defendants, jointly and severally as the Guarantor, “irrevocably and unconditionally guarantee to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise.”  In Section 1.1 of the Guaranty, defendants “irrevocably and unconditionally covenant and agree that they were liable for the Guaranteed Obligations as a primary obligor.” Section 1.2 of the Guaranty defined Guaranteed Obligations as “all obligations and liabilities of Borrower pursuant to Section 3.1 of the Loan Agreement.” Section 1.3 stated that “ his Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection.” The Loan matured on December 9, 2021, and Borrower failed to repay the outstanding debt. Failure to pay the “Debt” upon maturity is an event of default under Section 8.1(a)(i) of the Loan Agreement.  Subsequently, on June 9, 2022, Borrower filed a voluntary chapter 11 bankruptcy petition. The Borrower’s voluntary bankruptcy filing was an event of default under Section 8.1(a)(vii) of the Loan Agreement as well as a Springing Recourse Event under Section 3.1(c). Borrower became “personally liable for the payment of the Debt” when the Springing Recourse Event occurred. Under Sections 1.1 and 1.2 of the Guaranty, defendants also became liable for the payment of the debt when the Springing Recourse Event occurred.  Plaintiff moved for summary judgment in lieu of complaint against defendants under the Guaranty. The motion court granted the motion. CPLR § 3213 provides for accelerated judgment where the instrument sued upon is for the payment of money only and the right to payment can be ascertained from the face of the document without regard to extrinsic evidence, “other than simple proof of nonpayment or a similar de minimis deviation from the face of the document.” 2 Generally, an action on a guaranty is an action for payment of money only. 3 The same standards that apply to motions for summary judgment under CPLR § 3212 apply to CPLR § 3213 motions. Movant must make a prima facie case by submitting the instrument and evidence of the defendant’s failure to make payments in accordance with the instrument’s terms. 4 “A guaranty may be the proper subject of a motion for summary judgment in lieu of complaint whether or not it recites a sum certain, and the need to consult the underlying documents to establish the amount of liability does not affect the availability of CPLR 3213.” 5 The motion court found that plaintiff established its prima facie entitlement to summary judgment in lieu of complaint with regard to the outstanding principal balance on the notes, the advance, the amount of interest accrued at the regular and default rates, and the exit fee and exit fee interest. The motion court further found that plaintiff submitted sufficient evidence to satisfy the requirements of CPLR § 3213 ( e.g. , the instruments and proof of default). In holding that plaintiff satisfied its burden, the motion court rejected several arguments advanced by defendants.  First, defendants argued that the Guaranty was not an instrument for the payment of money only because it required defendants to perform “all of the ‘Guaranteed Obligations’” under the Loan Agreement, including non-monetary “Other Obligations” under Article V.  The motion court disagreed, holding that the Guaranty qualified as an instrument for the payment of money only regardless of the word “performance” in Section 1.1 of the Guaranty. 6 Second, defendants argued that the motion court should deny the motion and require plaintiff to first seek repayment from the borrower. The motion court rejected the argument, noting that under Section 1.3 of the Guaranty, the Guaranty was a guaranty “of payment and performance and not a guaranty of collection.” Thus, if plaintiff recovered any money from the borrower, any judgment against defendants arising under the Guaranty would be reduced in that amount. Moreover, said the motion court, there would be no risk of “inconsistent rulings,” as defendants asserted. Third, defendants argued that plaintiff’s affiliate breached its duty of good faith and fair dealing by reneging on its promise in a term sheet to provide funding. The motion court rejected the argument, holding that the term sheet was non-binding and did not bear on whether the Guaranty was enforceable, whether defendants and the borrower owed plaintiff outstanding amounts under the Loan Documents, or whether defendants failed to tender payment. On appeal, the First Department affirmed. The Court held that “Plaintiff satisfied its burden on its CPLR 3213 motion for summary judgment in lieu of complaint.” 7 In so holding, the Court found that “Plaintiff submitted the guaranty executed by defendants, the underlying loan agreement, the assignment of the loan agreement and accompanying documents to plaintiff, and evidence establishing the borrower’s default and defendants’ failure to perform under the guaranty.” 8 The Court also found that, “ ontrary to contentions, the guaranty … an instrument for the payment of money only as it unconditionally guarantee the borrower’s obligation to pay its debt.” 9 The Court rejected defendants’ “reliance on the loan agreement’s reference to certain ‘Other Obligations’ to show that the guaranty required performance” because “the loan agreement impose obligations on the borrower and not on defendants as the guarantor.” 10 The Court also rejected defendants’ argument that plaintiff’s affiliate “breached its duty of good faith and fair dealing by reneging on its promise in a ‘term sheet’ to provide funding.” 11 The Court reasoned that “defendants’ unconditional and absolute guaranty preclude such defenses.” 12 “In any event,” said the Court, “the term sheet, which expressly stated that it was nonbinding, ha no bearing on the guaranty or the underlying loan agreement.” 13 Takeaway CPLR § 3213 provides for an accelerated judgment at the outset of the litigation. There are no pleadings, and there is no discovery when a movant seeks summary judgment under CPLR § 3213.  As noted, to obtain judgement pursuant to CPLR § 3213, the movant must demonstrate that its “action is based upon an instrument for the payment of money only or upon any judgment.” When the former is involved, the movant must demonstrate that the other party executed an instrument that contains an unequivocal and unconditional promise to pay the party upon demand or at a definite time and the party failed to pay according to the terms of the instrument.  In DB Auraria , the Court found that the Guaranty was “an instrument for the payment of money only as it unconditionally guarantee the borrower’s obligation to pay its debt.” 14 As such, the Guaranty did not require both payment and performance, which would have made CPLR § 3213 in applicable. It was a “prototypical example of an instrument within the ambit of … < i.e. ,> i.e.,> an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time.” 15 Footnotes Through a series of assignments, plaintiff obtained the Loan Documents, including the two Notes, the Loan Agreement, and the Guaranty. Weissman v. Sinorm Deli, Inc. , 88 N.Y.2d 437, 444 (1996). Cooperative Centrale Raiffesisen-Boerenleenbank, B.A., “Rabobank Intl.,” N.Y. Branch v. Navarro , 25 N.Y.3d 485, 492 (2015). Weissman , 88 N.Y.2d at 444; Matas v. Alpargatas S.A.I.C. , 274 A.D.2d 327, 328 (1st Dept. 2000). Bank of Am., N.A. v. Solow , 19 Misc. 3d 1123(A) (Sup. Ct., N.Y. County 2008). Citing 27 W. 72nd St. Note Buyer LLC v. Terzi , 194 A.D.3d 630, 631-632 (1st Dept. 2021), lv. to appeal denied , 37 N.Y.3d 913 (2021). Slip Op. at *1. Id. (citations omitted). Id. (citations omitted). Id. (citation omitted). Id. Id. Id. Id. (citations omitted). Weissman , 88 N.Y.2d at 444. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger A significant part of commercial business dealings involves the drafting and interpretation of contracts. Accordingly, when disputes arise amongst businesspeople, interpretation of the agreements governing the parties’ relationship becomes a critical aspect of commercial litigation. Rules of contract interpretation, therefore, are a frequent topic addressed in this BLOG. See, e.g., < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . “The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties’ intent.” Greenfield v. Phillies Records, Inc. , 98 N.Y.2d 562, 569 (2002) (citations omitted). “‘The best evidence of what parties to a written agreement intend is what they say in their writing.’” Camuso v. Brooklyn Portfolio, LLC , 164 A.D.3d 739, 741-42 (2 nd Dep’t 2018) ( quoting Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). Accordingly, “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing.” W.W.W. Associates, Inc. v. Giancontieri , 77 N.Y.2d 157, 162 (1990) (citations omitted). Such a rule “imparts stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses, infirmity of memory and the fear that the jury will improperly evaluate the extrinsic evidence.” Id . (citations, internal quotation marks, ellipses and brackets omitted). Further, contracts must be interpreted “as a harmonious and integrated whole so as to give effect to its purpose and intent, and must be construed in a manner which gives effect to each and every part, so as not to render any provision meaningless or without force or effect.” HTRF Ventures, LLC v. Permasteelisa North America Corp. , 190 A.D.3d 603, 607 (1 st Dep’t 2021) (citation and internal quotation marks omitted). Thus, “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.” Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co. , 1 N.Y.3d 470, 475 (2004) (citation and internal quotation marks omitted). Put another way, “courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to include.” Id . (citation and internal quotation marks omitted). This is particularly so where an agreement “is negotiated between sophisticated, counseled business people negotiating at arm’s length.” Global Reinsurance Corp. of America v. Century Indemnity Co. , 30 N.Y.3d 508, 518-19 (2017) (citation and internal quotation marks omitted). On June 6,2024, the Appellate Division, First Department, decided 195 B Owner LLC v. Anthropologie , a landlord/tenant matter that involved the interpretation of the “taking” provision of a commercial lease in light of the COVID-19 pandemic. The petitioner in 195 B Owner was the landlord and the respondent was the tenant under a commercial lease that, inter alia , permitted the tenant to utilize the subject premises “solely as and for the operation of a high-quality retail store selling (and displaying)” goods.” The lease contained a “taking” clause, which, in the event of a temporary taking, permitted a reduction in rent payments and a suspension of lease obligations. The lease defined a “taking” as “occurring when a ‘ enant is denied or deprived of either the use, occupancy and/or enjoyment of the and/or the ability to operate its business thereon or therefrom by action or decree of any lawful power or authority.’” As a result of the COVID 19 pandemic Executive Orders requiring non-essential businesses to “reduce their in-person workforce at any work locations by 100% no later than March 22 at 8 p.m.” (bracket omitted), the tenant closed its store and did not operate as a retail store from March 22, 2020, to June 22, 2020. After the tenant stopped paying rent, the landlord commenced a commercial nonpayment proceeding in New York City Civil Court seeking almost $500,000 in unpaid rent and a warrant of eviction. The Civil Court, inter alia , denied the landlord’s motion for summary judgment finding that there was a taking under the “clear[] and unambiguous[]” “taking” language of the lease in light of the COVID-19 Executive Orders. On appeal, the Appellate Term reversed the Civil Court’s order finding that the record was insufficiently developed to determine if a “taking” had occurred because it was unclear whether the tenant was deprived of all use or occupancy of the space.” On the tenant’s appeal to the First Department, the Court reversed the Appellate Term Order for substantially the same reasons articulated by the Civil Court. After discussing caselaw similar to that which is discussed herein, the Court found that a “taking” occurred. Thus, the Court stated: Affording the words of the lease their plain meaning, a “taking” occurs under the lease in one of two ways: either when the tenant is deprived of “the use, occupancy and/or enjoyment” of the premises, “and/or” when it is deprived of “the ability to operate its business thereon or therefrom.” The phrase “and/or” is commonly used in contracts to reflect “both or either” of a set of conditions or items. Because the Tenant could not operate its business, the Court found a “taking” occurred. Rejecting the landlord’s assertion that such an interpretation would be “absurd, commercially unreasonable or contrary to the reasonable expectations of the parties,” the Court determined that such an interpretation “gives effect to the contract negotiated by sophisticated parties who allocated the risk of a government shutdown of tenant's business operations at the premises to the landlord.” (Citation omitted.) The Court also rejected the landlord’s claim that tenant’s continued use of the Premises to store goods demonstrated that it continued to “operate” its business during the pandemic. In this regard, the Court stated: since the lease describes storage use as only “ancillary” to tenant's “operation of a high-end retail store” selling goods, and only permits storage and office use “together with” the operation of a retail store. Since the Executive Order denied and deprived tenant of its ability to operate its retail store business on the premises, it resulted in a taking under the lease. The Landlord also argued that “retail” also encompasses online transactions. This argument was rejected as well because the subject lease “specifically provides that use of the premises is “solely” limited to “operation of a retail store,” which plainly refers to a brick-and-mortar store located in the premises.” Finally, the Court remanded the case for a calculation of damages reasoning that “ the use of the premises for storage does not negate the finding of a ‘taking’ under the lease, such use might nonetheless factor into damages as the taking provision provides, in relevant part, that ‘the Rent due shall be reduced proportionately by the square footage of the Leased Space which is so affected,’ indicating that some apportionment might be called for.” 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 When parties negotiate an agreement, the terms of which are clear and unambiguous, their writing will be enforced according to its terms. In the event of a dispute, evidence outside the four corners of the document as to what the parties really intended is generally inadmissible. 1 Among the reasons for this rule is to give “stability to commercial transactions ,” and other types of commercial interactions. 2 As the New York Court of Appeals observed, such a rule can safeguard “against fraudulent claims, perjury, death of witnesses … infirmity of memory.…” 3 Notwithstanding, questions arise about the enforceability of promises, commitments and agreements made alongside a commercial transaction. These questions tend to play out in disagreements over the meaning and effect of a contract, where one party attempts to rely on the extra-contractual statements of the other ( e.g. , in emails, telephone calls, or meetings) to support an argument, claim or defense. One way to address such disputes before they happen is to include a “merger clause” or “integration clause,” in the contract or agreement. A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties.  Merger clauses typically are found at the end of a contract or agreement, among the other “boilerplate” provisions, and, as such, are often neglected or ignored during negotiations. Boilerplate merger clauses are generally given little weight by the courts. However, when the merger clause evidences a negotiation by the parties, courts accord such clauses more weight in determining the parties’ intent . In New York, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement. 4 Without such specificity, the courts have allowed extra-contractual evidence to be used to explain the parties’ intent, especially in cases involving claims of fraudulent inducement . 5 Another way to address disputes before they happen is to include a disclaimer clause. A disclaimer clause does what it sounds like: it disclaims reliance on extra-contractual representations. For a disclaimer clause to be enforceable, it must contain language that makes it clear that the parties are not relying on such representations.  A party’s disclaimer of reliance cannot preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party. 6 “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.” 7 There is, however, an exception to the enforceability of an anti-reliance provision – where the defendant has unique or peculiar knowledge of an allegedly misrepresented fact.  Under such circumstances, even a specific contractual disclaimer will not defeat a plaintiff’s contention that it reasonably relied on the misrepresentation. 8 Sometimes disputes arise between the parties to an agreement where one party claims that the other party failed to disclose material information during negotiations of the agreement. This scenario often invokes the common law doctrine of caveat emptor.  Under the doctrine, the courts will not impose liability on a seller of property or assets for failing to disclose information material to the transaction when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment. 9 “If, however, some conduct ( i.e. , more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the .” 10 “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor.” 11 “Where the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him or her of knowing, by the exercise or ordinary intelligence, the truth or the real quality of the subject of the representation, he or she must make use of those means, or he or she will not be heard to complain that he or she was induced to enter into the transaction by misrepresentations.” 12 With the foregoing principles in mind, we examine Suber v. Churchill Owners Corp. , 2024 N.Y. Slip Op. 03020 (1st Dept. June 4, 2024) ( here ). Suber involved the purchase of shares and a lease in a cooperative apartment located in New York City. The contract of sale (the “Contract of Sale”) included, among others, the following provisions: an “as is” clause stating that plaintiff was purchasing the unit in “as is” condition; a disclaimer clause stating that plaintiff was not relying on any representations or warranties of the sellers as to the condition of the premises; and a merger clause.  Plaintiff claimed that asbestos samplings were taken in the building and the lab results showed that the building had asbestos-containing materials. Plaintiff claimed that this information was known to defendants and not disclosed to her.  Plaintiff sued defendants for various causes of action, including fraud and breach of contract. Defendants moved to dismiss the amended complaint. The motion court granted the motions.  On appeal, the Appellate Division, First Department affirmed. The Court held that the “motion court properly dismissed the amended complaint against the sellers of the shares and proprietary lease for the cooperative apartment at issue.” The Court further held that “the sellers no duty to disclose the discovery of asbestos in the building or the related documents under the parties’ contract of sale.” 13 The Court explained that the presence of the “as is” and merger clauses in the Contract of Sale “bar plaintiff’s breach of contract claim. 14 “Moreover,” said the Court, “the specific disclaimers and a merger clause bar claims arising out of reliance on purported representations, such as the fraud , fraud in the inducement, fraudulent concealment, and negligent misrepresentation claims ….”15  The Court rejected plaintiff’s contention that the claims were subject to the special facts doctrine because “the sellers did not owe plaintiff a duty outside the arm’s <-> length transaction.” 16 The Court also found that plaintiff “failed to plead facts that would support a finding of active concealment, as the ‘bare allegation that defendants knew of a latent defect in the conveyed premises insufficient to make out a prima facie claim for fraud based on active concealment.’” 17 Finally, the Court held that plaintiff’s “fraud claims were also properly dismissed” because plaintiff failed “to allege any material misrepresentation.” 18 The Court explained that plaintiff learned of the asbestos condition in the building from a board memorandum three weeks after purchase – fact which plaintiff acknowledged. Armed with such information, the Court held that plaintiff could not complain “that the cooperative defendants somehow concealed or omitted its disclosure.” 19 Footnotes Golden Gate Yacht Club v. Societe Nautique De Geneve , 12 N.Y.3d 248 (2009). W.W.W. Assoc. v Giancontieri , 77 N.Y.2d 157, 162 (1990). Id. See Hobart v. Schuler , 55 N.Y.2d 1023, 1024 (1982); LibertyPointe Bank v. 75 E. 125th St., LLC , 95 A.D.3d 706, 706 (1st Dept. 2012). Danann Realty Corp. v. Harris , 5 N.Y.2d 317, 320-21 (1959); Laduzinski v. Alvarez & Marsal Taxand LLC , 132 A.D.3d 164, 169 (1st Dept. 2015). Basis Yield Alpha Fund v. Goldman Sachs Group, Inc. , 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty , 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch , 81 A.D.3d 419 (1st Dept. 2011). Basis Yield , 115 A.D.3d at 137. Danann Realty , 5 N.Y.2d at 322. Simone v. Homecheck Real Estate Servs., Inc. , 42 A.D.3d 518, 520 (2d Dept. 2007); Razdolskaya v. Lyubarsky , 160 A.D.3d 994, 996 (2d Dept. 2018); Radushinsky v. Itskovich , 127 A.D.3d 838, 839 (2d Dept. 2015). Hecker v. Paschke , 133 A.D.3d 713, 716 (2d Dept. 2015) (internal quotation marks omitted); see also Daly v. Kochanowicz , 67 A.D.3d 78, 92 (2d Dept. 2009). Jablonski v. Rapalje , 14 A.D.3d 484, 485 (2d Dept. 2005); Razdolskaya , 160 A.D.3d at 996. Rojas v. Paine , 101 A.D.3d 843, 845 (2d Dept. 2012). Slip Op. at *1 (citing Stambovsky v. Ackley , 169 A.D.2d 254, 257 (1st Dept. 1991)). Id. (citing TIAA Global Invs., LLC v. One Astoria Sq. LLC , 127 A.D.3d 75, 85 (1st Dept. 2015) (“an ‘as is’ clause in a contract to sell real property will ordinarily bar a claim for breach of contract”); Jarecki v. Shung Moo Louie , 95 N.Y.2d 665, 669 (2001)). Id. (citing Von Ancken v. 7 E. 14 L.L.C. , 171 A.D.3d 440, 441 (1st Dept. 2019), lv. denied , 33 N.Y.3d 912 (2019)). Id. (citing Basis Pac-Rim Opportunity Fund v. TCW Asset Mgt. Co. , 124 A.D.3d 538, 539 (1st Dept. 2015)). Id. (quoting Jee Foo Realty Corp. v. Lemle , 259 A.D.2d 401, 402 (1st Dept. 1999)). Id. at *2. Id. (citations omitted). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.  This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber To state a cause of action for fraud, a plaintiff must allege “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” 1 The allegations must be stated with particularity to satisfy CPLR 3016(b). 2 Thus, the plaintiff must provide sufficient facts to support a “reasonable inference” that the allegations of fraud are true. 3 Conclusory allegations will not suffice. 4 Neither will allegations based on information and belief. 5 Although, CPLR 3016 (b) provides that “the circumstances constituting the shall be stated in detail,” the New York Court of Appeals has “cautioned that section 3016 (b) should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.” 6 Thus, where the facts “are peculiarly within the knowledge of the party charged with the fraud,” and “it would work a potentially unnecessary injustice to dismiss a case at an early stage where any pleading deficiency might be cured later in the proceedings,” dismissal should be denied. 7 Finally, though a fraud must be pleaded with particularity , where the state of mind of the defendant is concerned, a plaintiff may plead it generally, “particularly at the prediscovery stage,” because the “plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind.”8 As the First Department observed, “ articipants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud”; rather, “intent to commit fraud is to be divined from surrounding circumstances.” 9 In today’s Fraud Notes , we examine the foregoing, in particular the scienter element of the claim. Cimen v. HQ Capital Real Estate L.P. , 2024 N.Y. Slip Op. 02888 (1st Dept. May 28, 2024) 10 Cimen arose from defendants’ solicitation of plaintiffs to invest in a limited partnership in certain properties located in Brooklyn, New York. Defendants moved to dismiss, arguing that plaintiffs failed to plead viable claims based on fraud, gross negligence, and breach of fiduciary duty. The motion court granted the motion and the Appellate Division, First Department affirmed. Plaintiffs’ principal allegations of fraud concerned alleged projections and estimates contained in defendants’ Investment Memorandum with respect to (a) renovation rates of apartments in the properties; (b) market rental rates of three-bedroom apartments in the vicinity; and (c) the projected annual vacancy losses.  The motion court held that plaintiffs failed to adequately allege that the foregoing projections were based on actionable factual misrepresentations, or that they did not reflect the views of defendants, with the requisite particularity to sustain a claim for fraud or misrepresentation. Turning to plaintiffs’ claims based on the projected renovation rates, plaintiffs alleged that the Investment Memorandum “falsely stated that an annual turnover rate of 23 apartments per year was in line with the ‘portfolio’s historical natural turnover rate.’” The allegation was based on the fact that “a maximum of only 65 apartments would be available from 2015 through 2018 to effectuate the contemplated” renovations. This was due, in part, to certain apartments being subject to the Home Written Agreement. Plaintiffs noted that “the Investment Memorandum … projected that 92% of the available apartments would be vacated and renovated during such period.” Plaintiffs alleged that, based on the foregoing, defendants “had no reasonable reason to believe that such number would be vacated and renovated.” In rejecting the allegation, the motion court noted that the Investment Memorandum disclosed that the 52 apartment units subject to the Home Written Agreement would not be “candidates for the upgrade strategies” until the program’s expiration in 2018. The motion court held that plaintiffs failed to allege why defendants’ projections, with that disclosure, constituted a misstatement of present fact or lacked a reasonable basis. The motion court concluded that the “challenged statements were ‘not actionable because such projections merely statements of prediction or expectation.’” 11 The motion court also found that “the only support for Plaintiffs’ allegations based on the vacancy loss projections the fact that the actual vacancy losses were higher than those projected.” “This, too,” concluded the motion court, was “insufficient to sustain claims as neither the Amended Complaint nor Plaintiffs’ opposition contain allegations that Defendants knowingly made factual misstatements at the time they were made.” Regarding market rental rates, the motion court found that the allegation was “not based on any alleged arithmetical error but on the fact that the Investment Memorandum utilized apartments which were not representative of the true state of the market.” Such allegations, concluded the motion court, “amount to a disagreement with Defendants’ business judgment and insufficient to sustain a claim based on fraud or misrepresentation.” 12 Further, the motion court held that plaintiffs failed to adequately allege scienter. The motion court found that plaintiffs’ scienter allegations were based on information and belief without any “statement of facts upon which belief based.” 13 As noted, the First Department affirmed. The Court found that the statements concerning vacancy losses were nothing more than “expressions of hope for the future,” which, it held, “do not constitute actionable representations of fact.” 14 The Court explained that a “party does not make an actionable representation of fact when predicting a future event with no knowledge of whether or not the event may occur.” 15 “Thus,” concluded the Court, “to the extent the first and second causes of action (fraud and negligent misrepresentation) were based on the investment memoranda’s understatement of the expected vacancy losses, they were properly dismissed.” The Court also held that plaintiffs failed to adequately allege scienter. 16 The Court noted that “ lthough scienter is the element of fraud that is ‘most likely to be within the sole knowledge of the defendant and least amenable to direct proof, plaintiff is still required to allege facts from which it is possible to infer defendants’ knowledge of the falsity of their statements when they were made.’” 17 The Court found that “ laintiffs allege no such facts; instead, they merely allege , ‘Upon information and belief, HQ either knew that statements . . . were false or made such statements with reckless disregard for determining the truth thereof.’” 18 “An allegation made ‘on information and belief … is insufficient to state claim,’” said the Court. 19 The Court also found plaintiffs’ motive allegations to be insufficient to support their scienter allegations: “an allegation of ‘pecuniary incentive is insufficient to plead scienter.’” 20 The Court rejected plaintiffs’ fraud-by-hindsight allegations as a basis to support their claim of scienter: “To the extent that plaintiffs rely on the fact that the portfolio performed much worse than expected, that is insufficient.” 21 The Court also rejected plaintiffs’ attempt to use gross negligence or recklessness as a basis to support the scienter requirement: Relying on DaPuzzo v Reznick Fedder & Silverman (14 AD3d 302 <1st dept 2005> ), plaintiffs contend that it is sufficient to plead gross negligence or recklessness. However, DaPuzzo said, “In a fraud case against an auditor, a showing of gross negligence or recklessness will permit the trier of fact to draw the inference that a fraud was perpetrated” (id.). HQ is not an auditor. None of the cases in which we have cited DaPuzzo have extended its statement about gross negligence/recklessness to non-auditors. Furthermore, the allegations in DaPuzzo were more indicative of fraud than the ones in the instant action. 22 Chongqing Huansong Indus. (Group) Co. Ltd. v. Kinderhook Indus. LLC , 2024 N.Y. Slip Op. 02887 (1st Dept. May 28, 2024) 23 In Chongqing , plaintiffs, sued Defendant Kinderhook Industries, LLC and its affiliates (collectively, “Kinderhook”) and Defendant Richard Godfrey (“Godfrey”) to recover approximately $60 million allegedly owed to them by non-party Performance Powersports Group, LLC (“PPG”), which Kinderhook acquired from Godfrey in a leveraged buyout of Godfrey’s PPG shares in October of 2021. Plaintiffs sued Kinderhook and PPG in federal court for breach of contract. PPG filed for bankruptcy protection and obtained a discharge of its debts to plaintiffs. Thereafter, plaintiffs sued Kinderhook and Godfrey in New York state court for, inter alia , fraud.  Plaintiffs alleged that Godfrey falsely assured them that Kinderhook would ensure that PPG would honor its debts to plaintiffs. Plaintiffs maintained that the statements were false because PPG was cash poor due to the capital requirements of the leveraged buyout through which Kinderhook acquired control over PPG. Plaintiffs argued that defendants knew that the buyout had depleted PPG’s resources, such that the company could never pay back plaintiffs. They also alleged that defendants knew that Kinderhook had no intention of covering PPG’s contractual obligations.  Defendants moved to dismiss. The motion court granted the motion, holding that plaintiffs failed to plead scienter. The First Department affirmed. The Court held that “the complaint not plead facts sufficient to permit a reasonable inference that the alleged misrepresentations by defendants were made with knowing falsity.”24 The Court explained that “ he allegations of defendants’ attempts to perform on their assurances that all past and future debts of the distributor would be paid by offering payment proposals and making substantial partial payments, including approximately $18 million between October 20, 2021, and November 23, 2021, and $22 million between December 1, 2021, and January 12, 2022, not permit a reasonable inference that defendants knowingly made false representations.” 25 “Given the failure to adequately plead scienter,” concluded the Court, “ claims were properly dismissed.” 26 Footnotes Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 N.Y.3d 553, 559 (2009); Braddock v. Braddock , 60 A.D.3d 86 (1st Dept.), appeal withdrawn , 12 N.Y.3d 780 (1st Dept. 2009). Id. at 559. Id. at 559-60. Id. See Facebook, Inc. v. DLA Piper LLP (US) , 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”). Pludeman v. Northern Leasing, Sys., Inc. , 10 N.Y.3d 486, 491 (2008) (internal quotation marks and citations omitted). Id. at 491-92 (internal quotation marks and citations omitted). See also CPC Intl. v. McKesson Corp. , 70 N.Y.2d 268, 285-286 (1987). Oster v. Kirschner , 77 A.D.3d 51, 55-56 (1st Dept. 2010). Id. at 55-56 (citing Eurycleia , supra). Cimen can be found here . Citing ESBE Holdings, Inc. v. Vanquish Acquisition Partners, LLC , 50 A.D.3d 397, 398 (1st Dept. 2008) (internal citation omitted). Citing Olkey v. Hyperion 1999 Term Tr. Inc. , 98 F.3d 2, 7-8 (2d Cir. 1996). Quoting Bd. of Managers of Beacon Tower Condominium v. 85 Adams St., LLC , 136 A.D.3d 680, 686 (2d Dept. 2016). Slip Op. at *1. Id. (quoting Albert Apt. Corp. v. Corbo Co. , 182 A.D.2d 500, 501 (1st Dept. 1992), lv. dismissed , 80 N.Y.2d 924 (1992)). Id. Id. (quoting MP Cool Invs. Ltd. v. Forkosh , 142 A.D.3d 286, 292 (1st Dept. 2016) (brackets and internal quotation marks omitted), lv. denied , 28 N.Y.3d 911 (2016)). Id. Id. (quoting Elmrock Opportunity Master Fund I, L.P. v. Citicorp N. Am., Inc. , 155 A.D.3d 411, 412 (1st Dept. 2017)). Id. (quoting Jonas v. National Life Ins. Co. , 147 A.D.3d 610, 612 (1st Dept. 2017) (internal quotation marks omitted)). Id. (citing MP Cool , 142 A.D.3d at 292 (“Although the company may not have performed as plaintiff expected, this does not support a reasonable inference that defendants knew that (the company) would fall short of its business projections.”)). Id. at *1-*2. Chongqing can be found here . Slip Op. at *1 (citing Cronos Group Ltd. v. XComIP, LLC , 156 A.D.3d 54, 72 (1st Dept. 2017); FNF Touring LLC v. Transform Am. Corp. , 111 A.D.3d 401, 402 (1st Dept. 2013)). Id. The Court agreed with Godrey, who argued that scienter could not be inferred after substantial partial performance . Id. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jonathan H. Freiberger A notice of pendency, also known as lis pendens , is a provisional remedy available to litigants seeking a judgment that affects title to real property. 5303 Realty Corp. v. O&Y Equity Corp. , 64 N.Y.2d 313 (1984). 1 The rules concerning notices of pendency are found in Article 65 of the CPLR. As the name suggests, a notice of pendency puts the world on constructive notice that an action has been commenced that may affect the title to the property and, accordingly, “ person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party.” CPLR § 6501 . The notice of pendency is a powerful tool because “the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review.” 5303 Realty , 64 N.Y.2d at 320. Also, while CPLR § 6514 permits a litigant to move to cancel a notice of pendency, the “court’s scope of review is circumscribed” and “the likelihood of success on the merits is irrelevant to determining the validity of the notice of pendency.” Id . “To counterbalance the ease with which a party may hinder another’s right to transfer property” the law requires “strict compliance with the statutory procedural requirements.” Id. (citing Israelson v. Bradley , 308 N.Y. 511 (1955)). The ability to file a notice of pendency is deemed to be “an extraordinary privilege” and if “the terms imposed are not met, the privilege is at an end.” Id . Among other requirements, a notice of pendency “is effective only if, within thirty days after filing, a summons is served on the defendant.” CPLR § 6512 ; see also , NYCTL 1999-1 Trust v. Chalom , 47 A.D.3d 779 (2nd Dep’t 2008) (finding a notice of pendency invalid when summons not served within 30 days). Similarly, a notice of pendency is valid for three years from the date of filing and “ efore expiration of a period or extended period, the court, upon motion … for good cause shown, may grant an extension for a like additional period.” CPLR § 6513 . Courts have noted that any request for an extension “must be prior to the expiration of the prior notice” and that this is an “exacting rule” and a “notice of pendency that has expired without extension is a nullity.” Matter of Sakow , 97 N.Y.2d 436, 442 (2002) (citations omitted). Failure to follow the rules regarding notices of pendency could yield harsh results, but for good reason. The New York Court of Appeals has held that “an expired or cancelled notice of pendency may not be refiled on the same cause of action or claim.” Id . at 443. This is known as the “no second chance” rule. There is an exception to the “no second chance” rule relating to mortgage foreclosure actions. Section 1331 of the Real Property Actions and Proceedings Law (“RPAPL”) requires that “at least twenty days before a final judgment directing a sale is rendered, shall file in the clerk’s office of each county where the mortgaged property is situated a notice of the pendency of the action, which shall specify, in addition to other particulars required by law, the date of the mortgage, the parties thereto and the time and place of recording.” In light of RPAPL § 1331, in certain circumstances, strict application of the “no second chance” rule would prevent the entry of a judgment of foreclosure and sale in a mortgage foreclosure action. Accordingly, CPLR 6516 (a), which was enacted to address this conundrum, allows the filing of successive notices of pendency to permit compliance with RPAPL 1331 “notwithstanding that a previously filed notice of pendency in such action or in a previous foreclosure action has expired pursuant to section 6513 of this article or has become ineffective….” See U.S. Bank Trust v. Green-Stevenson , 208 A.D.3d 1202, 1203-04 (2 nd Dep’t 2022); Bank of America, N.A. v. Kennedy , 171 A.D.3d 1285, 1286-87 (3 rd Dep’t 2019). Otherwise, CPLR 6516(c) codified the common law “no second chance rule.” Id . at 1286. Against this backdrop, on May 22, 2024, the Second Department decided Mallek v. Felmine . The plaintiff in Mallek was the contract vendee for the sale of real property who commenced an action solely to recover his down payment. Plaintiff moved to extend the time to serve a notice of pendency that was filed and the defendant, contract vendor, cross-moved to cancel same. The motion court granted plaintiff’s motion and denied defendant’s cross-motion. On defendant’s appeal, the Second Department reversed and, in so doing, stated: Pursuant to CPLR 6501, " notice of pendency may be filed only when 'the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property'" ( Delidimitropoulos v Karantinidis , 142 AD3d 1038, 1039, quoting CPLR 6501). "When the court entertains a motion to cancel a notice of pendency in its inherent power to analyze whether the pleading complies with CPLR 6501, it neither assesses the likelihood of success on the merits nor considers material beyond the pleading itself; 'the court's analysis is to be limited to the pleading's face'" ( Nastasi v Nastasi , 26 AD3d 32, 36, quoting 5303 Realty Corp. v O & Y Equity Corp. , 64 NY2d 313, 321). Here, the complaint, on its face, only asserts causes of action to recover monetary damages and does not seek relief that would affect the title to, or the possession, use, or enjoyment of, the property. As the judgment demanded by the plaintiffs would not affect the title to, or the possession, use, or enjoyment of, the property, the Supreme Court should have granted the defendant's cross-motion to cancel the notice of pendency and denied the plaintiffs' motion to extend the time to serve the notice of pendency on the defendant as academic ( see Delidimitropoulos v Karantinidis , 142 AD3d at 1039; DeCaro v East of E., LLC , 95 AD3d 1163, 1164). (Hyperlinks added). Had the Mallek plaintiff sued for specific performance of the real estate contract, for example, the subject of the action would have affected title to real property and a notice of pendency would have been proper. 2 See, e.g. , Malekan v. 701-709 Chester St, LLC , 139 A.D.3d 913, 914 (2 nd Dep’t 2016); Nina Penina, Inc. v. Njoku , 30 A.D.3d 193, 194 (1 st Dep’t 2006). Footnotes Eds. Note: the background for this article was taken largely from a previous BLOG article related to notices of pendency. Eds. Note: this BLOG has addressed issues related to specific performance of real estate contracts on numerous occasions. See, e.g. , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> , < here =">here"> and < here =">here"> . Jonathan H. Freiber 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 This Blog has posted numerous articles concerning vacatur of an arbitration award under Article 75 of the Civil Practice Law and Rules (“CPLR”). E.g. , here , here , and here . On occasion, we have posted articles concerning vacatur under the Federal Arbitration Action (“FAA”). Today, we revisit vacatur under the FAA through our examination of Matter of Patel v. Macy’s Inc. , 2024 N.Y. Slip Op. 02782 (1st Dept. May 21, 2024) ( here ). Patel involved a petition to vacate an arbitration award (the “Award”) denying petitioner’s claims that respondents discriminated against him based upon his race and national origin and retaliated against him for engaging in protected activity in violation of New York City Human Rights Law (“NYCHRL”). In denying the claims, the arbitrator concluded that there was insufficient evidence to prove that discrimination was one of the motivating factors supporting petitioner’s termination. He also found insufficient evidence of disparate treatment and discriminatory animus.   Petitioner moved to vacate the Award. Respondents filed a counterclaim to confirm the Award. The motion court denied petitioner’s motion and granted respondents’ motion to confirm the Award.  Petitioner appealed, claiming that the arbitrator manifestly disregarded the law with respect to his claims for, inter alia , discrimination and retaliation, and in so doing exceeded his authority. The Appellate Division, First Department affirmed. It is well settled that “courts may vacate an arbitrator’s decision ‘only in very unusual circumstances.’” 1 These circumstances are generally found in Section 10 of the FAA.  Under Section 10 of the FAA, an arbitration award may be vacated: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 2 The grounds set forth above are the exclusive bases for seeking to vacate an arbitral award under the FAA. 3 “A party seeking to vacate an award pursuant to 9 USC § 10(a)(4) ‘bears a heavy burden. t is not enough … to show that the committed an error—or even a serious error.’” 4 Courts “‘consistently accord[] the narrowest of readings’ to this provision of law.” 5 Thus, “ court’s ‘inquiry under § 10(a)(4) … focuses on whether the arbitrator[] had the power, based on the parties’ submissions or the arbitration agreement , to reach a certain issue, not whether the arbitrator[] correctly decided that issue.” 6 Additionally, an “arbitration award may … be vacated under the FAA if it exhibited a ‘manifest disregard’ of the law.” 7 The manifest disregard of law doctrine is, however, is a ‘severely limited’ doctrine. 8 “It is a doctrine of last resort limited to the rare occurrences of apparent ‘egregious impropriety’ on the part of the arbitrators, ‘where none of the provisions of the FAA apply.’” 9 The Second Circuit has indicated that the doctrine requires “more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law.” 10 “The showing required to avoid summary confirmation of an arbitration award is<, therefore,> high, and a party moving to vacate the award has the burden of proof.” 11 To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. 12  “The arbitrators’ interpretation of the issues and the scope of their authority is accorded substantial deference,” and as such, courts “will not overturn the decision unless there is no support at all justifying the decision.” 13 here.=">here." This="This" vacatur="vacatur" under="under" Section="Section" FAA="FAA" >here=">here" and="and"> Against the foregoing principles, the First Department affirmed. The Court rejected “Petitioner’s arguments to the effect that the arbitrator did not give sufficient weight to certain evidence ….” 14 The Court found that the “arbitrator analyzed the evidence submitted during the hearing in a detailed award and applied the proper standard in assessing petitioner’s claims of employment discrimination and retaliation under , including its mandate to construe its protections as liberally as reasonably possible to accomplish its broad and remedial purposes.” 15 “This analysis,” said the Court, “meets the requirement that there be at least ‘a barely colorable justification for the outcome reached.’” 16 The Court further held that vacatur was not “warranted based on the arbitrator’s omission of the ‘cat’s paw’ theory of discrimination from his discussion.” 17 “Even if that theory were clearly applicable,” said the Court, “ here no explicit evidence in the record that … the arbitrator[] believed that applied,” or “any deliberateness or willfulness exhibited within the award that show the arbitrator<’s> intent to flout the law.” 18 “In any event,” noted the Court, “the arbitrator found that petitioner’s immediate supervisor exhibited no discriminatory or retaliatory animus, which consistent with his implicit rejection of petitioner’s cat’s paw theory premised on such animus.” 19 The Court also held that “Petitioner’s arguments as to his retaliation claim … fail to meet the high bar for vacatur.” 20 The Court explained that “ lthough there was evidence from which the arbitrator could have concluded that petitioner intended to assert a protected right in an internal complaint, the arbitrator concluded that respondents ‘did not understand’ petitioner’s complaints to be protected activity, and, even assuming this conclusion was erroneous, there no evidence that the arbitrator deliberately ‘refused to apply’ a legal principle ‘or ignored it altogether.” 21 Finally, the Court rejected petitioner’s arguments that the arbitrator’s credibility determinations were erroneous and, therefore, a basis for vacatur: “To the extent petitioner asserts that the arbitrator should have credited his testimony, rather than that of respondents’ witnesses, his ‘disagreements with the arbitrator’s credibility determinations … not provide a sufficient basis for overturning the award.’” 22 Takeaway The First Department’s analysis in Matter of Patel underscores the difficulties a party faces trying to vacate an arbitration award on any of the enumerated grounds under the FAA and the manifest disregard of the law doctrine. The result is not surprising. In order to promote the arbitral forum and its benefits, judicial review of an arbitration award is limited. For this reason, the FAA not only establishes a high hurdle for vacatur, but through judicial interpretation makes that hurdle very difficult to overcome. Thus, so long as the arbitrator acts within the scope of his/her contractually delegated authority, his/her interpretation of the parties’ contract, including the law and facts related thereto, will prevail even if the court has a better one. Footnotes Oxford Health Plans LLC v. Sutter , 569 U.S. 564, 568 (2013) (citations omitted). 9 U.S.C. § 10(a). 9 U.S.C. § 10; Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 586 (2008). Matter of Nexia Health Techs., Inc. v. Miratech, Inc. , 176 A.D.3d 589, 591 (1st Dept. 2019) (citing Oxford Health Plans , 569 U.S. at 569). This Blog wrote about Nexia Health here . Salus Capital Partners, LLC v. Moser , 289 F. Supp. 3d 468, 477 (S.D.N.Y. 2018). Id. at 477 (quoting DiRussa v. Dean Witter Reynolds Inc. , 121 F.3d 818, 824 (2d Cir. 1997)); see also Matter of Nexia Health Techs. , 176 A.D.3d at 591. McQueen-Starling v. UnitedHealth Grp., Inc. , 654 F. Supp. 2d 154, 161 (S.D.N.Y. 2009). Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules , 867 F.2d 130, 133 (2d Cir. 1989). Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 389 (2d Cir. 2003). Duferco , 333 F3d at 389. The Second Circuit has clarified, in light of Hall Street Assocs. , supra , that it regards the doctrine of manifest disregard of the law as “a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA,” rather than as “a ground for vacatur entirely separate from those enumerated in the FAA.” Stolt-Nielsen SA v. AnimalFeeds Intl. Corp. , 548 F.3d 85, 94 (2d Cir. 2008], rev’d on other grounds , 559 U.S. 662 (2010)). Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp. , 103 F.3d 9, 12 (2d Cir. 1997) (internal citations omitted). Wallace v. Buttar , 378 F.3d 182, 189 (2d Cir. 2004) (quoting Banco de Seguros del Estado v. Mutual Mar. Off., Inc. , 344 F.3d 255, 263 (2d Cir. 2003)). Roffler v. Spear, Leeds & Kellogg , 13 A.D.3d 308, 310 (1st Dept. 2004) (internal citations omitted) (emphasis added). Slip Op. at *1 (citing Matter of Daesang Corp. v. NutraSweet Co. , 167 A.D.3d 1, 20 (1st Dept. 2018), lv. denied , 32 N.Y.3d 915 (2019)). Id. (citing Albunio v. City of New York , 16 N.Y.3d 472, 477-478 (2011)). Id. (quoting Matter of Daesang , 167 A.D.3d at 19 (quoting Wien & Malkin LLP v. Helmsley-Spear, Inc. , 6 N.Y.3d 471, 479 (2006)) (internal quotation marks omitted). Id. Under the cat’s paw theory, “an employee is fired or subjected to some other adverse employment action by a supervisor who himself has no discriminatory motive, but who has been manipulated by a subordinate who does have such a motive and intended to bring about the adverse employment action….” Vasquez v. Empress Ambulance Serv. , 835 F.3d 267, 272 (2d Cir. 2016). Id. (quoting Wien , 6 N.Y.3d at 484) (internal quotation marks omitted). Id. (citing Vasquez , 835 F.3d at 272). Id. Id. at *1-*2 (quoting Wien , 6 N.Y.3d at 481). Id. at *2 (quoting Matter of Jackson v. Main St. Am. Group. , 210 A.D.3d 501, 501 (1st Dept. 2022)). Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jeffrey M. Haber When parties enter into a contract, each assumes that the language in their agreement accurately memorializes their understandings and intentions. For this reason, when a dispute arises, the courts in New York look to the intent of the parties as expressed by the language they chose to put into their writing. 1 A clear, complete document will be enforced according to its terms. 2 When the parties have a dispute over the meaning of their contract, the court first asks if the contract contains any ambiguity. 3 Since New York is a textual jurisdiction (where the courts look to the agreement itself to determine the meaning of the agreement), whether there is ambiguity “is determined by looking within the four corners of the document, not to outside sources.” 4 Thus, courts will examine the parties’ intentions as set forth in the agreement and seek to afford the language an interpretation that is sensible, practical, fair, and reasonable. 5 A contract is not ambiguous if, on its face, it is definite and precise and reasonably susceptible to only one meaning. 6 The “parties cannot create ambiguity from whole cloth where none exists, because provisions are not ambiguous merely because the parties interpret them differently.” 7 Ambiguity exists if the agreement, “read as a whole, fails to disclose its purpose and the parties’ intent …, or when specific language is ‘susceptible of two reasonable interpretations.’” 8 An agreement is unambiguous and should be enforced on its plain terms “if the language it uses has ‘a definite and precise meaning, unattended by danger of misconception …, and concerning which there is no reasonable basis for a difference of opinion.’” 9 “Whether or not a writing is ambiguous is a question of law to be resolved by the courts.” 10 “ xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face.” 11 This rule is especially applicable where the parties are commercially sophisticated and their contract contains a merger clause. 12 Finally, since a “contractual provision that is clear on its face must be enforced according to the plain meaning of its terms,” 13 courts may not “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.” 14 This is especially so “in commercial contracts negotiated at arm’s length by sophisticated, counseled business people.” 15 In Mulacek v. ExxonMobil Corp. , 2024 N.Y. Slip Op. 02724 (May 16, 2024) ( here ), the New York Court of Appeals addressed these fundamental principles of contract interpretation. In doing so, the Court held that the language of the agreement before it was clear and unambiguous and, as a result, barred plaintiff from bringing the action. The plaintiffs in Mulacek were shareholders of InterOil Corporation, a Canadian oil and gas company. Defendants acquired InterOil by paying its shareholders a fee per share and agreeing to make a Contingent Resource Payment (“CRP”) based on an independent appraisal of the volume of resources in certain wells located in Papua New Guinea and calculated pursuant to a formula set forth in a CRP Agreement.  Under the CRP Agreement, InterOil’s shareholders, such as plaintiffs, became “Holders” of receipts evincing their entitlement to a CRP. The CRP Agreement defined Holders of more than 25% of the receipts as “Required Holders” and empowered a “Holder Committee” to act as the Holders’ agent in certain circumstances. The CRP Agreement, in addition to providing for a determination of the volume of resources by an independent appraiser, set forth covenants that defendants would, among other things, ensure that the volume of resources was determined consistent with the procedures set forth in a separate agreement. Section 8.05 provided that those covenants were “in favor of and for the benefit of the Holders.” At the same time, Section 8.05 provided that the Holders had “no rights” under the CRP Agreement, except as “expressly set forth” therein. The sentence that immediately followed provided that “only the Required Holders or the Holder Committee (with Required Holder approval) have the right, on behalf of all Holders, by virtue of or under any provision of this Agreement, to institute any action or proceeding … with respect to this Agreement, and no individual Holder or other group of Holders be entitled to exercise such rights.” Plaintiffs commenced the action alleging that defendants breached the covenants, thereby devaluing the CRP. Defendants moved to dismiss the complaint pursuant to, inter alia , CPLR 3211 (a) (1) and (3) on the ground that, under Section 8.05, only the Required Holders—which plaintiffs were not—and the Holder Committee had standing to commence an action to enforce the covenants. Plaintiffs countered that Section 8.05 was a “no-class-action” clause that barred them only from commencing an action “on behalf of all Holders” but preserved their right to commence an action on their own behalf. Supreme Court granted the motion and dismissed the complaint, and the Appellate Division affirmed. 16 The Court of Appeals affirmed. The Court held that “ ontrary to plaintiffs’ contention, Section 8.05 unambiguously bar them from commencing an action on their own behalf to enforce their third-party beneficiary rights under the Agreement.” 17 The Court explained that “Section 8.05 negate any right of the Holders except as ‘expressly set forth’ therein, and it expressly set[] forth the right of the Required Holders or the Holder Committee to commence certain types of actions or proceedings.” 18 “Nothing in Section 8.05 expressly set[] forth a right of the Holders to commence an action on their own behalf or otherwise,” said the Court. 19 Thus, held the Court, “ he Agreement … ‘explicitly negate ’ any right of plaintiffs to commence an action on their own behalf to enforce the covenants.” 20 The Court also foreclosed any reading that would inject ambiguity into the CRP Agreement. In that regard, the Court held that “ o the extent that any other provisions in the Agreement could be read to imply such a right, Section 8.05’s restrictions on the right to sue prevail ‘ otwithstanding anything to the contrary in th Agreement.’” 21 Finally, the Court noted that “the final sentence of Section 8.05 establishe that enforcement of the covenants ‘ ubject to’ those restrictions.” 22 Takeaway Mulacek underscores the fundamental principle of contract interpretation – i.e. , contracts are to be construed pursuant to the parties’ intention . As the Court explained almost two decades ago, “ he best evidence of what the parties … intend is what they say in their writing.” 23 When the parties’ writing is clear and unambiguous on its face – that is, the terms are reasonably susceptible to only one meaning – it should be enforced according to the plain meaning of those words.  In Mulacek , the Court made clear that, in the context of the underlying transaction, the terms of the agreement were clear and unambiguous. In that regard, the CRP Agreement expressly provided that the right to commence litigation to enforce the covenants in the agreement rested only with the Required Holders or the Holder Committee. As the Court found, “ othing in Section 8.05 expressly set[] forth a right of the Holders to commence an action on their own behalf or otherwise.” 24 In short, Mulacek is a reminder that contracts that say what they mean, mean what they say. Footnotes Ashwood Capital, Inc. v. OTG Mgt., Inc. , 99 A.D.3d 1 (1st Dept. 2012). Id. at 7. Id. Kass v. Kass , 91 N.Y.2d 554, 566 (1998). Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 404 (2009); Abiele Contr. v. New York City School Constr. Auth. , 91 N.Y.2d 1, 9-10 (1997); Brown Bros. Elec. Contr. v. Beam Constr. Corp. , 41 N.Y.2d 397, 400 (1977). White v. Continental Cas. Co. , 9 N.Y.3d 264, 267 (2007). Universal Am. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. , 25 N.Y.3d 675, 680 (2015) (citation and internal quotation marks omitted). Ellington v. EMI Music, Inc. , 24 N.Y.3d 239, 244 (2014). Greenfield v. Philles Records , 98 N.Y.2d 562, 569 (2002); see also Quadrant Structured Prods. Co., Ltd. v. Vertin , 23 N.Y.3d 549, 559-560 (2014). WWW Assocs., Inc. v Giancontieri , 77 N.Y.2d 157, 162 (1990). Id. at 163. Schron v. Troutman Sanders LLP , 20 N.Y.3d 430, 436 (2013) (“where a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”) (citation and quotation marks omitted). Bank of N.Y. Mellon v. WMC Mortg., LLC , 136 A.D.3d 1, 6 (1st Dept. 2015) (citation omitted). Id. (citations omitted). Id. 216 A.D.3d 114, 117-118, 123 (1st Dept. 2023). Slip Op. at *1. Id. Id. Id. (citing Mendel v. Henry Phipps Plaza W., Inc. , 6 N.Y.3d 783, 786-787 (2006)). Id. Id. Slamow v. Del Col , 79 N.Y.2d 1016, 1018 (1992). Slip Op. at *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.